This multibagger stock turned Rs 35,000 to Rs 1 crore in 20 years; should you buy now?

The Indian equity market has produced many gems which have transformed the fortunes of investors. One such gem is Honeywell Automation. Its scrip has rallied over 29,210% to Rs 41,928 as on June 3 from Rs 143.05 in June 2001. That means, a Rs 35,000 investment made in the stock 20 years ago would have fetched Rs 1.02 crore at present.

Market analysts hold a mixed view on the stock considering the wider basket of opportunities going ahead amid Covid-19 pandemic.

Honeywell is a market leader in the electronics instrumentation and process control equipment industry. It is also a leading provider of integrated automation and software solution that improves productivity-enhancing comfort and ensuring the safety and security to homes and business premises.

Financials

For the latest quarter ended March 31, 2021, Honeywell Automation reported a 6.4% fall in net profit at Rs 104.02 crore against Rs 111.14 crore in the corresponding quarter last year. Total income also declined by 5.63% YoY to Rs 696.43 crore during the quarter under review. However, the company has managed to post over 25% annualised growth in net profit during the past five years.

Should you buy?

While in the pre‐crisis era, automation was viewed as a mean to innovate, reduce cost and gain a competitive edge, now the purpose has shifted to survival and damage limitation. To mitigate global supply chain risks for future crises, manufacturers will consider bolstering their in‐house capabilities instead of outsourcing manufacturing to other countries. There are hopes that the ongoing pandemic will intensify the need to automate.

Considering the present market environment, brokerage Edelweiss Securities is positive on Honeywell Automation (HAIL) with a price target of Rs 50,500. “Honeywell Automation suffered high single-digit contraction, which might be from weaker domestic revenues for FY21. Incremental demand outlook both from parentco’s end markets serviced by Honeywell and domestic demand normalisation with expanding total available market augur well for overall growth,” the brokerage said.

On the other hand, ICICI Securities has ‘Reduce’ rating on the company with a price target of Rs 36,942. The brokerage downgraded the stock due to rich valuation and working capital stretch.

However, it added that the long-term secular growth drivers in process automation, diversification towards building and cyber security, and constant improvement in the company’s technical portfolio, will drive HAIL’s long-term growth.

Anand Rathi Shares and Stock Brokers recently cut the target price to Rs 45,525 (Rs 49,281 earlier). “Honeywell’s intent to focus on growing segments such as warehouse automation, digital safety, productivity solutions and asset-health monitoring augurs well. We trim our estimates due to the near-term uncertainty,” the brokerage said.