Investment Idea: Hawkins Cooker Ltd.

| Investment Insight
http://investmentinsightindia.wordpress.com/2009/09/06/investment-idea-hawkins-cooker-ltd/[7/2/2014 8:45:49 PM]
Investment Insight
Investment Idea: Hawkins Cooker Ltd.
Posted on September 6, 2009
CMP: Rs.419
Investment Rationale:
Hawkins is mainly into selling pressure cookers.They also sell some other cookware items
under the brand Futura and Miss Mary.The pressure cooker market is a highly
unorganized one,with a number of local players and only two major brands viz. Hawkins
and Prestige.These two brands are on a spree to grab the share of the local brands by
their aggressive marketing.After having penetrated the urban areas,Hawkins is making in
roads into rural india which can prove to be a huge market for pressure cookers,since
most people in vllages still dont own a cooker.Hawkins as a brand is almost synonymous
with pressure cookers,one thinks of a cooker and the first name that comes to mind is
Hawkins.This brand recall has been built over a number of years and its very difficult for
a new comer to grab Hawkins market share.Hawkins is basically a play on the
nuclearisation of Indian families.Just imagine the number of marriages that place every
year in India and youll get an idea about the size of the market.Also with pressure
cookers,people(women) generally prefer a good brand(like Hawkins or prestige) since
they dont want to risk their family to freak accidents.
I like Hawkins better than prestige,since the management of Hawkins seems to have
mantained a higher ROE and higher margins in a sustainable manner.Also TTK prestige
management had tried to delist the business once.This attitude prevents the management
from letting the market cap increase since they may have to buy back all the shares in the
future.
Financials and other Numbers:
The company has grown its sales from 118 cr in 2005 to 242 cr in 2009(At an annual
growth rate of about 20%).The resulting profits have grown from about 3 crores to 19
crores in the same period(At an annual growth rate of about 58%).The company enjoys a
healthy net profit margin of 6-7 %.The Earnings per Share(EPS) has grown from Rs.5.63
to Rs.36 in this period from 05 to 09,at a stupendous annual growth rate of about
60%.The company has a total debt of about Rs. 9 cr which is half of its last years net
profit and hence negligible.
The company has maintained an high ROE of about 40-50% all through the last five
years.This tells us that the underlying business economics is solid.The management is
also quote proactive.They have:
Analyzing mutual funds Result Update Hawkins Cooker

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Investment Idea: Hawkins Cooker Ltd. | Investment Insight
http://investmentinsightindia.wordpress.com/2009/09/06/investment-idea-hawkins-cooker-ltd/[7/2/2014 8:45:49 PM]
1)Reduced expenses
2)Made a better product
3)Repaid debt
4)Put capital to better use.
The company has completed its capex and is actually running on about 30% of its peak
capacity.So they have a lot of room to improve sales without spending more cash. Their
installed capacity in cookers is about 3 times their current production (hence the low
costs).All profit is free cash till 2012.
This business started performing amazing well since 2004,so I dug up the old annual
reports to find out what exactly changed after 2003-04:
1)The company came up with a New Sales Policy in 2001 to recover sales and turn the
company around.It was briefly making losses.
2)The company expanded the number of direct distributors.The number of unique dealers
buying any of the
products directly from the company are given in the table below.
YEAR NUMBER OF DEALERS
2001-02 1589
2002-03 2487
2003-04 2654
2004-05 2944
Also, the Company continues its thrust towards the wider distribution of its products and
has been expanding the number of direct dealers year after year.I couldnt get the latest
numbers though.
3) A judicious control of costs.
4) Introduction of new and improved models.
Valuation:
The company is available at a PE of 10.The company gave out a dividend of Rs.20 last
year and chances are that they will retain/increase such a payout next year too.If they do
at CMP the dividend yield will be about 5%.Valuations look good for such a high
sustainable ROE and a good growth rate.
That was about the past.What about the future?Frankly speaking i dont know,but i am
optimistic.What i do know is that this is a good business with low debt that is earning
good returns on the money it is investing in the business and importantly its available at
a decent price.The untapped market for pressure cookers in India is huge and i think a
good management should be able to get a decent share of that pie.
The last quarters(Apr-Jun 09) results have been amazing.This is a buy,with a 2-3 year
perspective.I dont plan to watch its price everyday,what i do plan to do is to watch its
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Investment Idea: Hawkins Cooker Ltd. | Investment Insight
http://investmentinsightindia.wordpress.com/2009/09/06/investment-idea-hawkins-cooker-ltd/[7/2/2014 8:45:49 PM]
quarterly earnings and see how the business is doing.If there is a considerable change in
its fundamentals anytime over this period of 3 years,i will proceed to sell.The take away
being,sell on fundamentals not on the price.
Disclosure:
I own this stock.
Disclaimer: I dont do stock specific recommendations and i am writing this for my own
reference.I reserve the right to be wrong.Please consult your financial advisor before
investing.
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Analyzing mutual funds Result Update Hawkins Cooker
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Investment Idea: Hawkins Cooker Ltd. | Investment Insight
http://investmentinsightindia.wordpress.com/2009/09/06/investment-idea-hawkins-cooker-ltd/[7/2/2014 8:45:49 PM]
3 Responses to Investment Idea: Hawkins Cooker Ltd.
Nithin Chandra says:
September 7, 2009 at 5:32 pm
The net PAT is a small number at 19Cr and there was an addition of about 3Cr in
other incomes(disposed a surplus immovable property). Also owing to the
reduction in debt, the income expenditure also has come down significantly. Both
could have contributed to the disproportionate increase in bottom-line when
compared to the top line. Overall a good find. Looks like the low PAT number has
kept it out of the radar of evaluators. Completely agree with the expected market
growth of cookers. Given their market position, the company needs to leverage
more capital to push up the sales. Looks like a pretty conservative company
overall.
Reply
kudva says:
September 7, 2009 at 5:51 pm
Low PAT Like you mentioned keeps it out of the radar,and is good for the retail
investor since we get to enter before the institutions do.Other income Point
taken.But just have a look at the QoQ numbers for the most recent quarter(apr-
june 09).Last year's first Q(Apr-Jun 08) had the major chunk of other income of
2 cr and yet this year's first Q results have comprehensively beaten that number
WITHOUT any other income.Good Op efficiency What i further liked about
this business is that inspite of a rise in raw material prices,Hawkins was able to
improve its margins by about 2 percentage points.That speaks volumes about the
management.More Capital The company has already completed its capex using
internal accruals mostly.They are running on about 30% of their peak capacity
and hence they can increase sales without spending a penny.This is actually my
favorite part.All profit is free cash from now on till at least 3 years.Its an amazing
business,waiting to be discovered.I guess a couple of quarters of good numbers
should do the trick.
Reply
whyAmiWriting says:
September 14, 2009 at 6:56 am
http://www.fastpencil.com I remind you again. Go for it!
Reply
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Investment Idea: Hawkins Cooker Ltd. | Investment Insight
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