Honeywell is great partner for where India wants to go, says CEO Vimal Kapur

A: Honeywell has been having a great run, so my job is now to take Honeywell to the next level.

The opportunity I see is to align Honeywell with big macros which Honeywell supports – which is air travel, energy transition and automation. We have material play in each of these macros and they are very meaningful for all of us as citizens of the world. So my job is to make Honeywell more meaningful in each of these segments and improve our financial performance.

A: We have laid out a pretty well-defined financial commitments to the street. Our financial algorithm is 4-7 percent organic growth, 40-60 basis point margin expansion and mid-teens cash generation. So when you do the math, that will derive a earnings growth which is close to double digit every year. So that should compound the valuation of Honeywell. So I expect to continue the good work done by my predecessor, who is our executive chairman now, and hope that I perform at the same or better rate in times to come.

A: Sustainability is something which we all care about. We all know that climate change issue is real and it has to be addressed. We in Honeywell have several solutions but the biggest impact we make is in how to decarbonise sectors. We provide solutions in sectors like air transport, oil and gas, power.

My vision is that how do we make Honeywell a stronger proposition in energy transition in these solutions. So things like sustainable aviation fuel, hydrogen, carbon capture, HFOs, those are the areas where we can further enhance our play and not only grow Honeywell and also be a meaningful player for the climate change solution for the planet.

On the digital side, we have got one and a half billion dollar of software business which we characterise as Honeywell Connected Enterprise and that serves digital transformation of our customers in aerospace, process industry, and buildings industry. My focus area is how we grow that segment in double digits. It is going to be lot of organic growth to solve problems of our customers in area of sustainability, cyber security, asset management. So collectively these two are going to be major growth drivers for Honeywell in next few years to come.

A: At Honeywell, we constantly look at our portfolio transformation. It is important that we look what's relevant for our customers and our shareholders. And we constantly look at targets, which can make our portfolio more contemporary. So we are actively working on pursuits, but as that M&A deals are always - probability is till you don't get to the finish line so it will be a priority, absolutely. We will of course, do it with the responsibility to keep our shareholders value intact and at the same time, we want to make our portfolio more relevant in the times to come.

A: So I would say that, when we look at the word from Honeywell lens, the end markets we serve are doing very well. Two-thirds of the Honeywell revenue come from aerospace business, air travel related or energy business and both have strong demand. So from our lens, the economy is doing well and we need to take our share in these markets.

To your specific question on high growth regions, markets, like China, India — I'll also put in Middle East, ASEAN, etc. I would say for most part, we see strong growth, better than mature markets in many of these regions. India, in particular, is performing extremely well, Middle East is performing very well; China, we are counting on strong recovery post COVID. Because China is about a year behind the rest of the world in COVID recovery. We do expect a strong 2023 in China. So, overall, we have a pretty material play in high growth regions and we continue to expect to perform better there in the times to come.

A: So, our portfolio is perfect fit for where India wants to go at this point of time. Look at what we do and where India wants to go, Honeywell is big in aerospace and India wants to massively open its air transport sector. We have seen the news of Air India, we have seen the news of how other airlines are acquiring more planes so that works perfectly for us because we are a big OEM provider in the aerospace sector.

India's big push for infrastructure — so infrastructure is not only roads, or trains, but infrastructure is also about hospitals, it's about building new airports, and automating that infrastructure — really plays well into Honeywell.

Energy transition, India has some big plans to do energy transition in areas like hydrogen, adoption of more ethanol, and those are few examples, and we are a big player in energy space. We are working with all Indian customers at this energy transition work happens. So, our portfolio fit is so strong with India wants to go, which gives me very high confidence that we are going to do very well in India next times to come.

A: Big. Big aspirations, I would say, and in both dimensions to our domestic business, and how we want to leverage India for our global operations. I think there is no reason our domestic business should not double in the next four to five years’ time. The India GDP growth is strong, and we should grow at least 2x of the GDP. So if India continues to grow 6 to 7 percent range, there is no reason that we should not grow 15 percent every year over the next several years so that is one big aspiration.

We have a big global operation in India, we have been present to leverage India for engineering services, for our operations for last 30 years. But also I see now a shift of that, while we keep it, the shift of that is going to be much more manufacturing oriented. As Make in India becomes more relevant, we see more supply based beings available, and you can source more from India. And I will give an example. We set up a manufacturing facility along with our partner, Navin Chemicals, they have set up a chemical manufacturing facility captive for Honeywell in state of Gujarat and that, to me is a great example of how we are leveraging India's efficient cost manufacturing facilities for our global business.

As expected, as I mentioned before, as Make in India creates more supply base, in defence, in aerospace, in other sectors, we expect that sourcing will become another priority for us for India. So it is going to be three dimensional, it is going to be our domestic business, it's going to be our continued global operation for our engineering operations, and then more and more sourcing from India.

