Hawkins Cookers : Is growth coming back?

Stock Opportunities Not-so-Hidden Gems
61

Not yet published. Watch out the below link

http://www.bseindia.com/corporates/ann.aspx

62

http://www.bseindia.com/xml-data/corpfiling/AttachLive/Hawkins_Cookers_Ltd_020213_Rst.pdf

less than expectations

63

13 rs eps. advertizing cost 7.17 cr. sales 104cr, net profit 7 cr

if you remove ad cost, then results are on par with expectations

64

:))) :))

Hahaha…true.

65

It is always difficult to predict hawkins results.

9M eps at 42.21. If last quarter is a very good quarter and company can do eps of 25, company can deliver eps of 67-68 per shares for fy 13. I think at cmp of 2400 plus stock looks fairly valued.

I think there can be some selling due to disappointment on monday. Lets see what happens.

66

Three most import point, I have highlighted from your post.

67

Moving Interesting discussion on Hawkins from my portfolio thread to main Hawkins thread for better tracking

Posted by Hitesh Patel Link: ../../../author/hitesh2710 at Monday 21:22

Link: ../../../author/hitesh2710

Had enough fun with Hawkins. Sold 90% of my Hawkins with a minor loss.

Added Ajanta, Unichem, PolyMed, GRUH, Atul Auto, Cera, Orbit exports with the proceed

I think the main problem with people buying hawkins at 2400 odd levels was the price behaviour of the stock. It just refused to budge below 2400 odd levels. To me it seemed as if stock was on steroids, and buyers were not looking at valuations or else projecting very optimistic projections. Many a times one gets sucked by price behaviour of stock while buying it.

Hawkins has had a chequered past if we see the past few quarters. I think the stock price has held today also because maybe some HNIs/MF guys or PMS guys may be supporting the price. With stock in most optimistic scenario likely to post eps of close to 68-70 at cmp of 2200 plus it seems fairly valued.

Hawkins is a stock which needed to be bought when there were a lot of uncertainties. Currently with all the uncertainties gone -- labour problem gone, pollution control problem gone-- stock price has gone up in anticipation of good results which have not come about.

I dont know why sales growth is so tepid for a company with such a strong brand strength. With production constraints removed I think there should have been atleast 20%-25% sales growth in current quarter. But that has not come about and I for one have been frankly disappointed with the results. People will justify these results and this stock price with arguments that next few quarters will be good blah blah -- and who knows they may be right also -- but the way the company has a habit of springing surprises -- mostly negative-- one is wary of getting a mindset to buy.

If I have to give such lofty valuations to any stock that will most definitely be Page Inds. -- There seems to be a huge potential for the stock in terms of addressable market in comparision to its current market cap of 3800 crores odd. I can easily see Page Inds having a market cap of 15-20K crores over next few years.

Link: ../../../author/Prudent_Investor

Agree that the top line numbers weredisappointing to say the least. But a quarter here and there should not be strong reasons to get out of core portfolio holdings.

There are very few companies with such honest management + strong demand + superior brand + strong cash flows + operational efficiency.

When Hawkins story was discussed, we cautioned time and again to have a plan B ready, in case things do go wrong/against expectations.

While for some that plan B is adding more at sub 2000 levels, for others that plan B is selling out.

As said, ideas can be borrowed, but not conviction.

Hawkins earnings have been stagnant seen Fy10 while competitors have moved. So based on a FY14E P/E the stock do present a decent opportunity for next 2-3 years.

Link: ../../../author/hitesh2710

looking at sales growth since fy 10, I will not call management efficient or intelligent. Just look where ttk prestige has gone since then and where these guys stand. They may though be honest.

I think they missed the whole consumption bus while competitors made hay. Now it is a moot question how they delivery on sales and profits front.

Only thing that needs to be watched by Hawkins holders is that they do not suffer from ownership bias where they do not see the negatives inspite of things being pretty clear.

Link: ../../../author/subashnayak_1983

100% agreed with you Hiteshbhai. I too was sold out to the idea of huge increase in sales/profit of Hawkins post issue resolution by the folks who have a endowment bias of holding Hawkins.

Post result, reanalyzed my decision of having such high allocation in my portfolio at such high valuation, when there are at least 10 better stock in my portfolio available at a way better valuation.

In place of Hawkins, I am planning to make GRUH my second largest holding (I prefer having 1-2 such high PE, high PB stocks in my portfolio, so as to ride with a steady compounder, and play contrarian to my low valuation, or GRP model).

I am yet to develop the conviction level with Page, may be I need to re-look at it as my 2nd high valuation stock.

