Honeywell Automation - Is this a secular growth story?

Thanks for the collection. :+1:

Are you sure that Honeywell UOP, India in under the listed entity?

A very old article on co siting corp governance issue…

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March Results -
c3f4bb5d-943d-4364-a94b-40726caba50a.pdf (974.4 KB)

Dividend of ₹75 (Previous year - ₹45).

YoY Profit Grew 32.1% but fell 23.2% QoQ.

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I read the link you forwarded. Appreciate writer point of view about multiple subsidiaries and other points. Also appreciate your effort to being this article to forum.

My view on article enclosed: The article is dated on 2010 while today things have improved in case of Honeywell automation (listed company). The reason I have not put more allocation to Honeywell is also due to multiple subsidiaries in India and lack of understanding on my part which Subsidiary would get what business?

However, having said that, despite fully owned subsidiary, substantial portion of sale of Honeywell group is happening through Hownywell automation (listed company) in my understanding nearly 40% sales is software/service to Honeywell global group
Companies by Indian listed company which was less than 5% in 2010. So despite multiple entities, the listed company has benefited from outsourcing from India. If I over simply the results, the main reason for exception top-line and bottom line growth Honeywell automation can be contributed to this outsourcing. If the parent have ulterior motive, they could have easily channelise business through fully owned subsidiaries in my view. Hence, I developed my comfort in the company to invest.

On cashflow being on balance sheet and not being utilised while I ageee to author about same could be productively utilised in business, but that is how many MNCs operate except in FMCG. Most of engineering firm also have to provide for guarantee after completion and this cashes are at times seem as source of fund any unforeseen liabilities arising for any disptute. Something similar I observe even in Pharma MNCs like Pfizer and Glaxo which keep moderately large investment in liquid fund (despite no business requirement) due onDPCO/ NPPA Contingent liabilities. I am not saying that cashflow are best utilised in this approach, but consolidation is at least cashflow generated are kept on balance sheet and not utilised in lower ROCE business or parent support. In cash of whirlpool group, they given money in Indian subsidiary to Brazil group at Libor+ nominal spread. Such practice are really against minority shareholder in my view. At least I take consolation that in Honeywell automation same being not the case.

Disclosure: Among my core holdings, intend to increase allocation at lower prices, not sebi resigtered analyst. Not recommending stock to buy or sell at current valuation. Please do own due diligence before making any investment and valuation provide limited comfort at current level in my view. May change my view and holding without informing the forum.

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Good to know your views and they carry significant weightage because of your disclosure. While I am on lookout of best digital technology plays in India and Honeywell seems to fit the bill, what I want to understand is with all these promotor, subsidiary etc risk (which so far from 2010 have worked in favour of listed entity, but we have no clue at all about next 10 years on this policy of parent), why you still chose Honeywell and not any other listed mnc or indian firm…also any other technology firm that you feel is as strong as honeywell in digital technologies? Thanks

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I tried further to work on associates and other major subsidiaries of Honeywell group in India. Came across intersting Trademark related suit filed by Honeywell Inc. to protect Honeywell Trademark in India. I am enclosing link of same.

In the judgement, Honeywell group presence in India along with key subsidiaries are provided in detail. I feel they would be accurate since same is submission by Honeywell Inc in the Delhi high court.

Key Subsidiaries are as under:

The plaintiff’s presence in India dates back about 8 decades to the 1930’s when the erstwhile Universal Oil Products, part of the plaintiff’s Performance Materials and Technologies Business Group licensed their Dubbs Cracking Process to the Burmah Oil Corporation to produce gasoline at India’s first oil refinery in Digboi, Assam.

The plaintiff (Honeywell Inc.) and its affiliates have been directly present in India at least since the year 1984 and has subsequently expanded its presence in India. Today, the plaintiff employs about 13,000 staff in India through the establishment of various companies inter alia,

a. Honeywell Automation India Limited (HAIL), a member of the Honeywell family of companies was setup in 1984 as a leading provider of integrated automation and software solutions that improve productivity and enhance safety and security of homes and businesses.

b. Honeywell Technology Solutions Lab Pvt. Ltd. (HTSL) formed in 1994, headquartered at Bangalore, is a wholly owned subsidiary of plaintiff. HTSL provides product solutions and analytics, new product introduction, advanced research and technology and IT and business process solutions to the plaintiff’s business across the world. HTSL has operations in Bangalore, Madurai and Pune in India; Beijing and Shanghai in China; Minneapolis and Phoenix in USA; Prague and Brno in the Czech Republic and St. Petersburg in Russia and Bahrain in the Middle East.

c. Honeywell International India Pvt. Ltd. (HIIPL), was established in 1995 and is a wholly owned subsidiary of the plaintiff. HIIPL is a multi-business company with various strategic business units operating out of this entity and employs roughly 13,000 people in India.

d. Honeywell Turbo Technologies Limited (HTTL) was incorporated in 2004 in India and is a part of the plaintiff’s transportation systems business and is a worldwide leader and the leading manufacturer of automotive turbochargers. HTTL is also headquartered in Pune.

https://indiankanoon.org/doc/188770898/

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Many FMCG Industry players are willing to embrace automation.

“Most companies have been shying (away from) automation, which is a one-time large expense, compared to having labour at factories that needs smaller but long-term investment. But we have to invest now so that we avoid such a situation in future, similar to what most factories in the developed world adopted decades ago." said B Krishna Rao, category head at Parle Products.

