Honeywell Automation India

Equity Research INDIA
October 7, 2020
BSE Sensex: 39879
Honeywell Automation India HOLD
ICICI Securities Limited
is the author and
distributor of this report Unique play in domestic automation – initiate
with HOLD Rs32,200
Initiating coverage Honeywell Automation India (HAIL) is a domestic leader in process automation
and pioneer in related technologies. HAIL also has presence in building
Capital Goods automation and has built a global engineering services business, which caters
largely to the parent (US-based Honeywell International Inc.) and its overseas
subsidiaries. Leveraging on the parent’s expertise, HAIL has market leadership in
the domestic oil & gas space, both in the refinery segment and retail stations.
Target price Rs31,400 Export segment has become a major growth driver and this is likely to sustain.
Taking cognisance of the differentiated nature of the export and the domestic
automation segments, we value HAIL at an SoTP-based target price of Rs31,400
Shareholding pattern and initiate coverage with a HOLD rating.
Dec Mar Jun
'19 '20 '20  Top in India oil & gas automation: Leveraging on the parent’s expertise, HAIL has
Promoters 75.0 75.0 75.0 leadership in upstream, downstream and retail automation solutions in the domestic
Institutional
investors 14.7 14.6 14.6 market. It also has leadership in the gas segment and CNG stations. As per our Oil &
MFs and other 14.0 13.6 13.0 Gas analyst Vidyadhar Ginde, around Rs5tn of investments are expected to take
FIs/Banks 0.0 0.0 0.0
Insurance Cos. 0.0 0.3 0.8 place in Indian oil & gas sector over the next 5 years in E&P, refining, marketing,
FIIs 0.0 0.7 0.8 petrochemical, pipelines and CGD.
Others 10.3 10.4 10.4
Source: BSE  Leadership in domestic process automation: HAIL is also engaged in ‘smart city’
solutions in areas of traffic management, etc. Company also has healthy market
share in automation solutions for other process industries such as chemicals, paper,
Price chart sugar, metals, thermal power, etc.
40,000
 Secular growth in exports: Exports witnessed strong growth at 17% CAGR during
35,000
FY16-FY20 and contributed 44% to FY20 revenues. Majority of these exports are
30,000
towards overseas entities related to the parent comprising global engineering
services. We believe, given the low-cost advantage of outsourcing to the Indian entity
(Rs)
25,000
by the parent, HAIL’s export growth trend is likely to continue.
20,000
15,000  Tapping into building automation: HAIL is one of the major players in the domestic
10,000 building automation market. This segment is expected to witness healthy growth
given the focus on security and safety. Additionally, energy optimisation solutions are
Oct-18
Oct-17
Apr-20
Apr-18
Apr-19
Oct-19
Oct-20
evolving as a potential growth area.

 Initiate with HOLD given rich valuation: Given the outsourcing nature of the export
segment, we assign a different multiple for this segment than the domestic segment.
Hence, we value the stock by SoTP methodology. Given the long-term secular growth
drivers in process automation, diversification towards building and cyber security, and
constant improvement in the company’s technical portfolio, we initiate coverage on
HAIL with a HOLD rating despite rich valuation. We assign an SoTP based target
price of Rs31,400 implying a multiple of 60x FY22E earnings to the domestic
business and 30x FY22E to the export business. We assume the percentage
contribution of exports in the earnings to be similar as in the revenues
Market Cap Rs285bn/US$3.9bn Year to Mar FY19 FY20 FY21E FY22E
Reuters/Bloomberg HONE.BO/HWA IN Revenue (Rs mn) 31,747 32,900 33,435 37,536
Shares Outstanding (mn) 8.8 EBITDA(Rs mn) 5,034 6,364 6,517 7,361
Research Analysts: 52-week Range (Rs) 37857/20149 Net Income (Rs mn) 3,588 4,915 5,207 6,024
Renjith Sivaram Free Float (%) 25.0 EPS (Rs) 405.9 556.0 589.0 681.5
[email protected] FII (%) 0.8 P/E (x) 56.4 41.2 38.9 33.6
+91 22 6637 7340
Daily Volume (US$'000) 2,042 CEPS (Rs) 423.9 601.9 637.2 732.1
Vipin Goel
[email protected] Absolute Return 3m (%) 9.3 EV/E (x) 37.8 29.4 27.9 23.8
+91 22 6637 7397 Absolute Return 12m (%) 16.9 Dividend Yield 0.2 0.3 0.2 0.2
Sensex Return 3m (%) 9.0 RoCE (%) 22.8 25.3 21.7 20.6
Sensex Return 12m (%) 7.4 RoE (%) 22.7 25.0 21.5 20.5
Please refer to important disclosures at the end of this report

Honeywell Automation India, October 7, 2020 ICICI Securities
TABLE OF CONTENT
Outlook and valuation ..................................................................................................... 3

Process plant ownership aids HAIL in determining the exact industry challenges . 5
Honeywell Process Solution (HPS) business ................................................................. 7
Diversifying to other industries while maintaining strength in core .......................... 9
Honeywell Building Solutions (HBS) business .............................................................. 11
Building Management Systems (BMS) business .......................................................... 13
Sensing and IoT business ............................................................................................. 16
Stable exports supported by parent ............................................................................ 17
Global services / Manufacturing business .................................................................... 18
Company overview ........................................................................................................ 21
Key risks ......................................................................................................................... 23
Financial highlights ....................................................................................................... 24
Financial summary ........................................................................................................ 25
Index of Tables and Charts ........................................................................................... 26
2
Outlook and valuation

Honeywell Automation India (HAIL) is in a unique position as a secular play in the
domestic process automation opportunity. Exports, majorly global engineering
services, account for 44% of revenues in FY20. Company is also trying to hedge itself
from oil & gas segment by focusing on other areas such as building automation, smart
city solutions, cyber security, etc. Exports have been a major growth driver in the past
4-5 years and this trend is expected to continue. The three major focus areas in the
near term are: (i) Healthcare and pharma (ii) Air quality and hygiene products and
solutions, and (iii) Products and systems to ease remote working & connected
buildings. Long term risk to business includes entry of Chinese and other Asian
players into this market, which may increase the competition and reduce the scope of
improvement in revenues and profitability. We believe the risk from aggressive pricing
strategy by Chinese is likely to get mitigated because of the recent anti-china stance
by the government of India.
Given the diverse nature of its businesses, capabilities and returns of the outsourcing-
based export segment and technology-based domestic process automation segment,
we value the company by SoTP methodology. We assume the percentage contribution
of exports in the earnings to be similar as in the revenues (the company does not
share these data points separately). We assign a multiple of 60x FY22E earnings for
the domestic automation segment and 30x FY22E earnings for the outsourcing-based
export business.
Chart 1: 1-year forward P/E
EV/Sales 1-yr fwd. P/E (x) Mean +1 S.D. -1 S.D.
70 10.00
9.00
60
8.00
50 49.9
7.00
42.8
40 6.00
35.7 5.00
30 4.00
20 3.00
2.00
10
1.00
0 -
May-15
Jan-15
Jan-18
Jun-18
Mar-19
Feb-16
Jul-19
Oct-15
Jul-16
Apr-17
Apr-14
Oct-18
Apr-20
Aug-14
Nov-16
Aug-17
Dec-19
Sep-20
Source: Bloomberg, I-Sec research
Contribution of ‘other income’ to PBT was 14% in FY20 and is likely to increase going
forward due to high cash balance. Hence we believe the stock is fairly valued at
present. Our valuation for the domestic automation business is at a premium to
Siemens (41.6x FY22E earnings) given the contribution from pure automation is at
~25% for Siemens. While for the outsourcing business we assign a premium in
comparison to Infosys (22x FY22E earnings) and TCS (26x FY22E earnings) given the
consultancy and technical heavy nature of the business.
3
Table 1: SoTP valuation
SoTP Contribution (%) FY22E EPS (Rs) Multiple (x) Target price
Domestic 54 365 60 21,913
Export 46 316 30 9,487
Total 681 31,400
Source: Company data, I-Sec research
Table 2: 10-year reverse DCF implies EBITDA CAGR of 23.8% vs. historical
CAGR of 17.5%
Particulars
Cost of Equity (%) 11.5
Terminal growth rate (%) 5.0
Discounted interim cash flows (Rs mn) 92,249
Discounted terminal value (Rs mn) 1,92,751
Total equity value (Rs mn) 2,85,000
Value per share (Rs) 32,200
EBITDA CAGR growth to achieve over FY20-30E (%) 23.8
EBITDA CAGR growth over CY10-FY20 (%) 17.5
Source: Company, I-Sec research
After assuming cost of equity of 11.5% and terminal growth of 5%, for 10-year reverse
DCF, we arrive at discounted cash flows of Rs92bn and terminal value of Rs193bn
and for 20-year reverse DCF, we arrive at discounted cash flows of Rs143bn and
terminal value of Rs142bn resulting in total equity value at Rs285bn.
Table 3: 20-year reverse DCF implies EBITDA CAGR of 15.5%

