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India Equity Research Reports, IPO and Stock News
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Strong Parent: Honda Siel Power Products Ltd.(HSPP) benefits from
the rich experience of its parent, Honda Motor Co. Japan (HM), a USD84
billion enterprise across 34 countries. HM has a strong R&D setup and a
proven technical expertise when it comes to engines. It is the second
largest engine manufacturer in the world. HSPP gets to leverage this
reputation and expertise by bringing to market innovative and quality
products all the time.
Gensets Market leader: HSPP is the undisputed market leader when it
comes to portable generators. This has created a dual advantage. First,
it provides a solid network for launching other products as well as
address the critical element of after sales service. Second, it helped the
Company build a lasting bridge of quality and trust with its customers.
Government Support: The Government has been supporting the
farming community through various schemes, e.g. National Food
Security Mission (NFSM). NFSM offers subsidies to farmers for
equipment purchases. Such schemes/support are expected to continue
and thus help the Company grow its sales.
Farm Mechanization: Farmers have been spending more on
mechanized products like water pumps and engines. There have also
been reports that with the advent of schemes like NREGA, at times it
becomes difficult to find farm labour. This scarcity to an extent has been
playing a role in increasing farm mechanization. All of these should help
augur the Company's sales.
Our Take
HSPP has a strong set of financials. Its robust balance sheet includes
over Rs. 1,130 Mn in Net Cash i.e. Rs. 111 of cash per share. The
Company is debt free and has consistently paid dividends. Not to forget,
our country is experiencing a consumption wave. As more money ends
up into the hands of people, they prefer to opt for better quality and
branded products. With the name and trust of Honda, HSPP is rightly
positioned to benefit from this. At the CMPof Rs. 379.2, HSPPtrades at a
PE (TTM) of 10.6 and an EV to Sales (TTM) of 0.66. We recommend a
'BUY'.
Investment Rationale
8
HSPP benefits from the rich experience of its parent, Honda Motor Co. Japan
(HM). HM is a USD84 billion enterprise with 95 production facilities across 34
countries and sells over 5 million power products annually. It has a strong
R&D setup and a proven technical expertise when it comes to engines. HM is
the second largest engine manufacturer in the world. HSPP gets to leverage
this reputation and expertise by bringing to market innovative and quality
products all the time.
HSPP is the undisputed market leader when it comes to portable gensets.
The category has been stagnant/low growth by itself. However, this strong
position in gensets has helped create a dual advantage for the Company.
First, it provides a solid network for launching other products as well as
address the critical element of after sales service. Second, it has helped the
Company build a lasting bridge of quality and trust with its customers. When a
company is selling products in rural India, it is this word of mouth publicity that
counts. A potential buyer may not be educated enough to understand the
technical specifications and similarities/differences between rival products
however an assurance from a fellow member about the quality and reliability
of a particular product can tilt the buying decision in favour of that Company.
The Government has been supporting the farming community through the
launch of various schemes, e.g. National Food Security Mission (NFSM).
NFSM offers subsidies to farmers for equipment purchases. This helps
increase water pump sales for the Company. Focus on IT based projects like
E-Governance that require power backup have improved generator sales.
Such schemes/support are expected to continue and thus help the Company
grow its sales.
Mandatory lending by banks to priority sectors (includes agriculture) and
other such initiatives have enabled the farmers to spend more on
mechanized products like water pumps and engines. There have also been
reports that with the advent of schemes like NREGA, at times it becomes
difficult to find farm labour. This scarcity to an extent has been playing a role in
increasing farm mechanization. All of these should help augur the Company's
sales.
HSPP has a strong balance sheet with over Rs. 1,130 Mn in Net Cash. The
Company is debt free. It has been consistently paying dividends. Its strong
brand equity allows it to recover receivables at a much faster pace than
paying out to vendors thus reducing working capital requirements. All of these
indicate that the Company is set on a strong footing.