“We will now closely evaluate each and every part of operations to see how the labour requirement (can be) drastically minimised, especially casual workforce for operations such as packaging, loading and supply chain.” said Angshu Mallick, deputy chief executive of Adani Wilmar.

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Enclosed article provide good insight about global manaufacturing, China dominance and likely shift.

Key point I found interesting is following:
Evidence of the shifting tide can be found in surveys of big companies conducted by ubs, a bank. Among its 1,000-plus respondents, 76% of firms from America, 85% from north Asia (eg, Japan and South Korea) and even 60% from China say they have already moved or plan to move some production away from China. Keith Parker of ubs estimates that companies might shift between 20% and 30% of their Chinese manufacturing capacity. That will not happen overnight, but it will chip away at China’s dominance in manufacturing.

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Chinese exporters may be shifting production to SE-Asian countries (Vietnam) to overcome ‘boycott china’ rhetoric.

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Good news that De-escalation with China has started on the ground after yesterday’s interaction between special envoys of China and India, a sigh of relief for many sectors both importers and exporters from India- at least business as usual would set in …our efforts for self reliance would continue though…

Honeywell automation India exports 50% of its business to China. Post Covid19, not only india but countries like China are likely to take rapid action on industrial Automation, Artificial Intelligence, Machine learning … the objective would be to reduce human foot falls in the industrial sector…( e.g Bajaj Auto reported 150 cases Covid19 positive from its Aurangabad plant today and the labour union seems to have requested the company to close down the works for some more time … Covid19 taught the world what is Virus… virus could spread from human to human and virus is here to stay… Even if we have a vaccination for Covid19 tomorrow…there could be some other virus in some other name day after tomorrow… so unfortunately virus is here to stay…:frowning:…Going by the past history…Ebola, HIV, H1N1,MERS , SARS, Swine…all originated from birds/animals…common flu which we call a seasonal flu is also due to viral infection originated from some unnamed virus…there are 1000’s of such virus associated with animal kingdom… and birds animals are part and parcel of human life…therefore automation is the only future way forward to minimise Human footfalls in Works/ offices / Housing complex)
Honeywell automation India being a well diversified company with expertise in all kinds of Automation, with access to its Parent’s latest technology is likely to be the biggest beneficiary…
While Q1 may be a washout for this company due to Covid19 , but Q2 onwards it is likely to bounce back with good numbers… Company with sound balance sheet, Strong MNC Parentage, Return ratio’s, stock has fallen by 20% from pre- Covid level…

Discl: I am invested in this MNC company…I may be biased in my analysis…it is not a recommendation to buy or sell this stock… I am not a SEBI registered stock adviser…please apply due diligence before investing your Hard earned money…I may be totally wrong in my analysis.

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Hi can you please indicate/share where did you come across this information?

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Hi, what do you mean by export its business? As I understand honeywell automation is into IOT products and services…can you be more specific if you mean that 50% of its clients to whom it provides its products and/or services are from china? Thanks

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Hi can you please direct me specifically where it says the Indian company exports 50% to China? Because, according to me this is incorrect.

From Honeywell parent’s presentations, it is clear that India and China are high growth focus areas for them and they have this East for East policy where demand from the eastern part of the world would be met by the Eastern situated countries (as per their reference point based in USA). So both India and China make and sell for this part of the world.

Further, there could be some sales to China from India because the Parent company has about 5-6 subsidiaries in China and related party disclosures in the Indian company’s AR indicate transactions with them. However there is no mention of the proportion of these sales.

Hence my request to indicate/direct me to where did you get this 50% specifically from.

Majority of the exports business is directed and controlled by the parent company. If there is pressure in USA not to source from China, then business could flow to India. However this is only speculative at this juncture and any corporate entity would look at its economics first before changing supply chains drastically.
Thank you.

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In India, Honeywell automation has two divisions Domestic & exports. The export division is again has two sub-divisions- Global manufacturing business and Global Services business…They export to Honeywell entities outside outside india from both the business- Industrial software and related hardware.
The 50% export break up data is not available in public domain- but the major chunk of exports to China as I came to know from one of my friend working with the company .
Further , please read the last article above where the MD india operation talks about China focus.

" The Primary Strategy of the company is to focus on fast growing market of China and India "

Secondly , 3rd Quater 2020 was excellent , but 4 th quater suffered a bit…please refer 4th quarter result …due to the fact that China Covid19 started in Dec, 2019 and disruption continued all through out the 4th quarter…
Rest my guess is as good as yours :pray:

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Here is one Initiating Coverage report by Jainam Securities published on 13th Jan, 2020.

Jainam Securities _ IC _ 13.01.20.pdf (4.0 MB)

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Honeywell’s March results have always been subdued, yeah but this year, it had steeped a bit too much.

June quarter is best for the company but lockdown must have impacted that too.

Don’t know about PE multiples and whether it deserves so or not, but they are growing pretty well and improving their margins too. But you are right about the increase in profits due to reduced corporate taxes.
High PE multiples may also be due to low float.

It majorly is a B2B company and one of the largest players in Industrial Automation in the country.
With the pandemic, I am optimistic that all it’s core verticals would witness good headwinds once demand picks up.

My biggest concern with Indian subsidiary is that majority of it’s exports (which is now 40-45% of it’s total sales) are merely RPTs with it’s Parent.

We need to see, how they fare in the next 2-3 quarters.

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Found an interesting point from their AR, although they have been mentioning this since few years now.

It’s kinda irksome, since 38% of their sales comes from business with the parent.