Particulars
Cost of Equity (%) 11.5
Terminal growth rate (%) 5.0
Discounted interim cash flows (Rs mn) 1,42,748
Discounted terminal value (Rs mn) 1,42,252
Total equity value (Rs mn) 2,85,000
Value per share (Rs) 32,200
EBITDA CAGR growth to achieve over FY20-40E (%) 15.5
Source: Company, I-Sec research
By reverse DCF methodology, the current market capitalization of ~Rs285bn

implies EBITDA growth of 15.5% over FY20-FY40E and 23.8% over FY20-FY30E,
which we believe is very optimistic. Historically, over a low base, EBITDA CAGR
has been 17.5% during CY10-FY20.
4
Process plant ownership aids HAIL in determining

the exact industry challenges
Industrial automation encompasses several classes of equipment across many
industries. Products are oriented along three categories:
 Process – Continuous process control applications as in chemical, oil & gas,
power generation, waste water management, etc.
 Discrete – Job work and batch production applications as in automotive industry,
electronics, fabricated metals, plastics and packaging, etc.
Table 4: Industry classification
Process Industries Hybrid Industries Discrete Industries
Oil and Gas Glass Automotive
Chemicals Pharma Electronics
Water and wastewater Food and Beverages Packaging machinery
Cement Pulp & Paper Machine building
Metals and Mining Fiber Additive manufacturing
Power Generation Tire Robotics
Refineries Batteries Machine tools
Material handling equipment
Aerospace
Textile machinery
Source: I-Sec research
Table 5: Industrial automation equipment

Motor & Motor Automation Equipment
Control Equipment
Discrete Controllers &
Motors & Generators Process Control
Visualisation
Fractional AC Motors Computer Numerical Controllers Distributed Controller
Fractional Brushed DC Motors I/O Modules Process & Temperature Controllers
Fractional Brushless DC Motors PLCs Process Instrumentation Devices
Integral AC Motors (LV) Embedded Computer Process Safety Equipment
Integral DC Motors (LV) Boards, Modules & Systems
Low power Generators Networking Infrastructure Devices Switchgear
Medium power Generators Industrial PCs MCB & RCDs
High Power Generators Operator Terminals Electro-Mechanical Relays
Medium Voltage Motors Position Control Hardware Solid State Relays
Servo Motors Remote Terminal Units Electronic Control Relays
Stepper DC Motors Machine Vision Hardware Industrial Pushbuttons
Discrete Safety Equipment Air Circuit Breakers &
Motor Controls Moulded Case Circuit Breakers
AC Drives (LV)
Brushed DC Drives
Brushless DC Drives
Medium Voltage Drives
Servo Drives
Stepper DC Drives
Soft Starters & MCCs
Source: IHS Markit, I-Sec research
Process automation: Process automation reduces the need for plant operators to
physically monitor performance values and the quality of outputs to determine the best
settings on which the production equipment can run. Process automation involves
using sensors, actuators, computer technology and software engineering to help
power plants and factories in oil & gas, chemicals, paper, mining and cement sectors
to operate more efficiently and safely.
 Sensors are installed around the plant that collect data on variables such as
temperatures, pressures, flows, liquid analysis, gas analysis.
 The information is stored and analysed and the entire plant, or each piece of
production equipment, can be monitored from a control room. A computer program
5
uses measurements to show not only how the plant is working, but to simulate
different operating modes and find the optimal strategy for the plant.
 The controls are done using PLC, SCADA or DCS and communication is either
through wire or wireless.
 PLM software is used to automate the management of product-related data and
integrate the data with other business processes such as enterprise resource
planning (ERP) and manufacturing execution system (MES).
 Indian public sector companies prefer to store data in their own servers rather than
on cloud to safeguard from data protection-related risks.
Key players in the domestic process automation market are: Honeywell
Automation India, Emerson, Endress + Hauser, Yokogawa, Siemens India.
Discrete automation: Discrete automation is used for processes in which the finished
component can be measured and each process creates a quantifiable or countable
part. This type of automation focuses on assembling high-quality engineered
components (sub-assemblies) into a more-efficient final product. Materials are often
moved manually in such a ‘high touch’ manpower environment. The main task in a
continuous plant is process regulation while for discrete plants the main task is
represented by plant command. At the ‘control level’, different types of controllers /
supervisors (such as IPCs or PLCs) are connected together and the underlying
‘sensor level’ provides the link with individual devices. Key players in discrete
automation in domestic market are Siemens India, Rockwell Automation, B&R
Automation, Beckhoff, Mitsubishi Electric.
HAIL is more focused on process automation than discrete and has its own
process plant overseas, hence it knows exactly what the challenges faced by
the industry are.
Consequently, the company has introduced new process solution offerings like IIoT-
based unified suite of software operations. Its offerings include distributed control
systems (DCS), transmitters, programmable logic controllers, emergency shutdown
systems (ESD), quality control systems (QCS), advanced software solutions, IIoT
solutions, and comprehensive lifecycle services.
Strongly placed in oil & gas industry: Honeywell is strongly positioned in the oil &
gas industry, hence its domestic growth is expected to witness good traction
supported by a healthy oil & gas project pipeline in terms of LNG terminals, refinery /
petchem capex, gas pipelines, etc. Greenfield opportunities from refining and
petrochemicals are better and the management expects good opportunities from the
government’s BS-IV to BS-VI fuel regulation projects.
 While most of the industries served by HAIL are capital-intensive, the top sectors
for the company are oil & gas, construction, infrastructure and transportation.
 Whereas Siemens’s strengths are in power plant and transmission, HAIL’s is in
hydrocarbon processes, hence it is more focused on process automation than
discrete. In oil &gas process industries, HAIL competes with Japan’s Yokogawa.
 Of a typical refinery order value of US$4bn-5bn, automation accounts for 0.5-1%.
 Approximately 50% of HAIL’s employees are software engineers. This plays into
its key strength of being experts in O&G industry having strong domain
knowledge. Company has done some large O&G orders in the Middle East.
6
Honeywell Process Solution (HPS) business

This segment provides Industrial automation products and solutions including process
control, process safety, process optimisation, process simulation, connected IIoT
solutions, and industrial cyber security. The segment serves the core industrial sectors
of refining, oil & gas, pulp and paper, metal and cement, etc. Apart from its core
industry, the company also plans to explore new industries including pharmaceuticals
and specialty chemicals
Chart 2: HPS offerings
 Automation and control systems for process industries

