Honeywell Automation India Ltd:Annual Report 2023-24 Analysis

Honeywell Automation India Ltd.: A Comprehensive Overview #

About the Company #

Year of Establishment and Founding History:

Honeywell Automation India Limited (HAIL) was established in 1984 as Tata Honeywell Limited, a joint venture between Tata Group and Honeywell Inc. In 2004, Honeywell increased its stake and renamed the company Honeywell Automation India Limited.

Headquarters Location and Global Presence:

The company’s headquarters are located in Pune, Maharashtra, India. HAIL primarily serves the Indian market but benefits from Honeywell’s global presence and technology. It leverages Honeywell’s global R&D and manufacturing network.

Company Vision and Mission:

While a specific publicly available formal vision and mission statement for HAIL is difficult to source, its purpose can be inferred:

• Vision: To be a leading provider of automation and control solutions in India, contributing to a safer, more efficient, and sustainable future.
• Mission: To deliver innovative technologies and services that optimize operations, improve productivity, and enhance safety across various industries in India.

Key Milestones in Their Growth Journey:

• 1984: Formation of Tata Honeywell Limited.
• 2004: Honeywell increases its stake, renaming the company Honeywell Automation India Limited.
• Subsequent Years: Expansion of product portfolio, strategic acquisitions, and growth in key sectors like oil & gas, pharmaceuticals, and infrastructure.

Stock Exchange Listing Details and Market Capitalization:

Honeywell Automation India Limited is listed on the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE). (Ticker: HONAUT). As of late 2023, the company’s market capitalization is approximately ₹50,000 crores (approx. $6 billion USD).

Recent Financial Performance Highlights:

(Note: Financial data can change rapidly. Refer to Honeywell Automation India Ltd.’s latest annual reports and investor presentations for the most up-to-date figures.)

• Recent financial results show steady revenue growth.
• Profitability remains healthy, driven by increased demand for automation solutions.
• Focus on cost optimization and operational efficiency.

Management Team and Leadership Structure:

The leadership team consists of experienced professionals with expertise in automation, engineering, and management. Key roles include:

• Managing Director: Usually responsible for the overall strategic direction and operations of the company in India.
• Chief Financial Officer (CFO): Oversees financial planning, reporting, and risk management.
• Business Unit Leaders: Head specific product lines or industry verticals.

Any Notable Awards or Recognitions:

Honeywell Automation India Limited has received various awards and recognitions for its performance, innovation, and sustainability efforts. These awards often pertain to:

• Energy efficiency solutions
• Automation technologies
• Safety and environmental performance.

Their Products #

Complete Product Portfolio with Categories:

Honeywell Automation India Limited offers a comprehensive portfolio of products and solutions categorized as follows:

• Process Solutions: Distributed Control Systems (DCS), Advanced Process Control (APC), Safety Systems, Measurement & Control (Sensors, Transmitters, Analyzers).
• Building Solutions: Building Management Systems (BMS), Fire & Security Systems, HVAC Controls, Lighting Controls, Access Control.
• Advanced Sensing Technologies: Sensors, switches, and controls for various applications.

Flagship or Signature Product Lines:

• Experion Distributed Control System (DCS): A widely used platform for process automation in various industries.
• Building Management Systems (BMS): Integrated solutions for managing and optimizing building performance.
• Fire & Security Systems: Comprehensive fire detection and suppression systems, as well as security solutions.

Key Technological Innovations or Patents:

Honeywell is known for its innovative solutions. Some key areas of technological innovation include:

• Industrial Internet of Things (IIoT) and Connected Plant Solutions: Leveraging data analytics and connectivity to improve operational efficiency.
• Cybersecurity Solutions for Industrial Control Systems: Protecting critical infrastructure from cyber threats.
• Advanced Sensors and Measurement Technologies: Developing highly accurate and reliable sensors for various applications.

Manufacturing Facilities and Production Capacity:

HAIL has manufacturing facilities in India. Details about the exact production capacity are not always publicly disclosed.

Quality Certifications and Standards:

Honeywell Automation India Limited adheres to international quality standards and certifications.

