Motilal has given a very good term “quality trap” for all those stocks with very high quality and low growth. Only time will tell if this is really a trap or moderate growth + dividend play. it has created 90% of investor wealthafter launching futura range of cookware when there was very little competition. The fact is that it is a national brand which can be extended to other products. It is this potential which keeps folks interested. One needs to keep in mind that any launch of half-baked product will dent more than 50 year brand “Hawkins”. If you look closely this company has only one liquid asset that is its brand. I still feel they could faulted for being too cautious.
Hehe Varada I know what you mean. I call this category of stocks as the ‘Colgate’ category. look at Colgate. Practically no diversification beyond toothpaste and toothbrushes (since eternity). Last 10yr sales growth is just around 15% CAGR and profit growth in the last 10yrs is just around 17% but worse it’s been falling. 5yr profit growth is just 10%CAGR and TTM profit growth is negative!
You’d think the stock must be going down like there’s no tomorrow. Hardly. It’s off just 10% from 52wk highs pretty much in line with the markets.
Hawkins is the same story. No new products, very high RoE and strong brand, duopoly. Doesn’t matter if recent performance is bad.
Basant Maheswari (a) believes in high RoE and (b) is probably holding from very low levels and © believes in middle class consumption story so this probably suits him. Anyway, there’s no point in trying to second guess what the market will think/do (Keynesian beauty contest).
are the lofty valuations justified? Probably yes, because of strong brand and exceptional RoE and a commanding market share.
You also have to understand that such high RoE zero debt companies are perfect for leveraged buy outs so their stock cannot fall below a certain value. (See prof Bakshis vantage point article or Martin Whitmans “Aggressive Conservative Investor”)
Will I pay 2000Cr for a company which generates 30Cr of operating cash flow (Hawkins) or 25000Cr for a company which generates 500Cr of OCF (Colgate)? No, but that’s me.
The comparison between Hawkins and Colgate should end with the stock price movement and cannot be extended for stock analysis. Market penetration of Colgate has improved a lot now as compared to say 15 years back, where as Hawkins still has a long way to penetrate its market. This means the volume growth of Hawkins is going to be much higher than Colgate in years to come and any product launch and brand extension will only add more to this growth. Finally Colgate is a FMCG with a non elastic demand for its products where as Hawkins is like a whitegoods company with some elasticity in demand for its products.
All,
I would have agreed if the dividend yield was say 4-5% at a 2-3% yield - I might as well look at a stock like accelya kale (which I hold) which also has a “wide moat”, perpetuity revenues and if anything has a much higher growth optionality - since each of its customers are chunky and addition of one can add 10-20% to topline.
If I look at a 12% cost of equity and use a dividend yield model, even if I assume a 10% dividend growth every year, below a dividend yield of about 3-4%, it does not make sense.
Look at TTK Vs hawkins - hawkins is practically stuck at 2010 levels of profit. Adjusted for inflation, they are not creating value.
I think cooking appliances, HFC’s are all going through a bubble valuation now and they will go up until they don’t go up - when reflexivity breaks.
What I was surprised with was that basant who says he will only look at stocks with 30 + EPS growth is fixated on hawkins - I just cannot see it do a 20 % + EPS given the product range they have.
Of course, Mr. Market thinks differently and this might go up and up for quite a while because of FCF generation, clean management.
The point I was trying to make was that a company with strong brands, very high RoE, zero debt and a monopoly / duopoly will not suffer a drop in share price even if the recent sales/profit performance has been poor and not up to expectations.
Of course there’s no point trying to compare the business, these are not apples to apples comparisons.
varadha, shan
I can put colgate/Hawkins in MNC catagory with consistent 12-15%growth and can be kept in core. As our age increases, keep increasing the core(In same ratio - may vary as per risk taking capacity). MNC core MOSTLY give 5% or above returns - beyond prevailing interest rate.
I also noticed a 10 times return in 10 years is easy. Do we need to expect more on an average?? Rest can be taken care by non core high potential bets.
regards,
peush
does anybody know the reason for poor such a poor set of numbers?.. in the past, i have seen people attributing it to early diwali, dealers not stocking due to an upcoming price hike etc. i am wondering if there is any particular reason this time around. also, what happened to the new product launch?. the last i heard was there were doing some testing.
discl. have a small holding. i wish i exited completely (;
In past, people were invested in this one, hence they were justifying those bad results to early diwali, supply issues, demand issues & what not. (Even I was one of them). This was done to make ourselves feel good & build a HOPE of holding it.
Now people have lost hope in this one & exited it, hence now no one cares to justify things 
how do find the details about the other expense ? that is the one which is contributing to the lower profit ( as per my limited understanding ).