 Lifecycle services
 Advanced solutions – simulation, optimisation
 Field instrumentation and solutions
Table 6: Honeywell International Inc. (HON) presence in HPS (Honeywell Process Solution) and UOP
(Universal oil products)
Upstream Midstream Downstream & Petrochemicals
 Refinery of the future for

 Heavy oil upgrading
 Clean, separate, condition gas for petchem integration
 Natural gas cleaning  Clean fuels technology
UOP liquefaction  Catalysts and absorbents
and separation  Advanced fuels platform
 Modular plants for gas production  Process licensing and key
 Outcome based services
equipment
 Productivity and  Storage and pipeline SCADA solutions
 Leading automation and safety solutions
safety  Fiscal metering
HPS  Fire and gas solutions
 Automation control  Marine and terminal storage, metering
 Infinite longevity/migration services
systems and information systems
 Process optimisation diagnostics and services
 Lifecycle technology planning and support
Connected  Asset performance monitoring
outcomes  Mobile business productivity tools and services
 Risk reduction
 Cyber security services
7
Honeywell International Inc. (HON) is present in both UOP (Universal oil products) and
Honeywell process solutions (HPS) businesses, however HAIL is present only in HPS.
UOP operates as a separate private entity in India. HAIL continues to be the
beneficiary of HPS Global’s investment in technology for new products and
solutions, which invariably helps HPS India to strengthen its competitive
position.
Honeywell Connected Plant (HCP) – This is an IIoT-based unified suite of software

applications, which enable manufacturers and process industries leverage data and
insights to improve the efficiency and profitability of their operations.
HCP offerings include distributed control systems (DCS), transmitters, programmable

logic controllers, emergency shutdown systems (ESD), quality controls systems
(QCS), advanced software solutions, IIoT solutions, and comprehensive lifecycle
services. Introduced in 2017, HCP portfolio enables:
 Industrial cyber security: It is a solution that provides a single view for

operations, IT and leadership teams to monitor, measure and manage cyber
security across the enterprise. It includes Secure Media Exchange (SMX), which
gives operators control and visibility into the secure use of USB and removable
storage by personnel and contractors, reducing cyber risk to process control
networks.
 Automated change management software: A documentation and change
management software that improves customers’ industrial control system integrity.
Honeywell Trace replaces paper-based records and spreadsheets with an
automated solution to reduce errors from changes in configurations, improve
worker productivity, and simplify automation asset management by providing a
single integrated view of complex system interactions.
 Data acquisition and analytics: Uniformance Suite software provides real-time
digital intelligence through advanced process and event data collection, asset-
centric analytics and powerful visualisation technology, turning plant data into
actionable information to enable smart operations.
 Plant performance: Honeywell Connected Plant applications that leverage the
IIoT to tap HAIL’s deep process knowledge, design expertise and understanding of
catalysis with next-generation software platforms from Honeywell Process
Solutions. The software-based service enables refiners and petrochemical and
gas processing plants to improve their performance.
The entire collaboration to provide a common technical support to a host of companies
is based on a cloud-based solution — the Honeywell Sentience platform. Company
is partnered with more than 20 OEMs.
Given that HCP is a relatively new offering, the initial target market for HCP will
be the leading industries as they provide HAIL a platform to test its concepts.
Once these solutions are implemented successfully in these leading industries,
the company plans to provide this solution to SME sector.
8
Diversifying to other industries while maintaining

strength in core
Under process solutions, apart from the core industries, HAIL has been exploring
opportunities to create new products for mass mid-market and for new industries such
as pharmaceuticals and specialty chemicals. Most of the spending is taking place
through operational expenditure, providing an opportunity for service, upgrades and
migrations. The demand for process automation products in FY19 was primarily driven
by pharmaceutical sector, a trend we expect to continue in the near term.
Targeting industrial customers: Company plans to include more industrial

customers for which a dedicated channel management team has been deployed.
Verticals such as industrial, transportation, military, aerospace and medical equipment
are expected to remain in focus for the company.
Building automation: Building automation largely includes electronic security &

safety, heating ventilation and air conditioning (HVAC) and lighting control equipment,
home comfort solutions and fire safety. The market can be segmented in four
categories: i) building automation & control system (BACS), ii) heating ventilation and
air conditioning (HVAC), iii) lighting control solutions, and iv) home control solutions.
BACS plays a vital role in integrated building planning. The system provides energy
savings, greater comfort, safety and better operational efficiency. In India, the rising
concern for greenhouse gases along with rapidly increasing power demand-supply
gap are contributing to the growing adoption of the automation & control systems in
buildings. The demand for BACS is majorly driven by the commercial building segment
due to increasing number of shopping malls, office buildings, educational institutes,
hotels, hospitals, etc. The market is further supported by mandatory regulation of
energy efficiency in commercial buildings in cities such as Delhi. Policy and regulatory
support such as building codes, incentive schemes and labeling schemes (such as
LEED and BEE Star rating scheme) are expected to continue driving the BACS market
over the next five years.
In HVAC, thermostats, zone and climate controls, sensors and keypads are spurring
the demand for building automation & control systems market, while the emerging
carbon dioxide & combined sensors segment is projected to further boost market
growth over the next five years. The lighting control building automation & control
systems market in India is witnessing increasing demand for relay systems,
controllable breakers, dimming systems, switching solutions and sensors.
Key players in domestic building automation market are: Siemens India, HAIL,
Johnson Controls, Carrier.
Smart cities, railways and building automation are other key growth areas:
Infrastructure investment by government in 100 ‘smart cities’ and other public sector
projects continues to be the key growth driver for HAIL’s building solutions business.
Bhubaneswar is a smart city executed by HAIL. About seven smart cities are already
in execution by HAIL, which includes assistance to traffic police, fire department, etc.
Modernisation of railway stations, building of metro lines in major cities, expansion of
existing airports and establishment of new ones, all are also seeing a big push. Indian
9
Railway Station Development Corporation (IRSDC) has planned modernisation of the
stations and metro projects too are coming up at cities like Kanpur, Bhopal and Indore.
Other growth areas

 HAIL is providing technologies to Indian refiners for transition from BS IV to BS VI.
 In preparation for the move to BS VI, automotive industries would need to modify
engines, which use fuel, so that emissions can be further reduced. To address
this, HAIL is working on turbochargers, which are fit on diesel and petrol engines,
reducing the emissions and improving efficiency of the engines.
 As India moves towards a gas-based economy, the need for equipment to
measure, regulate and transfer gas to industrial and residential facilities will
increase. Hence, we can expect increase in demand for HAIL’s gas sensor
portfolio that goes into the distribution of gas.
 Demand is coming from safety and productivity of industry (avoidance of
accidents), productivity improvement of assets in terms of 1. asset sweating 2.
improvement of efficiency and, 3. maintaining same production with lower cost.
 Cybersecurity has been a recent addition to the portfolio. Honeywell International
Inc. has globally acquired an Israeli company called ‘Next 9’, which focuses on
industrial cyber security.
10
Honeywell Building Solutions (HBS) business

This segment provides automation and control technologies for buildings including
building management systems, fire detection and alarm systems, access control
systems, video surveillance systems and integrated security systems. It also provides
aftermarket services for control systems and utilities’ O&M services for mechanical
and electrical systems in buildings. Company plans to provide analytics services in this
segment.
Table 7: Honeywell Building Solutions (HBS) business offerings
Building Projects
Install Critical Infrastructure
Smart cities
Service contracts
Services
Retrofits and upgrades
Energy saving performance contracts

Government programs (energy solutions include building controls,
field products, combustion controls)
The business serves verticals like infrastructure, transportation, smart cities, IT,
pharmaceutical and commercial sectors. Markets catered include airports, metros,
data centres, healthcare, commercial offices, government, education, hospitality, retail,
industrials and pharmaceuticals. We expect strong performance from the business in
future given continued government thrust on building core infrastructure such as
airports, metro and railways.
11
Table 8: Fire and security product portfolio
Fire and life safety product portfolio
Fire control panel and detection