By the way, I have starting to feel, that having super high valuation stock (that too for a solid reason) like Page/GRUH/ITC/Titan is part of value investing.

Link: ../../../author/subashnayak_1983

Thanks Rudra for your honest feedback.

Your reasoning might be 100% correct. Agreed Hawkins is a beautiful girl, but as Hitesh bhai tells, I don't have to kiss all of the beautiful girls :)

By the way, there is an another name for stocks with high investor conviction, and near zero growth - "value trap".

Regards,

-Subash

Agree that the top line numbers weredisappointing to say the least. But a quarter here and there should not be strong reasons to get out of core portfolio holdings.

There are very few companies with such honest management + strong demand + superior brand + strong cash flows + operational efficiency.

When Hawkins story was discussed, we cautioned time and again to have a plan B ready, in case things do go wrong/against expectations.

While for some that plan B is adding more at sub 2000 levels, for others that plan B is selling out.

As said, ideas can be borrowed, but not conviction.

Hawkins earnings have been stagnant seen Fy10 while competitors have moved. So based on a FY14E P/E the stock do present a decent opportunity for next 2-3 years.

Link: ../../../author/manish962

Your reasoning might be 100% correct. Agreed Hawkins is a beautiful girl, but as Hitesh bhai tells, I don't have to kiss all of the beautiful girls :)

Comparing a stock with a girl makes one to fall in love with it. That makes an attachment to the stock and would be difficult to sell it. That could be the case with Rudra.

I would rather ask myself - why the topline growth was flat despite all the production issues being resolved? Was that due to poor productivity or due to poor demand or due to prestige not giving its market share? In either of the case, the decision would be to reduce the holding.

Link: ../../../author/rajkknair

It seems the expectations were very high regarding increased sales immediately after the resolution of pollution control board issue in Hoshiarpur .

The resolution happened on October 25th, almost one month into the quarter. I feel it is too much to expect sales growth in the same quarter. A more realistic picture of sales improvement will be seen only in next quarter.

I plan to give benefit of doubt and wait for one more quarter.

Disclaimer : Hawkins is almost 12% of my core portfolio, so my views could be biased.

Your reasoning might be 100% correct. Agreed Hawkins is a beautiful girl, but as Hitesh bhai tells, I don't have to kiss all of the beautiful girls :)

Comparing a stock with a girl makes one to fall in love with it. That makes an attachment to the stock and would be difficult to sell it. That could be the case with Rudra.

I would rather ask myself - why the topline growth was flat despite all the production issues being resolved? Was that due to poor productivity or due to poor demand or due to prestige not giving its market share? In either of the case, the decision would be to reduce the holding.

Link: ../../../author/subashnayak_1983

Giving benefit of doubt doesn't seems to me a good idea unless there is a solid reason behind it, i.e. Management giving target of x% of sales growth in next 1-2-3-4 quarters.

One must be aware of the fact that most investor ignore one bad/below-expectation quarter for such good company, but the same might not be true for 2-3 consecutive quarter. The punishment might be severe in such case.

-Subash

It seems the expectations were very high regarding increased sales immediately after the resolution of pollution control board issue in Hoshiarpur .

The resolution happened on October 25th, almost one month into the quarter. I feel it is too much to expect sales growth in the same quarter. A more realistic picture of sales improvement will be seen only in next quarter.

I plan to give benefit of doubt and wait for one more quarter.


Link: ../../../author/Prudent_Investor

Good to see people jumping on to foregone conclusions of endowment bias/in love with your stocks/ownership bias etc. etc. :)

As I wrote in the post itself, the top line numbers aredisappointingno doubt, but for someone making an entry during Oct-Nov this was pretty anticipated. There is no point jumping the gun so soon.

There may be intermittent delays from RM procurement to sales booking to delivery and things may spill over from one month to next. So whatever was not realized / could not be realized will reflect in the next quarter.

Having said this, Jan - Mar quarter should be the best quarter at least in some time. The investment thesis was primarily based out of FY14 and FY15 with the hypothesis that due to the stagnant earnings of last few years, the trailing P/E is very high while the forward P/E may not be that high. And fwd PEG gives enough reason to mark an investment candidate.

Nonetheless, I am happy to hold and will take a decisive call post March result if the same under performance continues in terms of revenues.

