Honda India Power Products Limited Research Report

Industry	Market Price	Recommendation	Target	Time Horizon
Electrical Equipment	1,155	BUY	1,415	6 Months

Honda India Power Products Limited (HIPP) Q3 FY 2022 Review

Honda India Power Products Limited (HIPP) reported net revenue of ₹33,751 lakhs for the quarter ended December 31, 2021, as compared to ₹28,546 lakhs for the quarter, ended December 31, 2020. EBIT and Profit After Tax were ₹3,118 lakhs and ₹2,322 lakhs for the quarter ended, December 31, 2021, as compared to ₹2,875 lakhs and ₹2,076 lakhs, during the corresponding quarter of the previous year.

Honda India Power Products Limited Investment Summary

CMP (₹)	1,175
52 Week H/L	1,517/915
Market Cap (Lakhs)	1,24,369
Face Value (₹)	10.00
Promoter Holding (%)	66.67
Non-Promoter Holding (%)	33.33
Total (%)	100.00
Book Value	₹ 600
EPS TTM	₹ 48

Honda India Power Products Limited Overview

Honda India Power Products (HIPP), a leading manufacturer of power products in India, successfully crossed the 5 million units accumulated production milestone in February 2022.
In July 2020, the company changed its name from ‘Honda Siel Power Products Limited’ to ‘Honda India Power Products Limited.
It exports its products to 35 plus countries across the world.
The company has a network of 650 plus dealers through which it caters to

Honda India Power Products Limited Quarterly Summary

Quarterly (INR in lakhs)	Dec-21	Sep-21	Jun-21	Mar-21	Dec-20
Sales	33,751	23,087	26,424	29,562	28,546
Other Income	259	591	874	439	407
Total Revenue	34,010	23,678	27,298	30,001	28,953
Total Expenditure	30,892	21,548	24,645	27,975	26,078
EBIT	3,118	2,130	2,653	2,026	2,875
Interest	7	7	6	8	10
EBT	3,111	2,123	2,647	2,018	2,865
Tax	787	533	666	489	773
Net Profit	2,324	1,590	1,981	1,529	2,092

Business

Honda India Power Products Limited (HIPP) is one of the first Japanese companies to enter the Indian market in 1985 and thereby contribute to strengthening economic relations between India and Japan.
HIPP is engaged in manufacturing and marketing of Portable Gensets, Water Pumps, General Purpose Engines, Lawn Mower, Brush Cutters, and Tillers.
The company is part of ‘Honda Group’.
There was an agreement between Honda Motor Company Limited (parent) and Usha International Limited to operate the company as a joint venture entity. The following agreement was terminated on 31st March 2020. Post the termination, Usha International Limited has required, re-classification from promoter to the ‘public’ category.
In FY 2020, Generator accounted for 62% of total revenue, followed by Engines (15%), Water Pumps (10%), Tillers (1%), and Others (12%). (Data for FY 2021 was not available)
Out of the total revenue, 50% of revenue have generated from India and 50% from other countries in FY 2021, compared to 59% and 41% in FY 2020.

HIPP Geographical segment wise Report

Revenue has increased by 11% in FY 2021, compared to the previous year. But net profit dropped by 27% in FY 2021, compared to the previous year. Drop in profit was due to an increase in the prices of raw materials.

HIPP Revenue Trend

Topline and Bottomline trend (Lakhs)

HIPP Revenue Trend

EBITDA Margin Trend (%)

ROE, ROCE, and Asset Turnover trend (%)

Ratio Analysis

RATIO	Mar-18	Mar-19	Mar-20	Mar-21
Profitability Ratio
Gross Margin	43%	41%	43%	37%
EBITDA Margin/ Operating Profit Margin	15%	13%	13%	9%
EBIT Margin	12%	11%	10%	7%
Pre-Tax Margin	12%	11%	10%	7%
Net Profit Margin	7.90%	6.64%	7.84%	5.18%

Return on Investment
Return on Asset – ROA	10.87%	8.65%	9.71%	6.46%
Return on Capital Employed – ROCE	21.07%	17.51%	15.86%	11.27%
Return on Equity – ROE	13.69%	10.92%	12.24%	8.28%

Liquidity Ratio
Current Ratio (X)	3.47	3.57	3.86	3.27
Quick Ratio (X)	2.72	2.76	2.40	2.39
Cash Ratio (x)	1.58	0.44	0.25	0.74

Turnover Ratio
Receivables Turnover	17.28	12.82	14.99	14.24
Inventory Turnover	4.31	4.95	3.11	3.27
Payables Turnover	6.27	6.44	6.21	6.58
Asset Turnover	1.38	1.30	1.24	1.25

