This document provides an analysis of Honda Siel Power Products Limited, an Indian power products company and subsidiary of Honda Motor Co. It summarizes the company's product portfolio, financial performance over the past five years, and competitive strengths and weaknesses. Key points include that the company has seen growing revenue and profits in recent quarters but historically low profit margins, and is currently fully valued by the market given high PE ratios above its long-term average. A risk-taking investor may consider investing if the stock price declines.

1. Honda Siel Power Products Limited
CMP Sector Face Value 52 Wk Low/High Market Cap (` Cr.)
` 1153.60 Electric Equipment ` 10.00 425.65/1197.00 1,166.96
Hold / Buy on decline with an investment horizon of 2 – 3 years
Company Profile & Product Portfolio
One of the India’s leading power products companies, the Honda Siel Power Products Limited
(HSPP), is a subsidiary of Honda Motor Co. Japan and was incorporated on 19th
Sept, 1985.
Manufacturing and marketing a range of Portable Generators, Water Pumps, Lawn movers,
Brush Cutters, Rotary Tiller and General Purpose Engine at its manufacturing unit in Greater
Noida.
The Company, as on March 31, 2014, had 1019 associates.
Market Overview
 Demand for generator sets come from various sectors such as IT and ITes, telecom and
construction while demand for small gen sets come from households, shops and
commercial establishments.
 Manufacturing hub of the Indian power backup industry is concentrated in North India.
Power deficit in the southern region of the country has triggered the demand for power
backup in these regions.
 Major manufactures are Honda Siel Power Products, Birla Power Solutions, Himalayan
Power Machine Co, Greaves Cotton and Yamaha.

3. Financial Analysis:
Intrinsic Value analysis: According to Benjamin Graham, the father of the security analysis,
the “Margin of safety” should be adhered to when buying a security and analysis should be
based on minimum of five years financial data. Average of last five years PE is 17. Currently
the company is trading at a PE of 36, much above the long term average, which makes it
expensive at this juncture to buy. These shows the investors are most optimistic about its
earnings.
RONW: According to Warren Buffet, the legendary capital market investor, the RONW is the
parameter that explicitly states what the shareholder of the business earns on their money.
Analysis of last five years data shows RONW at 11%. The company is earning more or less
equal to bank interest. So for 11% RONW on earnings, the current price represents investors
are more optimistic about its future earnings.
PEG Ratio: According to Peter Lynch, the reputed Fidelity Magellan fund manager
recommends, PEG ratio of less than one while buying. PEG ratio for the company is around 2.
The current price represents that investors are betting on its earnings prospects.
Strengths:
Honda Brand Name
Support of Honda R&D, Japan
Emission compliant gensets
with advanced technology
Light weight and portable
models
Weakness:
The competitive market
scenario limits the pricing
power.
Absence of diesel models.
Dependence on parent, Honda
Motor Co Japan for guidance.
NIL R&D expense
Imported Technology not fully
indigenized.
Opportunities:
Low petrol prices will improve
sales (Majority of the models
are petrol based).
Stringent norms stipulated by
the Central Pollution Control
Board (CPCB).
Threat
Normal monsoon may impact
water pumping sets.
Geo-political tensions in
Middle East will affect the
exports, as this area generates
maximum business for the
company.
Fluctuation of Indian Rupee
against the US dollar may
impact the margins of the
Export business.
SWOT

4. Analysis of last five quarters P&L (in lacs):
Quarter Ended 31-Dec-13 31-Mar-14 30-Jun-14 30-Sep-14 31-Dec-14
Net Sales/Income
from Operations
14912 17932 16045 12655 15188
Total Expenditure 14125 16643 15207 12444 13746
EBITDA 787 1289 838 997 1442
Net Profit after Tax 705 566 742 459 1216
Quarterly EPS 6.95 5.58 7.32 4.53 11.99
 Revenue grew by 25% at Rs. 438.88 Cr in the current 9 months of FY15 compared to Rs.
351.45 Cr in the corresponding 9 month period of the previous year.
 Net profit grew by 84% at Rs. 24.17 Cr in the current 9 months of FY15 compared to Rs.
13.12 Cr in the corresponding 9 month period of the previous year.
 Exports grew by 147% at Rs. 191.45 Cr in the current 9 months of FY15 compared to Rs.
77 Cr in the corresponding 9 month period of the previous year.
Profitability Analysis:
Historical profit margins are not impressive considering the current valuations.
Profit Margins FY2010 FY2011 FY2012 FY2013 FY2014
EBITDA (%) 12.44% 10.28% 10.51% 7.38% 9.44%
EBIT without other income (%) 10.03% 8.28% 8.47% 4.71% 6.20%
PAT (%) 4.11% 7.23% 10.24% 4.00% 3.47%
Per share Statistics
EPS (Rs) 12.51 29.24 50.95 20.31 18.52
Export growth:
Recommendation:
The current price seems to be fully valued, so risk taking investor may invest on price
declines.
33%
41% 44% 43% 42%
0%
10%
20%
30%
40%
50%
Q3FY14 Q4FY14 Q1FY15 Q2FY15 Q3FY15
Exports % of Total Sales

5. Financial Valuation:
Financials & Valuation ( Bull Case ) INR (in Lacs)
Y/E March FY2015E FY2016E FY2017E
Net sales 61,077.45 70,125.57 80,437.59
EBITDA 6,578.72 9,809.88 13,711.78
PAT 3,446.50 6,337.40 9,325.87
EPS 33.98 62.48 91.94
Growth (%) 83% 84% 47%
ROE 11.68% 21.40% 31.39%
Forward P/E (x) 32.1 17.5 11.9
Porter’s Five Forces:
Threats of substitutes: there is not a huge threat of substitute in the automobile industry
that offers utility, independence and no wasting time, even if there is a large number of
transportation. There are bicycles, subways, buses, trains and airplanes that could make our
life easier, but that can be less convenience than automobiles. The price of fuel have a large
effect on the consumer’s decision to buy vehicles, also the maintenance and the insurance of
the car, but the automobile still has an important use in our personal and daily life.
Buyers bargaining power: consumers have many choices and brands, but the factors that
affect more the consumer to buy a certain brand from another are: the appearance, quality,
price, design. Consumers want always something new and nice looking with the latest
technologies. The car had to be efficient, by saving fuel, protecting the environment, and
running fast.
Suppliers bargaining power: there are many suppliers in the automobile industry, and
“many suppliers rely on one or two automakers to buy a majority of their products. If an
automaker decides to switch the supplier, it could be devastating to the previous supplier
business. As a result, suppliers are extremely susceptible to the demands and requirements
of the automobile manufacturer and hold very little power.”
Barriers to entry: it is not easy for an entrant to enter into the automobile industry easily,
because of the brand loyalty of the consumers. It is substantial for established companies to
have barriers to entry to protect themselves, because some companies are entering into
foreign markets by buying an existing company or either merging with it and then realizing a
huge profit. With local knowledge and expertise, companies have the potential to compete in
the market in which they operate against the domestic firms.