Commercial fire systems
systems
Advanced sensing technologies

Advanced detection including aspirating and beam
detection
Emergency notification systems

Building notification including public address and voice
alarm systems
Software and services enabling

Software and services remote installation programming
and O&M
Security business product portfolio
Cyber secure and GDPR-compliant

Video
video surveillance and analytics
Global ID management, access

Access control
control and compliance solutions
Intrusion detection products and

Intrusion solutions for commercial and
critical applications
Software and professional services

Enterprise software and solutions for commercial and critical
applications
Honeywell International Inc., parent, facilitated the first phase of the expansion of
Terminal 3 of Delhi Airport to have 100mn passenger capacity by 2030:
 The HBS business deployed ‘enterprise building integrator’ as the master

supervisory monitoring system across all facilities at Delhi airport.
 Integrated airfield ground lightning (AGL) into a SCADA system on the airside.
 Installed CAT IIIB airfield solutions that enabled better remote monitoring and
diagnosis of faults.
 HBS also provided solutions for management of parking and stand availability.
The HBS business delivered city surveillance solutions to 11 cities in Madhya Pradesh
in FY17.
12
Building Management Systems (BMS) business

This segment includes products like mechanical PICVs, variable frequency drives
(VFDs) and piston type pressure relief valves (PRVs). The products in this segment
serve verticals like airports, stadiums, metro stations, IT, residential, industrial and
hospital buildings.
Table 9: BMS business offerings / product portfolio

Advanced device controls for local
Field devices operations and collection of data
for monitoring
Internet protocol (IP) based

Controllers and I/O
controller and input/output (I/O)
Controls and monitors mechanical

Building automated software and electrical equipments of
buildings
Software and services enabling

Connected services remote installation programming
and O&M
Chart 3: Honeywell International’s (HON) BMS Chart 9: Honeywell International’s (HON) BMS
business sales mix business geography mix
BMS Sales mix (as of CY19) BMS geogrpahy mix (as of CY19)
Connected
services
3% APAC
Building 13%
software
13%
America
Controllers 50%
and I/O
Field 55%
Devices EMEA
29% 37%
New initiatives in BMS segment include connected buildings – One such offering
is Outcome-Based Service, which enables Honeywell service engineers to watch
building assets around the clock, identifying anomalies faster than traditional
maintenance.
The service combines advanced automation and data analytics and provides the
following actionable insights:
 Real-Time Analytics – Honeywell’s analytics evaluates facility data real-time to find

issues faster, improve performance and efficiency, thereby decreasing
maintenance time.
13
 Dynamic Tasking – Instead of routine scheduled inspections, analytics prioritise
maintenance of higher-impact activities, mitigating downtime and improving
operational efficiencies.
 Performance Dashboards and Reports – The easy-to-use, cloud-based interface
monitors building performance against an organisation’s key performance
indicators.
 Lifecycle Management – An actionable roadmap with predictable costs keeps
systems current and IT-compliant, providing efficient antivirus and patch updates.
 Continuous Service Improvement – Systematic reviews prevent and eradicate
problems, reduce critical incidents and downtime.
Table 10: Connected building’s Go-to-market channel strategy focusses on
recurring monthly revenue (RMR)
Channel Enterprise Direct HBS BMS
Model Software RMR Software RMR Software RMR
Corporate or commercial Hotels, SMB, systems,
Sample customers portfolios Large, complex buildings integrators, OEM, ISV
Channel capability Developing Mature Mature
Till FY17, HAIL had an Environmental and Energy Solutions segment, which had
three verticals: 1) commercial, which included building control systems; 2) residential,
which included solar water heaters, thermostats and residential combustion; and 3)
industrial (air & water) verticals, which included valves.
From FY18, the company introduced BMS segment in addition to the already
existing HBS segment. However, for Honeywell International (HON), both HBS
and BMS form a part of Honeywell Building Technologies (HBT) segment.
Honeywell Building Technologies as classified by Honeywell International includes
HBS, BMS and Fire and Safety equipment. As of CY19, HBT India portfolio constituted
BMS which contributed 7%, HBS 57% and fire and safety 36%.
Chart 4: Honeywell Building Technologies segment’ s India sales and vertical mix as classified by
Honeywell International Inc.
HBT Sales mix (as of CY19) HBT Vertical mix (as of CY19)
BMS -
Building Other
Management 10%
Systems
7% Industry
10%
Infrastructure
45%
Fire and
security HBS -
36% Honeywell
Building
Solutions
57%
Commercial
35%
14
HBT India has two manufacturing facilities – one each in Dehradun and Gurugram,
and three R&D sites at Bengaluru, Pune and Madurai.
The parent entity estimates overall investments of US$3bn in data centres, US$7bn in
airports and US$7bn in metros over 2019-2023. Of the total US$17bn investments, the
HBS and BMS segments are estimated to have an addressable market of US2bn.
Chart 5: Increased share of products and services to support profitability
HBT India business mix projections

120 Products Projects Software/Services
100
16 17
80
38 32
60
40
46 51
20
-
2019 2023
Source: Honeywell International, Company data, I-Sec research
Table 11: Honeywell Building Technologies (HBT) segmentation by Honeywell International Inc. (HON)
Precise controls and

optimisation of energy usage,
Honeywell building
Building solutions heating, cooling, humidity,
solutions
space utilisation, and related
building management software
Building Building portfolio optimisation,

management space utilisation, and occupant
Systems experience solutions
Building
management
systems Integrated software and
hardware offering for complex
Connected
buildings and structures,
buildings
focusing on installation,
integration, and service
Controls and related software

including fire panels, smoke /
Fire and Life safety CO detectors, public address
systems and alarms, aspirating
fire detection and voice alarms
Detection systems and related

software including intrusion,
Fire, security, and access control, video
others Security
surveillance and alarm
verification for critical buildings
and infrastructure
Electrical wiring devices and

Electrical products
cable management systems
15
Sensing and IoT business

This business provides various sensors and switches to manufacturing and
automobile industry. It serves primarily OEMs in various manufacturing industries such
as auto, medical instrumentation, IT, etc.
HAIL continues to remain focused on market verticals such as industrial,

transportation, military, aerospace and medical equipment.
 Electronic sensing portfolio – Pressure sensors, limit switches, construction

equipment shifters, pressure switches and basic switches for vehicle body controls
 Gas sensor portfolio – Gas instruments and pollution monitoring equipment
(environment and combustion control)
 OEM scan engine portfolio – Growth in automated vending machines and other
automation devices
 Packaged products portfolio – Limit switches, construction equipment shifters,
pressure switches and basic switches for vehicle body controls
 Test and measurement line of products
New products include temperature sensors, basic/limit switches, and particle sensors.
Products sold by parent, Honeywell International Inc., in SPS portfolio (safety and
productivity solutions) include: airflow sensors, current sensors, magnetic position
sensors, humidity sensors, micro switch, power relays, vacuum switches, pressure
sensors, speed sensors, thermostats, temperature sensors hearing protection,
respiratory protection, eye & face protection, hand/foot/head protection, first aid, fall
protection.
Chart 6: Sensing and IIoT product portfolio
16
Stable exports supported by parent

HAIL’s exports are largely to entities related to the parent across the globe and the
company does not foresee any decline in the same, though the growth rate can taper
down a bit given the high base. Global services business is making investments in
talent development and retention strategies in the consultancy space for accelerated
growth through newer verticals, software and IIoT
 Exports have grown from 19% of revenues in 2005 to 43.8% in FY20

