Honeywell wins Bengaluru Safe City Project: But is it a safe bet for investors?

The Bengaluru Safe City project will be implemented in phases. Honeywell will operate and maintain the security infrastructure for five years.

Honeywell has been selected to lead the Bengaluru Safe City project under the Nirbhaya Fund by the Government of India. An initiative of the Ministry of Home Affairs, the project aims to create a safe, secure and empowering environment for women and girls in public places to enable them to pursue all opportunities without the threat of gender-based violence or harassment. The Bengaluru Safe City project is valued at Rs 496.57 crore (USD 67 million).

Honeywell Automation India Ltd. (HAIL), a Fortune 100 technology company is a leader in providing integrated automation and software solutions, including process and building solutions. It has a wide product portfolio in environmental and combustion controls, and sensing and control, and also provides engineering services in the field of automation and control to global clients.

The Bengaluru Safe City project will be implemented in phases. Honeywell will operate and maintain the security infrastructure for five years.

Honeywell has delivered similar projects under the Smart Cities Mission across multiple states, including Odisha, Madhya Pradesh, Maharashtra, Haryana, Uttar Pradesh, and Gujarat, to name a few.

So how does it play out from an Investment perspective? 

Honeywell Automation India ( HAIL) has a market cap of Rs 37570 crore. Honeywell International Inc. USA is the ultimate holding company of Honeywell Automation Ltd by 75% in the company through HAIL Mauritius Limited.

Honeywell has a strong track record of serving clients which are having a presence across industries in India. Some of its reputed customers include Reliance, Vedanta, HPCL, TCS, Delhi Airport, AIIMS, ITC Hotel, Kolkata airport, Mahindra & Mahindra and Kirloskar Oil Engines.

HAIL earns 55% revenues from domestic operations and the remaining 45% from exports. Though pandemic has taken a toll on its revenue for Q1 FY 2022, which has seen a decline of 7.20%on a YoY basis. The company has however shown resilience through operational efficiencies in its operating profit margin and net profit margin, at 22.1% and 13.4% respectively.

Traditionally, investors are wary of the HAIL trading at a rich valuation (TTM P/E 82.85), but it has consistently given stellar performance to investors. The average ROE is 22% and the stock price return is 366% in the last five years.

Future Outlook

With the GDP projection at 9.3% for FY 2022 and 7.9% in FY2023, and impetus to infrastructure development, growth of industrial automation and revival of aviation sector (a key customer of HAIL), and strong partnership in the Government’s 100 Smart Cities Mission is expected to reap good revenue growth and translate it into the above-average margin. It can be a great investment for long term perspective and wealth creation.

The stock was trading at Rs 42622.35 with a gain of 0.34% at 3.02 pm today.