Maheshwari's view on Hawkins Cooker

Hawkins Cooker has entered into long term agreement with a leading aluminium producer in India. The purchase quantity is significantly higher than what they did last year, says Basant Maheshwari, Investor & Founder, TheEquityDesk.com.

Maheshwari told CNBC-TV18, "Hawkins is a commoditized business many would say but what is happening is they sell their pressure cooker at Rs 850 on an average whereas the unorganized segments sells at Rs 350. So as the market shifts because of breakup of joint family system, higher disposable income, earlier you had just one cooker in your room, now you have five cookers of different sizes. There is a cookware brand - the Futura which is growing even faster. So what happens is - over a period of time these companies like Hawkins implies about Rs 60-65 crore of capital and creates about Rs 330 crore of revenues. So low capital, high revenue, high return on capital, 80-60-70% return on net worth, throws back cash at the shareholders - 60% is payout. Last year they paid Rs 40 dividend.?

He further added, ?What happened was in Q3 and Q2 of last year they had a severe supply problem. Of course the management didn?t tell us, so as analysts what we do is we just go and visit their plant and talk to workers coming out, we call up a few distributors all over the country. If you are in Bombay go and meet the distributor, buy a couple of products and talk to him. So this is what we did. So what happened was in Q3, the Futura cookware brand is mostly outsourced, so because of product constraint they cancelled some of the existing vendors and appointed new ones. So that was the transition.?

?On their website they had two advertisements - Hawkins wants employees and Hawkins wants outsourcing vendors for a product. So those two advertisements came up - Times of India, Bombay, Bangalore also had those advertisements. A two-three-four month was this transitionary phase where Hawkins couldn?t actually supply the product. All the distributors that we went to said there are no products available. So this has now been solved.?

?This management now wants to grow but their module is to grow on a outsourcing model rather than manufacture anything and go into Greenfield, Brownfield expansion. What happens is over a period of time is once you get into outsourcing mode, your cash generation increases multifold because if it?s growing by Rs 40 dividend that is the business grows at 30-40% every year then over a five-seven-eight year period this dividend yield will grow astronomically.?

?So in the case of Hawkins over a period of time through this market research that we did we found that the workers have gone back to work, they have employed new vendors and they have started producing more. They have entered into long term agreement with a leading aluminium producer in India. The purchase quantity is significantly higher than what they did last year. Obviously a company wouldn?t just buy aluminium and store it. They will always be producing cookers and cookware. So these are things that we look at. It?s a fantastic business, the company pays back cash and this year I think their earnings should be about Rs 85-90 per share.?