The sales or revenue growth is flat… inline with ttk. It seems to be problem with the bottom line… topline is in line with the market…
Hawkins was bought by many on borrowed conviction of others ( especially BM).
And it justified as well. The company was doing great…great quality products, clean and honest management, fantastic returns ratios, outsourced manufacturing - hence no need of huge capex, good dividend distrubution policy etc.
But Hawkins inspite of all the positive lost market share to Prestige and other competitors. And it was mainly due to top managements reluctance to launch new products in the market, not doing business with large format retail stores ( especially not agreeing on credit terms) and not aggressively advertising in Media for top of the mind consumer awareness.
This shows what a rigid management can do to a great company. Hawkins lost the plot somewhere on the way. Reminds me of Mr Henry Ford’s fixation on his best selling car Model-T so much so that he was not ready for anything new rolling out of his factory for years, which eventually allowed competitors to gain a foothold and take away valuable market share from Ford Motors.
Hawkins can still script a turnaround as they have great quality products. My wife is a great fan of Hawkins products. We had bought Hawkins frying and pots 2 years back ( on discount coupons) and they are still working great. Prestige and other competitors products did not even last few months.
And with the change of guard and new people at the top, things can turnaround for good. Till then “In Hope we live”…
@Rohit: I am in same boat as you. Lost conviction and exited Hawkins few weeks back. Have been reducing it for more than a year. Tired of justifying results with supply issues, demand issues, Diwali, wedding, honeymoon bla bla…
The fact is the sales growth is 12% for last 5 years (with 7-8% price increase). So volume growth is pathetic. PAT growth is 0% or negative for last 5 years. One can HOPE but it will only mean opportunity cost. There are lot of alternatives that can double in 3 years with better predictability.
Disclosure:Not invested.
Irrespective of quality of company, management, pricing power, future growth potential and product no company can be justified with PE of more than 50. So unless somebody has some insider knowledge about companies product pipelines and special insight about company it is just plain speculation and hope to buy a company for more than 40- 50 PE. It is very easy to write a blog and based on past record pick a few examples like Asian paints, nestle, ITC, Infosys etc and based on those example justify any price multiple. This is not a new phenomenon and it has happened during 1970’s in USA popularly known as Nifty 50 stock and within few months prices of all such stocks declined by 60-80%. In indian stock markets currently there are many such companies like Page, Bluedart etc awaiting similar fate sooner than latter.
Niraj
Well said - apple and google trade at sub 20 multiple and charlie munger thinks they have probably the largest moats on the planet. I find stocks like hawkins, col pal a sign of trend chasing mindlessly to the point where stock is bid up higher simply because someone else has bid up high too.
Eventually, the trend breaks and people return to their senses - one by one
Competitor TTK optimistic abt next FY.Better days in FY16 for Hawkins
Sales up 10%, EPS down 20% compared to last year same Qtr
http://www.hawkinscookers.com/financial_results/March%202015.html
Rather than the actual results, the biggest negative signal has been dividend being cut from Rs 60 to Rs 45. That lowers the dividend yield protected price from the earlier 3000 odd levels.
But looking at TTK Prestige price action post very poor set of results there might be some hope left for Hawkins shareholders. It seems there still are guys out there betting on consumer revival in the segments in which the companies operate in.
Hawkins results have always invited furious debates and here is my take. Moderate sales growth is inline with what most consumer durables are reporting. The biggest culprit has been build-up of inventory of 13cr in Q4. Now there is a trend of building inventory and then destock over a period of time which creates volatility in quarterly earnings. It is given that next year’s earnings will be much better as inventory line item in income statement will be negative. Inventory destocking itself will boost earnings by 7-8cr next year. Raw material costs are stable and in some cases falling which might have prompted mgmt to stock up or may be they are in the process to launch new ones. High inventory build up has led to poor cash flow situation and led to cut in dividends which again looks logical. I think company should come out and explain it before AGM. The stock is largely held by small guys who don’t have means to slice and dice every numbers they report.
Will you pl. explain how you have concluded that there has been an inventory build-up of 13 cr. in Q4.
In P&L a/c if there is positive figure under the column’changes in inventories of FGs WIP and Stock in trade’.
the implication is that goods produced in the previous quarter have been sold during the current quarter and therefore there has been reduction in inventory. It is other way round if this figure is in negative. Since this figure for Hwkins for Q4 is positive, it means no inventory build-up.
Krishan
May 31,2015
1 Like
My bad!! Thanks for pointing out. The result was indeed bad and the real reason is this http://www.indiantelevision.com/mam/marketing/brands/fy-2015-hawkins-ad-spends-up-309-to-rs-21-crore-150601.
Those who think sales growth was good, it was due to ever increasing ad spend. This strategy looks strange when Hawkins was supposed to sell on brand recognition. Clearly, this is a direct result of ever increasing competition.