Solvency Ratio
Debt to Equity Ratio (X)	-	-	-	-
Interest Coverage ratio	394.08	724.41	287.86	237.21

Honda India Power Products Limited Financial Overview

Profit and Loss Statement (₹ Lakhs)

	Mar-18	Mar-19	Mar-20	Mar-21
Revenue	77,741	81,588	84,864	93,894
Other Income	1,494	1,766	1,576	1,453
Total Revenue	79,235	83,354	86,440	95,347

Cost Of Goods Sold	45,582	50,081	50,231	60,801
Gross Profit	33,653	33,273	36,209	34,546

Excise Duty	961	-	-	-
Employee Benefits Expenses	8,649	9,846	11,436	10,740
Others Expenses	12,334	12,621	13,929	15,138
EBITDA	11,709	10,806	10,844	8,668

Depreciation And Amortisation	2,251	2,113	2,208	2,026
EBIT	9,458	8,693	8,636	6,642

Finance Cost	24	12	30	28
EBT Before Exceptional Items	9,434	8,681	8,606	6,614

Exceptional Items	-	-350	437	-
EBT	9,434	8,331	9,043	6,614

Tax Expenses	3,293	2,916	2,391	1,747
PAT	6,141	5,415	6,652	4,867

EPS
Basic	61	53	66	48
Diluted	61	53	66	48

Number Of Shares
Basic	101	101	101	101
Diluted	101	101	101	101

Cash Flow Statement (Lakhs)

	Mar-18	Mar-19	Mar-20	Mar-21
Net Profit Before Tax and Extra Ordinary Items	9,434	8,681	8,606	6,614
Net Cash from Operating Activities	5,500	2,059	-1,762	15,151
Net Cash Used for Investing Activities	-6,538	-1,263	4,724	-9,249
Net Cash From (Used For) Financing Activities	-940	-1,113	-1,311	-1,359
Net Increase in Cash and Cash Equivalents	-1,978	-317	1,651	4,543
Cash And Cash Equivalents at The Beginning of The Year	4,104	2,116	1,796	3,463
Cash And Cash Equivalents at The End of Year	2,116	1,796	3,463	8,026

Balance Sheet (Lakhs)

	Mar-18	Mar-19	Mar-20	Mar-21
ASSETS:
Non-Current Assets:
Property, Plant and Equipment	9,709	9,258	9,192	8,548
Right-Of-Use Assets	-	-	496	514
Capital Work-in-Progress	94	344	189	247
Intangible Assets	364	197	73	67
Financial Assets:
Loans and Advances	95	84	100	103
Other Financial Assets	3,055	1,108	6	3,669
Deferred Tax Assets	185	363	531	613
Non-Current Assets	3,336	3,920	4,401	4,416
Other Non-Current Assets	676	1,008	907	1,026
Total Non-Current Assets	17,514	16,282	15,895	19,203

Current Assets:
Inventories	9,076	11,168	21,105	16,049
Financial Assets:
Trade Receivables	6,360	6,369	4,953	8,230
Cash and Cash Equivalents	2,116	1,796	3,463	8,026
Other Bank Balances	17,067	4,300	85	5,570
Loans and Advances	66	16,068	16,068	16,046
Other Financial Assets	675	371	155	148
Other Current Assets	6,780	9,194	9,806	5,825
Total Current Assets	42,140	49,266	55,635	59,894

Total Assets	59,654	65,548	71,530	79,097

EQUITY AND LIABILITIES:
Equity:
Equity Share Capital	1,014	1,014	1,014	1,014
Other Equity	-	-	-	-
Reserve and Surplus	46,431	50,696	55,947	59,537
Total Equity	47,445	51,710	56,961	60,551

Liabilities:
Non-Current Liabilities:
Financial Liabilities
Lease Liabilities	-	-	117	137
Provisions	67	52	39	68
Total Non-Current Liabilities	67	52	156	205

Current Liabilities:
Financial Liabilities
Trade Payables:
Total Outstanding Dues of Micro and Small Enterprise	103	261	623	1,074
Other Creditors	7,504	8,053	8,116	10,377
Lease Liabilities	-	-	2	7
Other Financial Liabilities	1,305	1,708	1,609	1,458
Contract Liabilities	-	1,101	917	2,252
Provisions	1,054	1,088	1,544	1,687
Other Current Liabilities	2,176	1,575	1,602	1,486
Total Current Liabilities	12,142	13,786	14,413	18,341

Total Equity and Liabilities	59,654	65,548	71,530	79,097

Industry Overview

Generator Set (Genset):

