Honeywell Automation is a buy

About the company's valuations, the report says, "at the current price of Rs 734, the stock is trading 11.9x CY06 earnings, which in our view is highly attractive, given the strong parentage and momentum in the industrial sector. We recommend a 'Buy' with a target price of Rs.902."

About the company's itself and its first quarter results review, the report says,

"HAIL’s, revenues for the Q2 calendar year, CY05 quarter rose 61% Year-on-Year, yoy to Rs 1.07 billion. The management has given a topline indication of Rs 5 billion for CY05."

"Operating profits are up 69% yoy to Rs 98 million driven by a 40 bps improvement in operating margins to 9.1%. The company has been able to improve margins despite cost pressure on the raw material front. During the quarter, raw material costs to sales rose 700 bps to 59%."

"Interest cost has remained more or less at the same level as the corresponding quarter of the last year."

"HAIL has made provisions for doubtful debts relating to past years, in the March and June-ending quarters, amounting to Rs 86 million. This is in line with the changed accounting policy of parent Honeywell Inc. Thus the balance sheet is also being cleaned up."

"For the quarter, net profit has grown by 78% to Rs 71 million from Rs 40 million year ago."

"The company’s order book has received a major boost following a huge order of Rs 1.92 billion from IOC. HAIL is a strong player in the refinery sector and major refineries have been its clients."

"With parent Honeywell Inc at the helm, the introduction of new products and technologies has clearly picked up. In the last quarter, the company launched Experion PKS R300, which has received wide acclaim from top industry sources, earning Honeywell Control Engineering’s 2004 Editors’ Choice Award and START magazine’s 2003 Technology and Business Vision Award and Hottest Company designation in 2003 and 2004."

"HAIL also plans to increase its capacity in industrial automation and double manpower in the next two years. We continue to be very positive on the company more so with the receipt of the new order worth Rs 1.92 billion, which further improves revenue visibility."