The availability of substitutes is a major threat for HSPP. The role that is
performed by generators can also be fulfilled by inverters and in a much more
hassle free manner. The function that a petrol kerosene pump does can also
be done by a submersible pump (in some cases) or by an electric motor
based pump where electricity is available (without fluctuations). Over the last
decade inverter sales have zoomed while the generator market has remained
pretty much flat. Though generators have their advantages too over inverters
(for higher power requirements, ease of external usage, etc), this does take
away a big share from the market for backup power.
Similarly, in the case for pumps, where farmers are sourcing underground
water, if the water table goes down too much, they may switch to submersible
pumps. This could impact the sales of petrol-kerosene pumps.
Like in many other categories/businesses, imports of engines from China
have continued to grow. These engines may not comply with the BIS
standards and also it may be difficult to get reliable after sales service.
However they are comparatively very cheap and pose a concern for the
domestic industry.
Some rural markets have been facing a shortage of kerosene. Lack of
kerosene availability would directly hamper the sales of the Company's
products as most of them run on petrol-kerosene.
Raw material costs comprise a little over 60% of the Company's Sales. This
includes an aluminium alloy, steel sheets, magnet wires and other metal
based components. As the world economy recovers, demand for these
commodities keeps growing. If inflation becomes too high and the Company
cannot pass on the increase in costs to customers through higher selling
prices, it may directly affect the margins.
HSPP has a strong set of financials. Its robust balance sheet includes over
Rs. 1,130 Mn in Net Cash. This translates to Rs. 111 of cash per share,
especially interesting when the stock's CMP is Rs. 379.2. The Company is
debt free and has consistently paid dividends. HSPP products can very well
be expected to stay on top of the technology curve, given the backing from a
strong MNC parent, Honda Motor Co, Japan. Moreover, our country is
experiencing a consumption wave. As more money ends up into the hands of
people, they prefer to opt for better quality and branded products. With the
name and trust of Honda, HSPPis rightly positioned to benefit from this. At the
CMP of Rs. 379.2, HSPP trades at a PE(TTM) of 10.6 and an EV to Sales
(TTM) of 0.66.
We recommend a 'BUY'.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Strong Parent: Honda Siel Power Products Ltd.(HSPP) benefits from
the rich experience of its parent, Honda Motor Co. Japan (HM), a USD84
billion enterprise across 34 countries. HM has a strong R&D setup and a
proven technical expertise when it comes to engines. It is the second
largest engine manufacturer in the world. HSPP gets to leverage this
reputation and expertise by bringing to market innovative and quality
products all the time.
Gensets Market leader: HSPP is the undisputed market leader when it
comes to portable generators. This has created a dual advantage. First,
it provides a solid network for launching other products as well as
address the critical element of after sales service. Second, it helped the
Company build a lasting bridge of quality and trust with its customers.
Government Support: The Government has been supporting the
farming community through various schemes, e.g. National Food
Security Mission (NFSM). NFSM offers subsidies to farmers for
equipment purchases. Such schemes/support are expected to continue
and thus help the Company grow its sales.
Farm Mechanization: Farmers have been spending more on
mechanized products like water pumps and engines. There have also
been reports that with the advent of schemes like NREGA, at times it
becomes difficult to find farm labour. This scarcity to an extent has been
playing a role in increasing farm mechanization. All of these should help
augur the Company's sales.
Our Take
HSPP has a strong set of financials. Its robust balance sheet includes
over Rs. 1,130 Mn in Net Cash i.e. Rs. 111 of cash per share. The
Company is debt free and has consistently paid dividends. Not to forget,
our country is experiencing a consumption wave. As more money ends
up into the hands of people, they prefer to opt for better quality and
branded products. With the name and trust of Honda, HSPP is rightly
positioned to benefit from this. At the CMPof Rs. 379.2, HSPPtrades at a
PE (TTM) of 10.6 and an EV to Sales (TTM) of 0.66. We recommend a
'BUY'.
