Honda Siel Power Products Ltd - 240.00 Rs

Incorporated in 1985, Honda Siel Power Products Ltd (HSPP), erstwhile Shriram Honda Power Equipment Ltd is engaged in manufacturing of portable generators, water pumping sets and general purpose engines. Besides, it also offers a small range of end-use appliances such as brush cutters and engine lawn mowers. HSPP is a 67% subsidiary of Honda Motors Co. Japan, which is one of the world’s largest power products company. Hence the ‘HONDA’ brand is quite popular and trusted by millions of people in India. Infact, HSPP is the undisputed leader in portable gensets with nearly 70% market share, whereas it enjoys 20% market share for water pumps and engines. To achieve this it has a build up a strong distribution network with strength of over 800 dealers and 15 area offices spread across the country. Although not so lucrative, company has also been exporting to over 40 countries with Saudi Arabia, UAE, South Africa, Kenya being the key markets. Presently, exports contribute around 25% of sales revenue. Incidentally, HSPP was the first power products manufacturing company in India to have been awarded the ISO 9001:2000 certifications for its quality assurance systems & ISO 14001 for its environment management systems.

Under the technical collaboration of its parent company, HSPP has set up state-of-the-art manufacturing facilities at Greater Noida, Pondicherry and Rudrapur (Uttranchal) with a combined installed capacity of 1,75,000 units of portable generating sets /engines / pumping sets. Armed with the latest & world-renowned 4-stroke Honda technology, company has 25 models of generators, 6 models of engines and 10 models of water pumping sets. It boasts of launching the India’s first LPG run gensets which is doing extremely well along with its super silent series. Importantly, the Honda generators conform to the most stringent phase II noise & emission norms lay down by the Central Pollution Control Board, which the cheap Chinese products fail to. However, going forward the major growth for the company is expected to come from its engine and water pump sets division on back of strong industrial growth & increased mechanization in the agriculture/floriculture/horticulture sectors. On the other hand the generator segment is witnessing higher demand mainly from small industrial units and private set-up businesses due to continuing long power cuts in rural and semi urban areas. To understand the customer requirements better and on real time basis it has also put up its own showroom in Gurgaon

With a view to improve its profitability, last year company indigenized critical engine components such as carburettor assy, insulator carb, all non-asbestos types of gaskets etc and is further planning to manufacture spark plug, ring piston set, ring gear and connecting rod casting in house. Hence company has been able to reduce the import cost as percentage to the material cost to 27% in FY07 compare to 31% in FY06 and intends to further take it down to 25% for FY08. To bring down its logistic cost and improve operational efficiency, company is consolidating its manufacturing facility and has decided to re-locate Rudrapur plant (component manufacturing unit in 32 acres) to Greater Noida. Considering all the factors it may clock a turnover of 260 cr and PAT of 20 cr i.e. EPS of 20 Rs on equity of 10.14 cr. Moreover, this MNC is not only debt free but also has huge liquid cash to the tune of 108 cr which translates into 107 Rs per share. Despite such strong fundamentals, company is available at a market cap of merely 240 cr. It also has a huge reserve of more than 150 cr leading to a book value of 160 Rs making it a strong bonus candidate as well. If not, there is also a remote possibility of parent company opting for delisting the company. To conclude, investors are strongly recommended to buy at current levels as it can give 50% return in 12~15 months.