Link: ../../../author/hemant

agree with rudra here. hawkins was never a fy13 story anyway. investing is not a one day match and conclusions should not be made based on every quarter's results. the headwinds have taken some time to get away and once everything stabilises in terms of production, we should seea good uptick in the results. I am happy to wait for fy14 to complete to see the full effects of removal of capacity constraints and possible capacity expansion as well. Q4 is usually a very good quarter for hawkins and should provide indication of things to come. Interesting thing is the volumes over yesterday and today have been fairly small despite a decent instituitional holding which tells us that institutional guys are happy to be more patient while short term investors which bought last week in hope of blockbuster results panicked out.

technically, the stock completed a five wave uptrend followed by now a test of 50 dma. this could have only been the first leg of correction and not all of it. we will only know in hindsight. if correct back to 2000-2050 levels, would be happy to buy some more.

Link: ../../../author/rohit1889

Hawkins results can't be compared with last quarter results i guess. There is a bit of cyclicality involved in the results.

Qtr Sales PAT NPM EPS
Mar-10 81.8 7.9 9.66% 14.93
Mar-11 103.97 9.84 9.46% 18.60
Mar-12 103.22 9.88 9.57% 18.68





Jun-10 62.39 8.09 12.97% 15.29
Jun-11 74.44 7.29 9.79% 13.78
Jun-12 81.08 5.24 6.46% 9.91





Sep-10 84.92 8.04 9.47% 15.20
Sep-11 97.92 9.33 9.53% 17.64
Sep-12 111.59 10.18 9.12% 19.24





Dec-10 81.37 5.8 7.13% 10.96
Dec-11 87.49 5.3 6.06% 10.02
Dec-12 103.3 7 6.78% 13.23


If one observes carefully, Dec qtr results have always been down as compared to Sep qtr results.
Also Mar qtr sales have grown 20-25% over Dec qtr sales.
The OPM in Dec qtr has been 6-7% and that in Mar qtr has been around 9.5%.
So assuming 20-25% growth here as has been a trend in previous years, here are the projections for March qtr

Qtr Sales PAT NPM EPS
Mar-13 125 12 9.60% 22.68


The results for FY12 can thus be
Sales-- 400 cr
PAT-- 35 cr
EPS-- Rs 65

I guess many are disappointed by Q3 results bcz people saw blockbuster results in Q2 and simply extrapolated those to Q3.
I guess where we got it wrong is that Hawkins is not an IT company wherin we can simply extrapolate Q2 to Q3.
Sales were down due to Diwali discounts. Also 7 cr advertising expense is repetitive in Q3 as observed from last 3 yrs. They send their dealers to Canada and Singapore trips.. So such a high expense won't be incurred in Q4.
Also they are doing RnD on induction cookers which will be an added kicker.

Hawkins remains a long term story and FY14 should probably be the best year amongst the last 2-3 yrs.
P.S: Have around 25% allocation to Hawkins.

Link: ../../../author/datta

Yes not bad results!! May be expectations had to be trimmed down. It is though not the best stock in the market but a decent enough.

Nice details Rohit!!!

~Supratik

Link: ../../../author/anil

Hi Rudra,

Can u please give a rough estimate about your expectation of FY14 and FY15 EPS numbers and revenue growth numbers.

It will helpful, as I could not find any broker reports on this.

Thanks

Good to see people jumping on to foregone conclusions of endowment bias/in love with your stocks/ownership bias etc. etc. :)

As I wrote in the post itself, the top line numbers aredisappointingno doubt, but for someone making an entry during Oct-Nov this was pretty anticipated. There is no point jumping the gun so soon.

There may be intermittent delays from RM procurement to sales booking to delivery and things may spill over from one month to next. So whatever was not realized / could not be realized will reflect in the next quarter.

Having said this, Jan - Mar quarter should be the best quarter at least in some time. The investment thesis was primarily based out of FY14 and FY15 with the hypothesis that due to the stagnant earnings of last few years, the trailing P/E is very high while the forward P/E may not be that high. And fwd PEG gives enough reason to mark an investment candidate.

Nonetheless, I am happy to hold and will take a decisive call post March result if the same under performance continues in terms of revenues.

Link: ../../../author/Krish123

sales of 125 crores in Q4 is doable for hawkins unless there is slump in the consumer spending. What we are seeing today is that the very consumer companies are struggling to increase the sales and spending heavily on advt, promotional expenses.

It happens when the GDP grows below 6% and the inflation stays.

just waiting for page results and let us see the trend.

68

It might sometimes be a good idea to reduce holdings and then pick up if the next quarter is good.

RJ did reduce titan when conviction went down and might have bought it again (confidently) at higher levels.

My personal view.

69

Hi

Anyone Tracking butterfly gandhimati?

Any update on the name?