The Indian diesel Genset market is estimated to grow at a CAGR of 9.4% during 2021-2030.
The key factors responsible for the growth of the market include the advancement of the manufacturing industry and the rising demand for power for construction projects.
The pandemic had a negative impact on the supply of Diesel Genset in India, owing to the shutting down of manufacturing plants to curtail the spread of the disease. Demand for Gensets in 2020 also reduced due to the lockdown of various commercial establishments, including retail stores, offices, hotels, and airports. The reduction in the demand resulted in a price drop for diesel gensets, which further hampered the market progress.
The 5 kilovolt-Ampere (kVA)-75 kVA category to holds the largest share in the Indian Diesel Genset market, both in terms of volume and value in 2021. This is attributed to the high-volume demand for the gensets from residential facilities, commercial complexes, small industries, restaurants, and telecom towers. Furthermore, macro-economic growth in the country and a surge in the number of construction and infrastructure projects are expected to result in high demand for these gensets for meeting primary and auxiliary power requirements.

General Purpose Engine and Water Pumps:

General Purpose Engines are used as the power sources for various machines used in construction, industry, agriculture, home use lawn mowing and gardening equipment, as well as various handheld devices including hedge trimmers.
Water pumps are vital for supplying and draining water at firms, construction sites, as well as during droughts, floods, or other such disasters or emergencies, and can be divided into several types according to their application.
There are general purpose pumps that are used for the irrigation of fields and at various work sites, high-pressure pumps that can be easily transported and used anywhere.
Infrastructure growth, normal rainfall, farm mechanization, increasing rural income, government support, scarcity of farm labour could provide a boost to the demand for General Purpose Engines and Water Pumps.

Honda India Power Products Limited Technical Analysis

Stock is trading below EMA 50 and MA 50 indicator, with a support level of ₹915 and a resistance level of ₹1453. It is a good opportunity to double down your holdings in this company.
Currently with an RSI 14 of 41.02. Company is facings selling pressure.

Recommendation Rationale:

For the first nine months, Honda India Power Products Limited revenue increased by 29% to ₹83,262 lakhs, compared to the previous year at ₹64,332 lakhs. Profit After Tax increased by 58% to ₹1,986 lakhs, compared to the previous year at ₹1,258 lakhs.
The company has successfully crossed the 5 million units accumulated production milestone in February 2022.
The Company is virtually Debt-free.
The company has a network of 650 plus dealers through which it caters to 25 lakhs plus customers.
Shares of the promoter are not pledged.
FPI/FII and the mutual fund have increased their shareholding pattern.
A normal monsoon, increasing rural income, Government subsidy for farmers, increasing demand for the infrastructure sector, could increase demand for the company’s products.

Valuation

The company has grown at a 6% Compounded annual growth rate, from FY 2018 to FY 2021.
The net profit of the company has reduced from 7.90% in FY 2018 to 5.18% in FY 2021, except there was a slight increase in profit in FY 2020 at 7.84%, compared to 6.64% in FY 2019.
Profit margins in FY 2021, were impacted due to an increase in the prices of raw materials.
Based on the current performance of the company in the first nine months, we expect, the company could post higher revenue for the current financial (2022), corresponding to the previous year. But the results would not be comparable based on a Year-on-Year basis, due to the covid-19 lockdown, that took place in FY 2020.
Still, there could be a pressure of an increase in prices of basic raw materials, due to inflation, which could impact the profit margin of the company in the first quarter of FY 2023. It would be worth seeing how the company manages its expenses.
We have taken data for the last 5 years (2017-2021), forecasted revenue for FY 2022-2026. Revenue growth is assumed to be 7%.

Honda India Power Products Limited Estimated Income Statement (₹ in Lakhs):

	Mar-22	Mar-23	Mar-24	Mar-25	Mar-26
	2022-E	2023-E	2024-E	2025-E	2026-E
Revenue	1,01,248	1,07,518	1,14,181	1,21,260	1,28,782
COGS	61,836	65,713	69,833	74,211	78,863
Gross Profit	39,412	41,805	44,348	47,049	49,919
Employee Expenses	12,430	13,209	14,037	14,917	15,852
Other Expenses	16,232	17,250	18,331	19,480	20,702
EBITDA	10,750	11,346	11,980	12,652	13,365
Depreciation	1,846	1,680	1,562	1,481	1,431
EBIT	8,904	9,666	10,418	11,171	11,934
Financial Cost	38	41	44	47	50
EBT	8,866	9,625	10,374	11,124	11,884
Tax expenses	2,342	2,542	2,740	2,938	3,139
PAT	6,524	7,083	7,634	8,186	8,745

We initiate coverage on Honda India Power Products limited with a “BUY” and a 6 months Target Price of ₹ 1,415

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