Investment Rationale
8
HSPP benefits from the rich experience of its parent, Honda Motor Co. Japan
(HM). HM is a USD84 billion enterprise with 95 production facilities across 34
countries and sells over 5 million power products annually. It has a strong
R&D setup and a proven technical expertise when it comes to engines. HM is
the second largest engine manufacturer in the world. HSPP gets to leverage
this reputation and expertise by bringing to market innovative and quality
products all the time.
HSPP is the undisputed market leader when it comes to portable gensets.
The category has been stagnant/low growth by itself. However, this strong
position in gensets has helped create a dual advantage for the Company.
First, it provides a solid network for launching other products as well as
address the critical element of after sales service. Second, it has helped the
Company build a lasting bridge of quality and trust with its customers. When a
company is selling products in rural India, it is this word of mouth publicity that
counts. A potential buyer may not be educated enough to understand the
technical specifications and similarities/differences between rival products
however an assurance from a fellow member about the quality and reliability
of a particular product can tilt the buying decision in favour of that Company.
The Government has been supporting the farming community through the
launch of various schemes, e.g. National Food Security Mission (NFSM).
NFSM offers subsidies to farmers for equipment purchases. This helps
increase water pump sales for the Company. Focus on IT based projects like
E-Governance that require power backup have improved generator sales.
Such schemes/support are expected to continue and thus help the Company
grow its sales.
Mandatory lending by banks to priority sectors (includes agriculture) and
other such initiatives have enabled the farmers to spend more on
mechanized products like water pumps and engines. There have also been
reports that with the advent of schemes like NREGA, at times it becomes
difficult to find farm labour. This scarcity to an extent has been playing a role in
increasing farm mechanization. All of these should help augur the Company's
sales.
HSPP has a strong balance sheet with over Rs. 1,130 Mn in Net Cash. The
Company is debt free. It has been consistently paying dividends. Its strong
brand equity allows it to recover receivables at a much faster pace than
paying out to vendors thus reducing working capital requirements. All of these
indicate that the Company is set on a strong footing.
The availability of substitutes is a major threat for HSPP. The role that is
performed by generators can also be fulfilled by inverters and in a much more
hassle free manner. The function that a petrol kerosene pump does can also
be done by a submersible pump (in some cases) or by an electric motor
based pump where electricity is available (without fluctuations). Over the last
decade inverter sales have zoomed while the generator market has remained
pretty much flat. Though generators have their advantages too over inverters
(for higher power requirements, ease of external usage, etc), this does take
away a big share from the market for backup power.
Similarly, in the case for pumps, where farmers are sourcing underground
water, if the water table goes down too much, they may switch to submersible
pumps. This could impact the sales of petrol-kerosene pumps.
Like in many other categories/businesses, imports of engines from China
have continued to grow. These engines may not comply with the BIS
standards and also it may be difficult to get reliable after sales service.
However they are comparatively very cheap and pose a concern for the
domestic industry.
Some rural markets have been facing a shortage of kerosene. Lack of
kerosene availability would directly hamper the sales of the Company's
products as most of them run on petrol-kerosene.
Raw material costs comprise a little over 60% of the Company's Sales. This
includes an aluminium alloy, steel sheets, magnet wires and other metal
based components. As the world economy recovers, demand for these
commodities keeps growing. If inflation becomes too high and the Company
cannot pass on the increase in costs to customers through higher selling
prices, it may directly affect the margins.
HSPP has a strong set of financials. Its robust balance sheet includes over
Rs. 1,130 Mn in Net Cash. This translates to Rs. 111 of cash per share,
especially interesting when the stock's CMP is Rs. 379.2. The Company is
debt free and has consistently paid dividends. HSPP products can very well
be expected to stay on top of the technology curve, given the backing from a
strong MNC parent, Honda Motor Co, Japan. Moreover, our country is
experiencing a consumption wave. As more money ends up into the hands of
people, they prefer to opt for better quality and branded products. With the
name and trust of Honda, HSPPis rightly positioned to benefit from this. At the
CMP of Rs. 379.2, HSPP trades at a PE(TTM) of 10.6 and an EV to Sales
(TTM) of 0.66.
We recommend a 'BUY'.
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