A: We always believed in manufacturing local for local. So, for us the opportunity is less of de-risking, but more of better cost-based and more resiliency certainly that is part of the opportunity for us. But we always historically had manufacturing North America for North America, Europe, for Europe, China, for China, India, for India. So that puts less work on our side to kind of de-risk question which you asked me. We don't have to go through that but clearly, we have an opportunity to leverage the India supply base, which we don't do a lot today. So think about sourcing, castings, plastic parts, chemicals, electronic products, I think the opportunity on that front is way bigger for companies like Honeywell.

A: So if you look at us, we always evolved our portfolio. What Honeywell is in 2023 looks very different from what it was in 2015. Since that time, since last seven, eight years, we had two major spins of our homes business and our turbocharger business, we made several big acquisitions. And if history is any indicator that is going to continue in the times to come. As I mentioned, we really want to focus on those three big macros, automation, air travel, and energy transition. So you expect Honeywell to be heavily focused on these three big themes and that is how our portfolio will evolve.

Most part of our portfolio is like that there are probably less than 10 percent of our business which doesn't fit into these three themes. So clearly, when the right opportunity is we will do some pruning and our acquisition will be heavily focused on these three big themes.

A:  So those are no one big thing. Thankfully, these are more like product lines, we review that with board and we have some financial goals. When we are able to achieve those financial goals, we will evaluate any divestment opportunity, but we are never in any hurry. Because we don't want to do it as a time bound target. We want to do it when we get the right financial returns, and we run those businesses well. So, I would say that simplification is a priority and we will do it at the right time when we get right return for our shareholders for the segments, which are lesser fit into our portfolio.

A: I think key risk remains the geopolitical situation, we expect the world to not bring any more surprises. I think nobody predicted COVID happening in 2020. Nobody predicted very high inflationary market happening in 2021 and 2022, or Ukraine war. So the risk always is the risk of unknown and we in Honeywell have always dealt with it quite well. We expect to do that, but if less of that is there, we can perform much better for our shareholders.

A: I have one funny answer and one serious answer. One funny answer is that we are 20 percent of the world population. So if 20 percent CEOs are from India that should not be surprising. That that's on a lighter note.

I think enough has been written on that so I am not going to offer any new opinion. But the fundamental, challenging environment, many of us go through dealing with uncertainty and dealing with complexity prepares us for managing complex organisation, I think that has a that is my thesis. The uncertainties in India, we don't like it. When we grew up, India was country of shortages, there was no electricity, didn't have enough water, roads were less, things of that nature. But the good news is how you learn and survive through that prepares you for dealing with difficult circumstances on a daily basis and managing organisation is in the end dealing with difficult circumstances every day, provide solutions lead the teams and I believe that that training or that mindset, prepares people from Indian origin, are relatively better compared to others. But there's enough cases and research on that so I am not going to offer any new opinion to you.

A: I would say the relationship was extremely well so take it to the higher level is expectation of everyone. There are technology areas which have been well identified, we talked about manufacturing broadly, but in particular high tech manufacturing. Defense remains an area of mutual cooperation. We, as Honeywell have interest in that. So we will certainly support what both governments want to propose forward. Sustainability, climate change is an area of mutual interest. It is an area where collective will of all human beings is required to solve the challenges in front of us so that collaboration should improve.

India is doing some great steps. We in US have lot of great technologies to offer. So how do we form a bridge to do that faster is another area I think we can do better.

And finally, I would say in the area of computing, cybersecurity, that is another area where it's more collaboration and opportunities out there to work together. But it's like when the good news becomes better. This is something which is working extremely well. I had a chance to speak with Ambassador Sandhu, a few days back, put forward our point of view and I think opportunities like that are ample where we have access to the leadership of Indian government. They listen to us, they take our point of view and I think that's a catalyst, which I presume will continue to improve our relationship between the two countries.

A: It was the same things I mentioned. It is developing next step of policies in sustainability of climate change, that certainly is a joint agenda of two countries under the innovation center for energy and transportation (iCET) framework, how we collaborate more in the area of defense, because that's a priority for India. We in Honeywell, have a lot of expertise in that area so how we bring that forward. So those two are to me the top two priorities from Honeywell perspective.

A: So I would say, it's early days for AI. We have to overcome the hype factor and figure out, what do you do with it. We are certainly looking at several areas to apply AI both in context of our own operations, but also in context of our customers, because we have to look at from both the lens.

For a company like Honeywell, which is an industrial manufacturing company, we see big use of AI in our software development, as you can imagine, there is a huge anticipation that coding work, software development work will dramatically become more efficient. So clearly, we should benefit from that. We also see a lot of tasks in which we interface with a customer like technical support, those functions can be heavily automated. And that is good for our people and good for customers. Because those are skills which are not easily available so AI can complement that.

Then on the offering side or on the product side, we believe that lot of work we do on our software platform Forge, how we monetise that data for better use for our customers using AI is something we have to evolve. We will work with our customers or partners and do that. So I would say it's exciting, but we have to score some runs here to turn that excitement into real business benefit for ourselves and for our customers.

A: Cricket not as much. I am a big cricket fan, but as you start living outside, you slowly lose touch to it. However staying healthy is my passion. The work is quite stressful and so you need to make sure that you are able to deal with the stress. So keeping yourself fit and maintaining a good healthy regime is my big passion outside work.