Any Unique Selling Propositions or Technological Advantages:

• Integrated Solutions: Offers complete, end-to-end automation solutions.
• Global Technology Leadership: Benefits from Honeywell’s global R&D and technology expertise.
• Strong Customer Support Network: Provides comprehensive service and support to its customers.

Recent Product Launches or R&D Initiatives:

• HAIL frequently launches new products and solutions to address evolving customer needs.
• Recent initiatives focus on developing sustainable and energy-efficient solutions, as well as leveraging digital technologies like AI and machine learning.

Primary Customers #

Target Industries and Sectors:

Honeywell Automation India Limited serves a wide range of industries and sectors, including:

• Oil & Gas
• Refining
• Petrochemicals
• Chemicals
• Pharmaceuticals
• Power Generation
• Cement
• Metals & Mining
• Pulp & Paper
• Buildings (Commercial & Residential)
• Infrastructure

Geographic Markets (Domestic vs. International):

HAIL primarily focuses on the domestic (Indian) market.

Major Client Segments (agricultural, industrial, residential, etc.):

• Industrial: Process industries, manufacturing plants.
• Commercial: Office buildings, shopping malls, hotels.
• Residential: Apartment complexes, gated communities.
• Infrastructure: Airports, metro systems, data centers.

Distribution Network and Sales Channels:

• Direct sales force
• Channel partners and distributors
• System integrators

Major Competitors #

Direct Competitors in India and Globally:

Key competitors include:

• ABB India: A major player in automation and power technologies.
• Siemens India: Offers a broad range of automation solutions.
• Schneider Electric India: Specializes in energy management and automation.
• Emerson Electric: Provides automation solutions for process industries.

Competitive Advantages and Disadvantages:

• Advantages: Strong brand reputation, global technology leadership, comprehensive product portfolio, strong customer support.
• Disadvantages: High price point compared to some competitors, strong competition from established players in specific sectors.

How They Differentiate from Competitors:

• Focus on integrated solutions and complete automation offerings.
• Emphasis on technological innovation and R&D.
• Strong customer service and support network.

Future Outlook #

Expansion Plans or Growth Strategy:

• Expanding presence in high-growth sectors like pharmaceuticals, infrastructure, and smart cities.
• Investing in R&D to develop innovative and sustainable solutions.
• Strengthening channel partnerships and distribution network.

Upcoming Products or Innovations:

• Developing solutions based on Industrial Internet of Things (IIoT) and data analytics.
• Introducing advanced cybersecurity solutions for industrial control systems.
• Expanding the portfolio of energy-efficient and sustainable products.

Sustainability Initiatives or ESG Commitments:

• Developing solutions that promote energy efficiency and reduce greenhouse gas emissions.
• Implementing sustainable manufacturing practices.
• Promoting ethical and responsible business practices.

Industry Trends Affecting Their Business:

• Growing demand for automation and digitalization in various industries.
• Increasing focus on energy efficiency and sustainability.
• Rising concerns about cybersecurity in industrial control systems.

Long-Term Vision and Strategic Goals:

Honeywell Automation India Limited aims to be a leading provider of automation and control solutions in India, contributing to a safer, more efficient, and sustainable future.

Comprehensive Performance Overview #

3-Year Trend Analysis of Key Financial Metrics #

• Revenue from operations increased by 17.7% in FY 2023-24 (from INR 34,476 million to INR 40,582 million) and increased by 17% from FY 2021-22 to FY 2023-24, showing continous growth during the period.
• Operating profit margin decreased from 18.9% in FY 2022-23 to 18.0% in FY 2023-24, yet, it is up from 15.5% from FY 2021-22.
• Net profit margin decreased slightly from 12.8% in FY 2022-23 to 12.4% in FY 2023-24; overall the net profit margin remained relative stable over the 3-year period.
• Export sales represented 40% of Total sales in FY 2023-2024 slightly decreasing from 42% in the previous year.
• Return on Net Worth increased by 0.5% in FY 2023-2024

Business Segment Performance #

• The Company operates in a single reportable segment: “Automation and Control Systems.”
• Process Solutions business delivered strong performance across key financial parameters, driven by strategic customer and EPC engagements, and strong performance in the product businesses. There was significant tailwinds in life sciences verticle.
• Honeywell Sensing Solutions (HSS) achieved growth through sensor and switch applications in transportation, medical, healthcare, defense, and aerospace, also introducing new product portfolio related to Electric Vehicles and Green Hydrogen.
• Building Solutions business has experienced continued growth, by leveraging Honeywell’s Enterprise Building IntegratorTM (EBI) and capitalizing on increased government funding for infrastructure projects.
• Building Management Systems (BMS) unit experienced consistent growth, focusing on commercial excellence levers and targeting high-growth verticals.
• The Exports business (Engineering Services, Contract Manufacturing & Projects) serves Honeywell affiliates and has demonstrated competitiveness, particularly in the EMEA and APAC regions.