 Top export geographies are the Middle East, North America and Africa.
 Strong support from parent, with emphasis on innovation (the Indian entity has
benefited from global product development and acquisitions)
 Each of the company’s four businesses – aerospace, building technologies, safety
and productivity solutions and performance materials and technologies – enjoy
global standards and are well accepted by customers worldwide
 One of the key R&D centres of the parent is Honeywell Technology Centre, based
in Minneapolis, having an employee base of 6,500. HAIL gets considerable R&D-
related support from this group entity
 Although the parent does not charge royalty, HAIL has corporate overhead
allocation (under ‘other expenses’), which is charged for each subsidiary as per
the benefits derived from the global R&D centre. For FY20, while revenues grew
3.6% YoY, corporate overhead allocation at Rs1.1bn was up 0.9% YoY (3.4% of
sales).
Chart 7: Corporate overhead allocation as proportion of sales to
continue in 3-5% range
Corporate overhead allocations (Rs mn) - LHS as % of sales - RHS
1,200 4.6 5.0

4.3
4.0 4.5
1,000 3.6 3.5 3.7
3.5 3.4 4.0
3.1 3.5
800
3.0
600 2.5
2.0
400 1.5
1,101
1,069
1,107
1,117
1.0
507
715
617
853
810
200
0.5
- -
FY 16
FY 17
FY 18
FY 19
FY 20
CY 11
CY 12
CY 13
FY 15
17
Global services / Manufacturing business

This business is mainly focused on delivering high-quality products, project
engineering services, product customisation, and software development to global
Honeywell entities as well as the India market. Honeywell exports these services to
non-Honeywell entities too. It operates out of the Pune facility.
Though there has been some impact on the Global Engineering Services (GES)
business given the travel restrictions, the company has been able to shift majority of
this work to digital mode, hence we don't foresee a medium to long term impact of the
pandemic on GES.
Honeywell Operating System (HOS)

HOS encompasses end-to-end business system institutionalisation to enable and
sustain growth along with productivity improvements through total customer
experience, new product introduction, order to cash and integrated business planning.
The Honeywell Operating System has three stages of compliance: Bronze, Silver, and
Gold. Much of the Bronze stage is restricted to improving productivity within the four
walls of the factory. Silver stage further improves production process by integrating
sales and procurement while working with customers and suppliers. The HOS Gold
stage drives growth and agility at the enterprise level. The Fulgaon, Pune, factory and
Global Services are at the Silver level.
Chart 8: HOS – three stages of compliance
18
Chart 9: Plant locations of HAIL and Honeywell International (HON)
HAIL has automation and turbocharger manufacturing facility based out of Fulgaon,
Pune, which was built with an investment of Rs5bn in 2014. The facility has now been
extended to include an additional 76,000-sqft to the existing 75,000-sqft built. The
facility expansion is for a customer integration centre (CIC), warehouse, Honeywell
thermal solutions factory, smart metering factory, and Intelligrated demo. To
streamline the business and drive operational efficiencies, the CIC and warehouse
were consolidated in Apr’18. Company has put up a facility to manufacture N-95
masks in Fulgaon to support the government push towards Atmanirbhar.
Chart 10: High correlation between travel cost and export growth
Exports growth YoY (%) Travelling and conveyance growth YoY (%)
70.0
60.0
50.0
40.0
30.0
(%)
20.0
10.0
-
(10.0)
(20.0)
FY 17
FY 18
FY 19
FY 20
FY 16
CY 10
CY 11
CY 12
CY 13
CY 09
FY 15
19
During FY16-FY20, exports growth was 17% CAGR and exports contributed 44% to
FY20 revenues. Through the global engineering services and global manufacturing
segments, majority of these exports have been towards overseas entities related to
the parent (fellow subsidiaries). Consequently, the growth in travel and conveyance
cost grew by 14.4% CAGR, which is largely proportional to the growth in exports. This
implies that the majority of the export growth was led by outsourcing and not by
products or other services.
Table 12: Related party transactions
(Rs mn, year ending March 31)
FY 15 FY 16 FY 17 FY 18 FY 19 FY 20
Honeywell International Inc. - Parent
Sale, purchase or supply of any goods or materials 1,750 1,750 2,500 675 835 900
Sale of engineering services, purchase of services 2,140 3,700 5,000 3,011 3,340 3,365
Fellow Subsidiaries
Sale, purchase or supply of any goods or materials 6,700 1,875 2,656 2,654
Sale of engineering services, purchase of services 3,300 1,210 1,228 703
Honeywell Measurex (Ireland) Ltd.

Sale, purchase or supply of any goods or materials 4,700 1,552 2,351 2,106
Sale of engineering services, purchase of services 600 12 - -
Honeywell Turki-Arabia Limited

Sale, purchase or supply of any goods or materials 2,000 323 304 548
Sale of engineering services, purchase of services 2,700 1,197 1,228 703
Chart 11: Higher contribution of other income to Chart 12: High cash on balance sheet will
earnings is expected to continue continue generate high other income
PBT (Rs mn) - LHS Other income as % of PBT - RHS Cash and cash equivalents (Rs bn)
15.2 30.0
9,000 14.2 14.7 16.0
8,000 12.4 12.8 13.1 14.0 25.0
7,000 11.2 10.6
10.0 10.3 12.0
6,000 9.4 20.0
8.7 10.0
5,000
6.5 8.0 15.0
4,000
3.9 6.0
3,000 3.7 10.0
4.0
1,177
1,820
6,866
1,389
1,463
1,196
1,228
2,172
2,262
3,073
3,812
5,549
6,943
8,032
2,000
27.1
12.2
15.1
20.5
885
5.0
0.7
0.1
1.1
2.1
1.8
1.5
3.1
2.2
3.7
5.8
8.4
1,000 2.0
- - -
FY 16
FY 17
FY 18
FY 19
FY 20
FY 21
FY 22
CY 07
CY 08
CY 09
CY 10
CY 11
CY 12
CY 13
FY 21
FY 16
FY 17
FY 18
FY 19
FY 20
FY 22
CY 07
CY 08
CY 09
CY 10
CY 11
CY 12
CY 13
FY 15
FY 15
The cash on balance sheet has grown 4x from Rs3.7bn in FY16 to Rs15.1bn in FY20.
Other income as proportion of PBT has also been steadily increasing (14.2% of PBT in
FY20 vs 10.6% in FY16). We believe, the company will have to either increase the
dividend payout or should look at expansion of capacity or any inorganic growth
opportunities to utilize the cash effectively.
As per the FY20 AGM, the company considers three major focus areas for
growth: 1) healthcare and pharma; 2) products and solutions related to air
quality, hygiene and ensuring safety and control; 3) products and systems to
ease remote working and connected buildings, etc. The factors that will aid
margin improvement will be: 1) higher adoption of digital tools; (2) remote
working of engineers, etc.
20
Company overview
Honeywell Automation India Limited (HAIL) is engaged in the manufacture of
electronic systems and components, repair and maintenance, and trading of
machinery, equipments and supplies. HAIL was incorporated in January 1984 as Tata
Process Controls Private Ltd in Maharashtra. It became a public limited company in
May 1987. Initially, the company promoted by the Tata group. Thereafter it was
promoted as a 40:40 JV between Tata group and Honeywell Asia Pacific Inc, USA. In
2004, the Tata group sold its shareholding (40.62%) in favour of its foreign JV partner.
HAIL operates through two geographical segments: domestic and exports. Its
business units include: 1) Honeywell Process Solutions, which serves industrial
sectors, such as refining, oil and gas, pulp and paper, metal and cement; 2) Honeywell
Building Solutions, which provides solutions and services for commercial and industrial
buildings, IT and IT-enabled service industry, hospitals, hotels and airports; 3)
Environmental & Energy Solutions, which offers environmental and combustion
products and solutions; 4) Sensing & IoT business which provides sensors and
switches, and 5) Exports – Global Services (GS) and Global Manufacturing (GM),
which through manufacturing and engineering service supports Honeywell's global
growth.
Table 13: Key managerial personnel

