I did a straw poll in my office 20 minutes ago. “If you were setting up home, which pressure cooker would you buy?” Eight out of 10 shouted back absent mindedly: “Hawkins!” Ipshita said: “Because it is the most visible pressure cooker brand in India” Huzaifa answered: “Because it has been around from the previous generation.” Rajat quoted an old ad line of the brand.
If the men in my office were so aware of the brand, then it was time to look at Hawkins the company; if the men in my office voted for Hawkins with their throats, then it was time for housewives to vote with their purses. Hawkins qualifies as an investment on three counts: it is the biggest pressure cooker brand in India, this brand leadership is reflected in rising profits and the rising profits are not reflected in its market capitalisation.
Consider the audited results of 2006-7.
• Turnover increased from Rs 137 crore in 2005-6 to Rs 174 crore in 2006-7, a volume play.
• Profit after tax strengthened from Rs 4.03 crore in 2005-6 to Rs 7.49 crore in 2006-7, a value play.
• EBIDTA margin strengthened from 6.99% in 2005-6 to 8.6% in 2006-7, a margins play.
One might assume that it was a rocking year for the company: more homes being built, more pressure cookers being bought. Not so simple. Because something also went terribly wrong. Most metals went ballistic and material costs increased from 43% of total income in 2005-6 to 47% in 2006-7.
Many companies would have written a doleful balance sheet commentary: “For reasons outside of our control…” Hawkins didn’t. Instead, the company...
• Reduced expenses. Total expenses as a proportion of total income declined from 51% in 2005-6 to 45% in 2006-7, indicating that the company more than recovered the rise in material costs.
• Made better products. Result: Sales increased 27% while industry grew 7%.
• Passed on cost increases. Pressure cooker realisations rose by Rs 30 a piece; cookware realisations by Rs 35.
• Repaid debt. Loans declined from Rs 15.04 crore to Rs 10.82 crore, reducing interest outgo from Rs 2.07 crore to Rs 1.75 crore.
• Made better use of capital. Every rupee of working capital generated Rs 3.41 in 2005-6 and Rs 3.58 in 2006-7.
The crusade continues. In the second quarter of 2007-8, EBIDTA margin was the highest in the past five quarters at 10.36% (5.92% in the corresponding quarter, 2006-7), EBIDTA Rs 5.17 crore and post-tax profit Rs 2.69 crore. Equity Rs 5.28 crore.
I am a conservative man. I assume that no growth will transpire in the second half and the company will only replicate its earnings of the first. That would still mean an EPS of Rs 18 on an equity price of around Rs 150—a PE of around 8. Look at this from another angle. You can buy the biggest pressure cooker brand in India for less than Rs 80 crore.
Did you yawn? Well, Hawkins paid out Rs 7 (this is not a printing error) per share as dividend in 2006-7. Work out the yield math. Housewives, stop haggling on the grocery and move on to bigger bargains instead.