Major Strategic Initiatives and Their Progress #

• The company is leveraging the “Honeywell Accelerator” operating system to revitalize business management, improve speed, and drive performance in various areas, including innovation, supply chain, customer service, and talent development.
• The Company focuses on Capex and Opex in energy, infrastructure, automation and industrial digitalization to drive growth and support sustainable energy transition.
• Localization and expansion into underpenetrated geographies through channel partners and OEM engagements are key strategies.
• The Company is increasing focus on digital transformation, cybersecurity, and sustainability solutions to meet evolving market demands.
• The company strengthened its sustainability Portflio by expanding products and solutions related to Battery Energy Storage Systems (BESS), compressed biogas, hydrogen production, and intelligent building optimization.

Risk Landscape Changes #

• Geopolitical risks, including the Russia-Ukraine war and Middle East tensions, pose increased threats to the global economy and supply chains, potentially leading to higher costs.
• While India’s net oil and gas import bill decreased in FY 2023-24 due to lower global prices, dependence on crude oil imports remains a vulnerability.
• Global financial tightening and slowing demand could impact exports and foreign capital inflows.
• Fluctuations in the Indian Rupee exchange rate, though currently stable, remain a risk due to external factors and domestic deficits.
• The competitive landscape is intensifying, creating pricing pressures in both domestic and export markets.
• Supply Chain Disruption and high energy costs may squeeze the margins.

ESG Initiatives and Metrics #

• The Company is committed to achieving carbon-neutral operations by 2035.
• Significant advancements in carbon emissions reduction, including the adoption of renewable energy sources and energy-efficient technologies, have been implemented.
• Green power sourcing at the Hadapsar facility was substantially elevated, with 80% green power utilization target.
• Social initiatives include strengthening rural healthcare infrastructure, holistic rural development, and education/skill development programs.
• The Company has strong governance practices, ensuring transparency, integrity, and accountability, with the Board overseeing strategic decisions, risk management, and corporate governance.
• The Company planted around 29,260 saplings.

Management Outlook #

• The management is confident in the strong fundamentals of the Indian economy, anticipating long-term growth despite global uncertainties.
• Continued focus on infrastructure, manufacturing, and energy sectors in India presents opportunities.
• The Company is strategically positioned to leverage growth in sectors like oil and gas, renewable energy, metals/mining, and life sciences.
• The Company will continue to focus in capex, opex, energy transition and sustainability.
• The management focus will continue to drive profitable growth through operational excellence, productivity initiatives, and cost rationalization, addressing risks related to competition, supply chain disruptions, and inflation.

Detailed Analysis #

Strategic and Management Analysis of Honeywell Automation India Limited #

Long-Term Strategic Goals and Progress #

• Process Solutions: Aligns with India’s ‘Make in India’ initiative, sustainability goals, energy security focus, and digitalization drive. Growth is targeted in software solutions like cybersecurity and the renewable energy market.
• Honeywell Sensing Solutions: Aims to leverage megatrends in Electric Vehicles, Green Hydrogen. Focuses on localizing product portfolio for greater market penetration.
• Honeywell Building Solutions: Leverages Honeywell’s Enterprise Building Integrator (EBI) to deliver integrated solutions. Targets growth via analytics, energy optimization, connected building software, and cybersecurity, capitalizing on government infrastructure spending and private investments in data centers and semiconductor facilities.
• Building Management Systems: Focuses on commercial excellence, optimized sales, channel partner engagement, and new product offerings. Targets high-growth verticals like Healthcare, Data centers, and Government infrastructure.
• Exports: Aims to improve productivity and cost-competitiveness for global Honeywell business units, acting as a Center of Excellence for project execution.

Competitive Advantages and Market Positioning #

• Process Solutions: Leverages Honeywell’s technology, global expertise, and a wide portfolio for process industries, buildings, and smart city infrastructure. Positioned in sectors like oil and gas, renewable energy, metals/mining, utility power, gigafactories, semiconductors, and life sciences.
• Honeywell Sensing Solutions: Offers sensor and switch solutions for key industries like transportation, healthcare, and defense.
• Honeywell Building Solutions: Provides system integration services, leveraging its EBI. Provides advanced solutions for infrastructure projects. Offers comprehensive after-sales services.
• Building Management Solutions: Strong position in providing building automation products and solutions.
• Exports: Provides engineering services, contract manufacturing and project solutions across the Company’s lines of businesses.

Innovation Initiatives and R&D Effectiveness #

• Company-wide: Approximately 60% of Honeywell’s (parent company) R&D investment is directed towards ESG-oriented outcomes.
• Process Solutions: Expanding reach with channel partners and OEM engagements. Development of software solutions (e.g., cybersecurity).
• Honeywell Sensing Solutions: Established application engineering support in India and rationalized product portfolio.
• Honeywell Building Solutions: Focuses on analytics, energy optimization, and cybersecurity.
• Building Management Systems: Innovation includes new product offerings, connected buildings and upcoming product launches.

Management’s Track Record in Execution #

• Process Solutions: Achieved key wins and strong traction with strategic customers. Reasonable performance has been delivered in the face of the challenges.
• Honeywell Building Solutions: Consistent growth and strong track record on its core strategies.

Capital Allocation Strategy #

• The company proposed a final dividend of ’ 100 per share.

Organizational Changes and Their Impact #

• Mr. Ashish Gaikwad resigned as Managing Director and Mr. Atul Pai was appointed Managing Director w.e.f May 16,2024.
• Mr. Thaj Mathew appointed as an additional Director (Non-Executive Non-Independent Director)
• Honeywell Automation India Limited Employees’ Provident Fund Trust (HAIL PF Trust) received Provisional Order from the Employees’ Provident Fund Organization (EPFO) for surrender of exemption granted to the Company with effect from February 1, 2024.

ESG Framework #

ESG and Sustainability Analysis #

Environmental Metrics and Targets #

• The Company aims for carbon-neutral operations by 2035.
• Scope 1 GHG emissions were 237.59 metric tonnes of CO2 equivalent, and Scope 2 emissions were 5,123 metric tonnes of CO2 equivalent for FY 2023-24.
• Hadapsar facility increased green power sourcing to 80% can effectively offset 2,339 metric tonnes of carbon footprint annually since January 2024.
• Green energy utilization was 20% for FY2023-24, with 7.81 Lakhs kWh consumed, offsetting 541 metric tons of carbon.
• The Company has implemented Zero Liquid Discharge process.

Social Responsibility Programs #

• The Company, via Honeywell Hometown Solutions India Foundation (HHSIF), focuses on education, skill and research, holistic and sustainable community development, and humanitarian relief.
• Honeywell Center for Advancing Girls in Science impacted over 1,400 students in STEM education.
• Holistic Sustainable Community Development impacted over 18,000 beneficiaries and over 4,000 rural households.
• Strengthening Rural Health Infrastructure project impacted more than 2.1 million beneficiaries.
• Plant the Future Campaign planted over 120,000 saplings.
• CSR obligation for FY 2023-24 was ’ 110 million, fully spent.

Governance Structure and Effectiveness #

• The Board comprises six Directors: two Independent Non-Executive, one Managing Director, and three Non-Independent Non-Executive.
• The Board met four times during FY 2023-24, with the maximum interval between meetings not exceeding 120 days.
• Statutory committees include Audit, Nomination and Remuneration, Corporate Social Responsibility, Stakeholders’ Relationship, and Risk Management.
• Independent Directors fulfill conditions specified in SEBI Listing Regulations and are independent of management.
• Board evaluation outcomes were discussed by the NRC and the Board.

Sustainability Investments and ROI #

• Approximately 60% of Honeywell’s R&D investment for new products is directed towards ESG-oriented outcomes.