Mr. Ashish Gaikwad Managing Director, Head – Process Solutions
Mr. Amit Tantia Chief Financial Officer
Ms. Farah Irani Company Secretary
Mr. Vikas Chadha Director
Ms. Nisha Gupta Director
Mr. Brian Buffington Director
Mr. Aseem Joshi Head – Building Solutions
Mr. Rahul Sharma Head – Global Services
Mr. Gajanan Lahane Head – Global Manufacturing
Mr. Hemant Khattar Building Management System Leader
Mr. S. Sreekanth Sensing & IOT Leader
21
Table 14: Historical trend of orders

CY05 CY06 CY07 CY08 CY09 CY10 CY11 CY12 CY13 FY15 FY16
Orders (Rs mn) 7,800 4,769 5,150 6,592 8,834 9,982 10,481 11,110 14,220 14,789 16,416
YoY growth (%) 71% -39% 8% 28% 34% 13% 5% 6% 28% 4% 11%
Note: Order intake is pro-rated for FY15 and growth is pro-rated for FY15 and FY16. Company has stopped providing order data post FY16
Table 15: Key historical orders clientele

Environmental
Honeywell Building Solutions – Sensing & Control –
Year Honeywell Process Solutions - HPS Combustion & Control
HBS S&C
(ECC)
Retail Automation contracts from IOCL
Contracts from Nokia, Rashtrapati
and HPCL, Automation contract for
Bhavan, RBI, ONGC (for surveillance
Tata Chemicals – Soda Ash Plant, Orders for automotive
system), Voltas for the Hyderabad
CY05 Automation contract for refinery sensors from Tata
International Airport (GMR Group),
expansion at HPCL Mumbai, Contract Motors
DMRC project for which automation
for Automation for some of ONGC’s
was supplied
platforms
Indfoss, Delta Engineer,
Reliance Jamnagar Refinery, HPCL,
Terex Vectra, Ashok
Bongaigaon Refinery and
Tata Consultancy Services, Mandke Leyland and Escorts.
Petrochemicals Ltd., IPCL, Hindustan Voltas, Prestige Builders,
CY06 Research, Magus, IBM, Flextronics, Company started
Zinc, SAIL, Reliance Energy etc. In and Parle Products.
Regenesis, etc. supplying crank sensors
Sugar industry – Renuka Sugars,
and pressure sensors to
Dalmia Sugars, etc.
Tata Motors.
Reliance Industries, Hindustan Zinc, Reliance Group, Tata group, Indian
BMS order from Claridges
L&T, BHEL, EID Parry, HPCL, IOCL, Oil Corporation, Delhi Metro Rail
CY07 Hotel in Delhi. GVK Mall,
ONGC, Tata Steel Limited, Haldia Corporation (DMRC), VSNL, Ruby
Sahara Hospital, etc.
Petrochemicals, etc. Hall Clinic
Delhi Airport T3 BMS, DMRC Tunnel
HPCL, IOCL, BPCL, Larsen & Toubro, Ventilation Control System, several
CY08 Tata Power, ACC, BORL, JSW, ONGC, AAI projects, Tata Communications,
Hindustan Zinc. TCS, Tech Mahindra, RNA Builders,
Lodha Builders, SKF.
Intelligent buildings space – ICICI
Bank, Delhi Metro, HCL Tech, TCS,
Bharti Airtel.
Major wins included two large power
Aftermarket services Contracts from Launched solar water
projects from NTPC in addition to large
ICICI Bank, TCS, TTSL and heaters & halo series digital
CY09 orders from Essar, Tata Steel, Reliance
Hyderabad Airport thermostats in Indian
Power, General Electric, Reliance
Utilities O&M contracts from Bharti market
Industries, RCF,
Airtel. Energy Efficiency contracts
from Renaissance, Titan, Thermax,
Rahejas, Tata Steel, and SKF.
ITC Grand Chola, JW
Greenfield Refinery Project (Paradip) Tata Consultancy Services, Cognizant
Marriot – Bangalore, Royal
IOCL, petchem project from ONGC, Technology Solutions, Chennai Electromechanical
Bank of Scotland, Naya
two large Terminal Automation projects Airport, Mumbai Airport, Mumbai and Sensing and Test and
CY10 Raipur Development
from HPCL and HMEL, several mid- Pune Stadia, ICICI Bank, IOCL, Measurement
Authority (NRDA), Delhi
size orders from Bhushan Steel, JSPL, Nokia, Bharti Airtel, TCL, Dr. Reddy’s contributed significantly
International Airport Limited
L&T, Tata Steel, etc. Laboratories, and Jindal Saw.
(DIAL) and DMRC.
Kolkata Airport, TCS, Cognizant
Key order wins were from OPAL Technology Solutions, AIIMS, Mahindra and Mahindra,
ITC Hotel, Formula 1 racing
CY11 Petrochemicals, Reliance Industries Sahyadri Hospital, Dr. Reddy’s Kirloskar Oil Engines,
track, ESIC hospitals, etc.
and NOCL. Laboratories, and Royal Bank of etc.
Scotland
Major order wins from
Bharti Airtel, Cognizant Technology
Key order wins were from BPCL, customers like PHA
Solutions, DIAL, IOCL, Kolkata Vansthali Vidyapeeth,
CY12 HPCL, IOCL, NTPC and Reliance India, Caterpillar India,
Airport, Leighton Welspun, Reliance Wipro, and Samsung.
Industries Voltas, and Hindustan
Industries, TCS.
Aeronautics
22
Table 16: Quarterly financials

(Rs mn, year ending March 31)
Q1FY18 Q2FY18 Q3FY18 Q4FY18 Q1FY19 Q2FY19 Q3FY19 Q4FY19 Q1FY20 Q2FY20 Q3FY20 Q4FY20 Q1FY21
Net Sales 6,637 6,732 7,215 6,398 7,704 7,823 8,118 8,103 8,570 8,275 9,012 7,043 7,362
Growth (%) 16 14 7 13 16 16 13 27 11 6 11 (13) (14)
EBITDA 799 1,072 924 802 1,205 1,325 1,182 1,245 1,687 1,505 1,886 1,286 1,279
Margin 12 16 13 13 16 17 15 15 20 18 21 18 17
Other Income 87 91 66 125 247 213 177 150 186 261 192 337 174
PBT 848 1,129 954 882 1,413 1,499 1,320 1,317 1,766 1,666 1,944 1,489 1,323
Tax 294 391 332 298 496 525 463 476 625 463 497 378 342
tax rate 35 35 35 34 35 35 35 36 35 28 26 25 26
Reported PAT 554 737 623 584 917 974 856 841 1,141 1,202 1,447 1,111 981
Margin(%) 8.3 11.0 8.6 9.1 11.9 12.4 10.5 10.4 13.3 14.5 16.1 15.8 13.3
EPS (Rs) 63 83 70 66 104 110 97 95 129 136 164 126 111
Table 17: Key assumptions