Thanks in advance

70

Hawkins quite steady.In current Qtr sales picking up quite fast at dealer end as price rise is expected on 1 st April . after a long time this JFM qtr will be the first qtr which will be a normal qtr free from all disturbance like Strike at Jaunpur plant & production stoppage at Hoshiarpur plant due to pollution issue.Any guesses on sales figure for this qtr??

71

no guesses in case of hawkins , it may be full of surprises

72

http://indiansinpakistan.blogspot.in/2011/03/ode-to-pressure-cooker.html

Lovely Story on a Lovely blog on sturdiness n durability of Hawkins cooker.

Gives lot of comfort on durability of Hawkins story.

73

Results out.

For Q

Sales 121.53 cr

Pat 11.67 cr.

Eps 22.08

For Year

Sales 417.5 cr.

Pat 34.10 cr.

Eps 64.49

Dividend - 50 per share

Results mostly in line with rohit’s estimate above, cheers!

74

Can someone explain me why just 17% grow post resolution of all of pending issue. Also why pay such high pe form such slowly growing business, when we have wonderfully growing Astral (whopping 40% cagr in sale) available at much cheaper valuation?

Also why Infosys syndrome can’t bite Hawkins? (Growing sale, but stagnation of share price)

Regards,

-Subash

75

Results for hawkins looks good. Dividend has been increased by 25% from 40 to 50 which is a big positive. Last year the div was retained as theprecedingyear at rs 40. Now all the co needs to do is maintain the average of 120 crores for the next 4 quarters (including the festive season) and with the falling commodity prices and price increases, the NP margin should cross 10% which should convert in to an EPS of 95 - 100 and profit of 48 - 50 crores.

The one thing that stands apart from other companies apart from balance sheet is the div payout for the company which stands at whopping 70+% and very little capex for the future to grow. If the company can grow the profits to 50 crs and maintain the same payout ratio, shareholder will have 70+ as dividend!!! Its this ability that makes hawkins different.

there are few people who invested heavily when the price was 300. so div of 70 + (growing) is like 25% return yearly on div alone(besides 7.5 bagger!!!). The price growth adds to the icing.

I agree there are many bets available better than this but the query is how much will one have the mindset to bet 20% of portfolio with limited downside for very long term.

76

subash,

there are two things here

first is what the future holds-- with the temporary issues resolved the company should be on a firm footing going forward.

The other difference between astral and hawkins is the amount of free cash generated by each business – astral will continuously have to increase their capacities to maintain growth and hence will have low free cash flow.

Hawkins doesnt need too much capex. the main expense i foresee going forward is advertising expenses to maintain the brand pull.

A company growing at even 20% with payout ratio of close to 60-70% will demand higher valuation as compared to a company growing at 25-30% with low payout ratio.

In the end the question always comes down to “kitna deti hai”?

Personally i think hawkins results are just about okay (not too bad and not too good) but the dividend will cause people to chase prices. And if in future the much talked about growth comes about, upsides could be huge.

I agree with kk’s observation about being able to bet 20% on portfolio with limited downsides. Although the company seems to be running out of time in terms of delivering the growth it is expected to show.

**
**

77

Results are as per expectations. It is more of a play on huge FCF rather than sporadic sales growth.

A company which can grow at 20% and maintain a payout of 60-70% deserves such valuations.

78

Thanks Hiteshbhai,

I had forgotten the dividend payout part. So Hawkins high PE is because of high FCF and high dividend payout. So it is plain simple DCF stuff.

But still, it’s share price appreciation shall be in line of growth as the chance of pe expansion is very remote. Seems like a case of 20% compounding with higher certainty (till another funky issue not coming up).

79

HAWKINS TECHNICAL PICTURE – BULLISH SCENARIO.

ATTACHED CHART SHOWS A POSSIBLE FLAG PATTERN ON WEEKLY LINE CHART OF HAWKINS.

COMMENTS ON CHART.

THIS SCENARIO COULD UNFOLD IF THE MUCH AWAITED GROWTH DOES INDEED MATERIALISE.

IF NEXT QUARTER OR TWO COULD PROVIDE SOME INKLING ABOUT COMPANY DELIVERING EPS OF CLOSE TO 90-100, THE TARGETS COULD BE EASILY ACHIEVED. FINGERS CROSSED.


80

Not a classical flag pattern, looks like more of a double top on candles and bar chart, would be very careful about this due to very low liquidity, ground checks here in Mumbai suburbs suggest the sales are deteriorating drastically, friends from around the country can do some local checks, which would be of great help.