Regulatory Compliance and Future Preparations #

• The Company complies with the Companies Act, 2013, SEBI Listing Regulations, and Secretarial Standards.
• The Company complies with environmental laws including the Water (Prevention and Control of Pollution) Act, Air (Prevention and Control of Pollution) Act, and Environment Protection Act.
• The Company maintains a Whistle Blower Policy/Vigil Mechanism and a policy on prevention, prohibition, and redressal of sexual harassment at the workplace.
• The Company maintains records to manage and meet regulatory requirements to reclaim Plastics, E-waste, Hazardous waste and other waste.

Forward Outlook: Honeywell Automation India Limited (HAIL) - 2023-24 #

Segment Overview #

The company operates in the “Automation and Control Systems” segment across its businesses, including:

• Honeywell Process Solutions
• Honeywell Sensing Solutions
• Honeywell Building Solutions
• Building Management Systems
• Exports

Management Guidance and Assumptions #

• Focus on human capital development and retention.
• Commitment to a safe and healthy work environment.
• Drive growth and support sustainable energy transition and digital transformation.
• Leverage the Honeywell Accelerator operating system.
• Maintain a natural hedge position due to export business.
• Adherence to Honeywell’s commitment to carbon neutrality by 2035.
• Management responsibility for the evaluation of long-term contracts and project execution.

Market Growth Forecasts #

• Steady Indian construction sector.
• Government focus on energy transition (solar, hydrogen, biofuels, electric mobility).
• Growing industrial production.
• Increasing energy requirements due to population, urbanization, and industrialization.
• Refining capacity expected to grow by 22% by 2028 vs. 2023.
• Shift towards renewable energy sources in India’s energy mix.

Planned Strategic Initiatives #

• Investment in new product initiatives, automation, capacity enhancement, and localization.
• Focus on core strategies within Process Solutions and leveraging digitization and sustainability.
• Expansion into underpenetrated geographies via channel partners and OEM engagements (Process Solutions).
• Increased R&D investments directed toward ESG-oriented outcomes.
• Prioritize right technologies of Honeywell Sensing Solutions (HSS) and future customer demand.
• Enhance reach to serve the renewable energy market with new solutions.
• Leverage expertise in analytics, energy optimization, software solutions for connected buildings, and cybersecurity (Building Solutions).
• Targeting high-growth verticals via Connected Buildings initiatives and new product launches (Building Management Systems).

Capital Expenditure Plans #

• Continued investment in new product initiatives, automation, capacity enhancement, and localization.
• Planned CAPEX for energy and infrastructure.

Efficiency Improvement Targets #

• Leveraging Honeywell Accelerator framework for best practices.
• Continued focus on working capital performance and positive operating cash flows.
• Drive new productivity initiatives, operational excellence, and cost rationalization.
• Digitalization of manufacturing operations.
• Implementation of Sustainable Opportunity policy.

Potential Challenges and Opportunities #

• Challenges:
  • Geopolitical risks.
  • Fluctuations in oil price.
  • Global financial tightening and capital outflows.
  • Indian rupee vulnerability.
  • Global supply chain disruptions and energy price shocks.
  • Increasing competition and pricing pressures.
• Opportunities:
  • Government’s capex investment push and turnaround in the private investment cycle.
  • Government’s continued focus on energy transition.
  • Growth in the private investment recovery, capacity utilization, and business sentiments.
  • India’s digital transformation journey and increased data center capacity.
  • Growth in the Indian construction sector.
  • Government’s support of the manufacturing sector via PLI schemes.
  • Government focus on development of National Gas Grid and City Gas distribution.
  • India’s net zero 2070 ambition, clean energy deployment and creation of domestic clean energy technology supply chains.

Scenario Analysis and Sensitivity to Key Assumptions #

• Geopolitical Instability Scenario: Increased instability could worsen supply chain disruptions. Sensitivity: High.
• Rupee Depreciation Scenario: Significant rupee depreciation could impact profitability. Sensitivity: Moderate.
• Technological Disruption: Failure to maintain a competitive edge, could erode its competitive advantage and lead to reduction of its market share.
• Government Policy Changes in government incentives and subsidies to renewable energy, could impact the demand for certain technologies.
• Oil Price Volatility Scenario: Higher oil prices could negatively affect operating margins. Sensitivity: Moderate.
• Competition Scenario: Increased competition could exert greater pricing pressure. Sensitivity: High.
• Economic Growth Slowdown Scenario: Slower economic growth could result in slower growth rate in construction and export.