(Rs mn) CY 10 CY 11 CY 12 CY 13 FY 15 FY 16 FY 17 FY 18 FY 19 FY 20 FY 21E FY 22E
Exports 4.8 5.4 6.0 5.5 7.6 7.7 10.5 12.0 14.6 14.4 15.1 17.4
Growth YoY (%) (0.9) 11.7 11.6 (8.8) 39.2 1.0 36.0 14.6 21.7 (1.3) 5.0 15.0
as % of total sales 35.6 33.3 36.1 32.1 31.7 35.2 43.5 44.5 46.0 43.8 45.3 46.4
Domestic 8.7 10.8 10.6 11.6 16.4 14.2 14.0 15.0 17.1 18.3 18.3 20.1
Growth YoY (%) 26.8 23.2 (1.4) 9.3 41.6 (13.7) (1.4) 7.2 14.3 6.8 - 10.0
as % of total sales 64.4 66.7 63.9 67.9 68.3 64.8 57.9 55.5 53.9 55.6 54.7 53.6
Manufactured products and jobs 8,501 10,286 9,903 10,539 15,250 13,395 13,680 15,053 18,134 18,315
as % of total sales 61.9 62.9 58.5 60.7 62.5 60.3 56.0 55.8 57.1 56.0
Traded products 1,605 1,809 1,898 2,080 2,668 2,587 3,041 3,634 4,269 4,183
as % of total sales 11.7 11.1 11.2 12.0 10.9 11.6 12.4 13.5 13.5 12.8
Sale of services 3,635 4,264 5,132 4,753 6,493 6,223 7,716 8,282 9,331 10,216
as % of total sales 26.4 26.1 30.3 27.4 26.6 28.0 31.6 30.7 29.4 31.2
Revenues CAGR for the period CY10-FY20 was 10%, wherein exports CAGR was
12.6% and domestic revenue CAGR 8.3%. Within products and services, for CY10-
FY20, CAGR has been 11.8% for services, 11% for traded products and 8.7% for
manufactured products and jobs.
Given that export contribution has been increasing steadily (from 35% in FY16 to 44%
in FY20), we expect exports to be a major growth driver in near to medium term. For
FY20-FY22E, we expect an overall revenue CAGR of 6.8% with export CAGR of 10%
and domestic revenue CAGR 5%.
Key risks
 Increased volatility in oil prices (high dependency on O&G sector) as geopolitical
uncertainties grow (this would impact capital investment plans of upstream and
downstream companies).
 Inventory in the residential real estate sector continues to be high and prolonged
sluggish growth in the sector; impacting the overall business of the company.
 Long term risk to business includes increased competition from entry of Chinese
and other Asian players into the market
23
Financial highlights
Chart 13: Revenue CAGR of 6.8% over FY20- Chart 14: EBITDA margins to remain stable in the
FY22E near term
Revenues (Rs mn) - LHS Growth YoY (%)- RHS EBITDA (Rs mn) - LHS EBITDA Margin (%) - RHS
8,000 25
40,000 40.8 50
35,000 7,000 19.3 19.5 19.6
40 20
30,000 6,000 15.9
30
25,000 17.315.319.1 17.7 5,000 13.5 15
12.3 20 11.9
20,000 10.212.0 4,000 10.5 10.0
2.9 2.8 3.6 1.6 10 9.0 8.8
15,000 3,000 7.4 6.9 10
0
16,136
17,070
21,876
26,981
32,900
37,536
11,746
13,547
16,611
24,037
24,101
31,747
33,435
10,000 (9.0)
2,000
1,456
3,636
1,428
1,228
1,185
2,121
2,180
2,859
5,034
6,364
6,517
7,361
-10 5
5,000
1,000
- -20
- 0
FY 21
FY 16
FY 17
FY 18
FY 19
FY 20
FY 22
CY 09
CY 10
CY 11
CY 12
CY 13
FY 15
FY 16
FY 17
FY 18
FY 19
FY 20
FY 21
FY 22
CY 13
CY 10
CY 11
CY 12
FY 15
For FY20, domestic market contributed 56% of overall revenues while exports, majorly
global engineering services, accounted for 44%. Factoring-in an export CAGR of 10%
over FY20-FY22E, we expect export revenue contribution to increase to 46.4% in
FY22E.For domestic revenues, we expect revenue CAGR of 5% over FY20-FY22E,
hence the its contribution to decrease from 55.6% in FY20 to 53.6% in FY22E.
EBITDA CAGR over CY10-FY20 was 17.5%. Given the slowdown due to pandemic,
we expect EBITDA CAGR of 7.6% for FY20-FY22E.
Although, we expect APAT CAGR of 10.7% for FY20-FY22 (APAT margin improving
to 16% in FY22 from 15% in FY20), given the increasing cash on balance sheet,
RoCE are expected to stabilize to 20.5% in FY22E from 25% in FY20.
Chart 15: Increasing share of exports in overall Chart 16: RoCE and RoE profile to stabilise given
revenue mix increasing cash on balance sheet
Domestic (Rs bn) - LHS 30.0
Exports (Rs bn) - LHS RoCE RoE
Exports as % of total sales - RHS 25.0
46 46 25.0 22.7
40.0
42 41 43 45 44 45 50 21.6 21.5
20.5
35.0 19.2
36 36 35 40 18.5
33 20.0 17.3
30.0 32 32
20.1
14.8 15.4
18.3
18.3
17.1
25.0
(%)
30 15.0 12.8
15.0
20.0 11.6
14.0
16.4
14.2
15.0 20
10.0
6.0 10.6
5.5 11.6
5.4 10.8
4.8 8.7
10.0
4.96.9
5.8
10
15.1
17.4
10.5
12.0
14.6
14.4
4.2
7.6
7.7
5.0 5.0
- -
FY 17
FY 16
FY 18
FY 19
FY 20
FY 21
FY 22
CY 08
CY 09
CY 10
CY 11
CY 12
CY 13
-
FY 15
FY 21
CY 13
FY 16
FY 17
FY 18
FY 19
FY 20
FY 22
CY 10
CY 11
CY 12
FY 15
24
Financial summary
Table 18: Profit & loss statement Table 20: Cashflow statement
(Rs mn, year ending March 31) (Rs mn, year ending March 31)
FY19 FY20 FY21E FY22E FY19 FY20 FY21E FY22E
Total Income 31,747 32,900 33,435 37,536 Operating Cashflow 3,410 4,195 4,781 5,353
Operating Expenses 26,714 26,537 26,919 30,176 Working Capital Changes -292 -895 299 718
EBITDA 5,034 6,364 6,517 7,361 Capital Commitments -198 -509 -200 -200
% margins 15.9 19.3 19.5 19.6 Free Cashflow 2,920 2,791 4,880 5,871
Depreciation & Amortisation 159 406 426 447 Cashflow from Investing
EBIT 4,875 5,958 6,091 6,913 Activities 424 654 912 1,179
Gross Interest 35 69 60 60 Issue of Share Capital - - - -
Other Income 709 977 912 1,179 Buyback of shares
PBT before exceptional 5,549 6,866 6,943 8,032 Inc (Dec) in Borrowings - - - -
Add: Extraordinaries Interest paid -35 -69 -60 -60
/Exceptionals - 0 - - Dividend paid -398 -663 -354 -442
Add: Share in associates - - - - Extraordinary Items/Others 141 181 0 0
PBT 5,549 6,866 6,943 8,032 Chg. in Cash & Bank balance 3,053 2,894 5,379 6,548
Less: Taxes 1,961 1,951 1,736 2,008 Source: Company data, I-Sec research
Less: Minority Interests - - - -
Net Income (Reported) 3,588 4,915 5,207 6,024
Adjusted Net Income 3,588 4,915 5,207 6,024 Table 21: Key ratios
Source: Company data, I-Sec research (Year ending March 31)
FY19 FY20 FY21E FY22E
Table 19: Balance sheet Per Share Data (in Rs.)
Diluted adjusted EPS 406 556 589 681
(Rs mn, year ending March 31) Recurring Cash EPS 424 602 637 732
FY19 FY20 FY21E FY22E Dividend per share (DPS) 45 75 40 50
Assets Book Value per share (BV) 1,977 2,464 3,013 3,645
Total Current Assets 25,144 29,567 36,837 44,353
of which cash & cash eqv. 12,245 15,139 20,518 27,065 Growth Ratios (%)
Total Current Liabilities & Operating Income 17.7 3.6 1.6 12.3
Provisions 11,431 12,792 14,983 16,670 EBITDA 38.4 26.4 2.4 13.0
Net Current Assets 13,713 16,774 21,854 27,683 Recurring Net Income 43.7 37.0 5.9 15.7
Investments - - - - Diluted adjusted EPS 43.7 37.0 5.9 15.7
Other Non-Current Assets 2,830 2,936 2,936 2,936 Diluted Recurring CEPS 41.4 42.0 5.9 14.9
Net Fixed Assets 932 2,072 1,846 1,599
Goodwill - - - - Valuation Ratios
Total Assets 17,475 21,783 26,636 32,218 P/E 56.4 41.2 38.9 33.6
P/CEPS 54.0 38.0 35.9 31.3
Liabilities P/BV 11.6 9.3 7.6 6.3
Borrowings - - - - EV / EBITDA 37.8 29.4 27.9 23.8
Deferred Tax Liability - - - - EV / Operating Income 6.0 5.7 5.4 4.7
Minority Interest - - - - EV / Op. FCF (pre -Capex) 61.0 56.7 35.8 28.9
Equity Share Capital 88 88 88 88
Face Value per share (Rs) 10 10 10 10 Operating Ratios
Reserves & Surplus 17,386 21,694 26,547 32,129 Raw Material/Sales (%) 51.9 49.9 50.5 51.0
Net Worth 17,475 21,783 26,636 32,218 SG&A/Sales (%) 15.2 13.9 13.1 12.8
Total Liabilities 17,475 21,783 26,636 32,218 Other Income / PBT (%) 12.8 14.2 13.1 14.7
Source: Company data, I-Sec research Effective Tax Rate (%) 35.3 28.4 25.0 25.0
NWC / Total Assets (%) 0.1 0.1 0.1 0.0
Inventory Turnover (days) 12.1 13.4 14.2 14.2
Receivables (days) 59.4 80.3 80.0 69.9
Payables (days) 184.8 189.2 223.6 221.4
Net D/E Ratio (x) -0.7 -0.7 -0.8 -0.8
Return/Profitability Ratios (%)

