Honda Siel (CMP:Rs.215) is a 65% subsidiary of Honda Motors Japan. Honda Siel is extreamly performing well since last 3-4 years.. For March 2008, the company reported about Rs 25 kind of earnings, so at about Rs 210, it’s quoting at just about 9 times 2008 earnings. This company manufacturer’s water-pump, gen-sets, engines and the demand is pretty robust. It is one multinational company at just 8 PE for multiple of FE09."Honda Power Products Limited (HPP) offers a range of Portable Power Products viz, Gensets, Engines, Water Pumping sets, Lawnmower and Brush Cutters. Likely surge in demand for the products offered along with focus on rationalizing the costs would enable it to scale up its financials.
Factors like longer duration power disturbances, governments improving focus on meachanised farming and higher investments in infrastructure projects would lead to a surge in demand for the products offered by HPP in future.
On the back of rising demand for higher-end gensets from small industrial/ private setups and company's focus on the same, we estimate per unit realization to improve from approximately Rs 25000/unit in FY2007 to Rs 28600/unit in FY2009E, thereby driving up sales.
HPP, is focusing on developing new applications for its General-Purpose Engines (GPE). With volumes likely to increase by around 15% and margins remaining more or less stable, the business of GPE and Water Pumpsets is expected to contribute to the company's sales growth.
Multiple factors like focusing on sale of higher end gensets, indigenous manufacturing of certain components and relocating of the Rudrapur plant to Greater Noida would enable HPP to reduce its operational costs and scale up its margins.
With its cash and land valued at Rs 126/share, and it is trading at Rs.215 the stock provides adequate cushioning to investors thus protecting the downside risk.
At the CMP of Rs 215, the stock is trading at 7.78x its FY2008E and FY2009E Rs 27.6 respectivel. Having huge land bank and sound financials we are expecting bonus annoucement in the coming months from Honda Siel. We Initiate Coverage on the stock with a 'Buy' recommendation at these levels.