Audit and Compliance Analysis #

Auditor’s Opinion and Qualifications #

• The auditor’s opinion on the financial statements is unmodified.
• The auditors noted two areas of non-compliance:
  • The Company did not maintain a daily backup of the books of accounts on a server physically located in India.
  • The Company did not comply with the requirement of an audit trail to log all data changes at the database level.

Key Accounting Policies and Changes #

• The Company recognizes revenue from turnkey contracts on a percentage-of-completion basis.
• Cost contingencies are included in revenue estimates.
• Property, Plant, and Equipment are depreciated using the straight-line method over estimated useful lives, which differ from Schedule II of the Companies Act, 2013 for certain assets.
• Inventories are stated at the lower of cost (standard cost method, approximating moving weighted average) and net realizable value.
• The Company applies the expected credit loss model for recognizing impairment loss on financial assets.
• There were no new accounting standards or amendments applicable during the reporting periods.
• Post-employment benefit obligations, specifically the Provident Fund, shifted from a defined benefit to a defined contribution plan effective February 1, 2024.

Internal Control Effectiveness #

• The auditor’s report expresses an unmodified opinion on the adequacy and operating effectiveness of the Company’s internal financial controls over financial reporting.
• The Company has in place the mandatory whistle-blower mechanism for Directors and employees for reporting unethical behavior, fraud, or violation of company’s code of conduct.

Regulatory Compliance Status #

• The Company complied with the provisions of Sections 185 and 186 of the Companies Act pertaining to investments.
• The Company maintains cost records as specified by the Central Government under Section 148(1) of the Act.
• The Company complied with the requirements of the Stock Exchanges/SEBI, and statutory authorities on all matters of capital markets during the last three years. There are no penalties imposed on the Company.
• The Company is compliant with applicable environmental laws and regulations.
• The Company is not required to be registered under Section 45-IA of the Reserve Bank of India Act, 1934.
• The company did not fully comply with the rule to keep backup of books of accounts on servers located in India.
• The company did not fully comply with the audit trail rule for accounting software.

Legal Proceedings and Their Potential Impact #

• The Company is involved in various direct and indirect tax disputes/litigations.
• Contingent liabilities exist for income tax, excise duty, sales tax, customs duty, and third-party claims.
• Management expects its position on these matters will likely be upheld.

Related Party Transactions #

• All related party transactions were conducted at arm’s length and in the ordinary course of business.
• Sales to Honeywell International Inc. (ultimate holding company) were ’ 3,583 million.
• Purchases from Honeywell International Inc. were ’ 560 million.
• Sales to Honeywell Measurex (Ireland) Ltd. (fellow subsidiary) were ‘4,313 million.
• Purchases from Honeywell Measurex (Ireland) Ltd were Nil.
• Material Related Party Transactions with HII were approved up to an aggregate value not exceeding ‘7,700 million during FY 2024-25.
• Material Related Party Transactions with HMIL were approved up to an aggregate value not exceeding ’ 6,500 million during FY 2024-25.

Subsequent Events #

• Mr. Ashish Gaikwad resigned as Managing Director, effective May 15, 2024.
• Mr. Atul Pai was appointed as Managing Director for a term of 5 years, effective May 16, 2024, subject to shareholder approval.
• Mr. Thaj Mathew was appointed as an Additional Director (Non-Executive Non-Independent Director), effective May 16, 2024, subject to shareholder approval.
• The Board of Directors proposed a final dividend of ‘100 per equity share for FY 2023-24, subject to shareholder approval at the AGM.

Analysis of Accounting Quality and Regulatory Risk Assessment #

• The financial statements did not follow the backup and audit trail regulations completely.
• The Company’s reliance on estimates for revenue recognition and cost estimation on long-term contracts introduces a degree of subjectivity.
• The ongoing tax litigations pose a regulatory and financial risk, although management expects a favorable outcome.
• There are no material changes or commitments that might affect financial position of the company.