Recurring Net Income Margins 11.3 14.9 15.6 16.0
RoCE 22.8 25.3 21.7 20.6
RoNW 22.7 25.0 21.5 20.5
Dividend Payout Ratio 0.1 0.1 0.1 0.1
Dividend Yield (%) 0.2 0.3 0.2 0.2
EBITDA Margins 15.9 19.3 19.5 19.6
25
Index of Tables and Charts

Tables
Table 1: SoTP valuation........................................................................................................ 4
Table 2: 10-year reverse DCF implies EBITDA CAGR of 23.8% vs. historical CAGR of
17.5% .............................................................................................................................. 4
Table 3: 20-year reverse DCF implies EBITDA CAGR of 15.5% ......................................... 4
Table 4: Industry classification .............................................................................................. 5
Table 5: Industrial automation equipment............................................................................. 5
Table 6: Honeywell International Inc. (HON) presence in HPS (Honeywell Process
Solution) and UOP (Universal oil products) .................................................................... 7
Table 7: Honeywell Building Solutions (HBS) business offerings....................................... 11
Table 8: Fire and security product portfolio ........................................................................ 12
Table 9: BMS business offerings / product portfolio ........................................................... 13
Table 10: Connected building’s Go-to-market channel strategy focusses on recurring
monthly revenue (RMR) ................................................................................................ 14
Table 11: Honeywell Building Technologies (HBT) segmentation by Honeywell
International Inc. (HON) ................................................................................................ 15
Table 12: Related party transactions .................................................................................. 20
Table 13: Key managerial personnel .................................................................................. 21
Table 14: Historical trend of orders ..................................................................................... 22
Table 15: Key historical orders clientele ............................................................................. 22
Table 16: Quarterly financials ............................................................................................. 23
Table 17: Key assumptions................................................................................................. 23
Table 18: Profit & loss statement ........................................................................................ 25
Table 19: Balance sheet ..................................................................................................... 25
Table 20: Cashflow statement ............................................................................................ 25
Table 21: Key ratios ............................................................................................................ 25
Charts
Chart 1: 1-year forward P/E .................................................................................................. 3
Chart 2: HPS offerings .......................................................................................................... 7
Chart 3: Honeywell International’s (HON) BMS business sales mix .................................. 13
Chart 4: Honeywell Building Technologies segment’ s India sales and vertical mix as
classified by Honeywell International Inc. ..................................................................... 14
Chart 5: Increased share of products and services to support profitability ......................... 15
Chart 6: Sensing and IIoT product portfolio ........................................................................ 16
Chart 7: Corporate overhead allocation as proportion of sales to continue in 3-5% range 17
Chart 8: HOS – three stages of compliance ....................................................................... 18
Chart 9: Plant locations of HAIL and Honeywell International (HON) ................................ 19
Chart 10: High correlation between travel cost and export growth ..................................... 19
Chart 11: Higher contribution of other income to earnings is expected to continue ........... 20
Chart 12: High cash on balance sheet will continue generate high other income .............. 20
Chart 13: Revenue CAGR of 6.8% over FY20-FY22E ....................................................... 24
Chart 14: EBITDA margins to remain stable in the near term ............................................ 24
Chart 15: Increasing share of exports in overall revenue mix ............................................ 24
Chart 16: RoCE and RoE profile to stabilise given increasing cash on balance sheet ...... 24
26
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Equity Research INDIA

evolving as a potential growth area.

Please refer to important disclosures at the end of this report

Outlook and valuation ..................................................................................................... 3

Outlook and valuation

Chart 1: 1-year forward P/E

EV/Sales 1-yr fwd. P/E (x) Mean +1 S.D. -1 S.D.

Source: Bloomberg, I-Sec research

Table 3: 20-year reverse DCF implies EBITDA CAGR of 15.5%

By reverse DCF methodology, the current market capitalization of ~Rs285bn

Process plant ownership aids HAIL in determining

Table 5: Industrial automation equipment

Honeywell Process Solution (HPS) business

Chart 2: HPS offerings

Source: Company data, I-Sec research

 Automation and control systems for process industries

 Refinery of the future for

Honeywell Connected Plant (HCP) – This is an IIoT-based unified suite of software

HCP offerings include distributed control systems (DCS), transmitters, programmable

 Industrial cyber security: It is a solution that provides a single view for

Diversifying to other industries while maintaining

Targeting industrial customers: Company plans to include more industrial

Building automation: Building automation largely includes electronic security &

Other growth areas

Honeywell Building Solutions (HBS) business

Table 7: Honeywell Building Solutions (HBS) business offerings

Energy saving performance contracts

Source: Company data, I-Sec research

Fire control panel and detection

Advanced sensing technologies

Emergency notification systems

Software and services enabling

Security business product portfolio

Cyber secure and GDPR-compliant

Global ID management, access

Intrusion detection products and

Software and professional services

Source: Company data, I-Sec research

 The HBS business deployed ‘enterprise building integrator’ as the master

Building Management Systems (BMS) business

Table 9: BMS business offerings / product portfolio

Internet protocol (IP) based

Controls and monitors mechanical

Software and services enabling

Source: Company data, I-Sec research

Source: Company data, I-Sec research

 Real-Time Analytics – Honeywell’s analytics evaluates facility data real-time to find

HBT India business mix projections

Source: Honeywell International, Company data, I-Sec research

Precise controls and

Building Building portfolio optimisation,

Controls and related software

Detection systems and related

Electrical wiring devices and

Source: Company data, I-Sec research

Sensing and IoT business

HAIL continues to remain focused on market verticals such as industrial,

 Electronic sensing portfolio – Pressure sensors, limit switches, construction

Chart 6: Sensing and IIoT product portfolio