Disclosure: No holding as of today but used to hold it in past. In order to learn the skill of equity analysis, I took Hawkins as an example due to few number~40 of pages and easy to understand AR. Below notes are taken from various sources such as AR’s, ICRA's Credit Rating note and the template (attached below with this note--Filled using Data from Screener) for the below analysis.
Hawk.pdf (819.5 KB)
Thanks @hitesh2710 Bhai for the detailed note. Few points that I noted during my study
• Comfortable operating profitability.
• Minimal increase in net working capital requirements.
• Low capital expenditure requirements. Capex of ~ 30 Cr. in last 10Yrs.
• Strong brand equity.
• Vast experience of the promoters and management in the industry.
• Healthy financial risk profile: industry leading ROCE, robust cash generation from operations resulting in net debt free status, strong debt protection metrics and strong cash flow generation. Net Profit and Owners Earning are almost same. Net Profit: In 9 Yrs--- 307Cr. Owners Earnings: In 9 Yrs--- 293 Cr.
• Strong pan India distribution network
• Growth prospects of the pressure cooker and cookware segments on account of favorable demographics, increasing urbanization, rising number of nuclear families, low penetration of pressure cookers and cookware in the rural areas, rising rural incomes and a shift to branded products.
• 56% promoter holding. Ethically, promoters and management, could be assigned a Gold standard Benchmark.
• Vulnerable to Aluminum (major Raw material) Prices.
• Intense competition- other leading, regional and unorganized players.
• Liberal dividend policy that has constrained the build-up of net worth: ROCE and ROE would have really helped if net worth would have increased considerably. Considering the fact that Promoter, Family Members and Relatives earned ~ 21 Cr (in FY17). via. Salaries, Dividends, Commissions and Interest on Fixed Deposits, I do not see a possibility of trend reversal.
• Concentration in cooker and cookware segments, limited market size in cooker segment. Pressure cooker sales for Hawkins and Prestige are ~ 1100 Cr (In FY17), which represents almost 50% (???...Not sure) of market share. If so, Opportunity Size looks to be Pretty Narrow as Hawkins Management does not show any signal to diversify in the adjacent product category as done by TTK Prestige.
• Borrows in the form of fixed deposits - to enable flexibility in managing its operations, to meet any cash flow mismatches during the year and provide adequate buffer for contingencies.
Business generates ~ 40 Cr <average of last 3 yrs> as Owner’s earnings. What would be the Multiple one would like to Pay? As of today, Market is assigning an X factor of 40 i.e 40 times.
Price action of last 4 years, below image, shows that market loves to Lap it up at 20 times i.e @ the price of ~ 2000: