Jwalit Vyas, ET Bureau May 7, 2012, 12.18AM IST
Hawkins Cookers' performance will improve once its Punjab plant becomes operational in the next quarter. The stock price does not factor in this expected growth. Investors can buy the stock.
BUSINESS
Established in 1959, Hawkins Cookers is present in the pressure cooker and cookware business through its brands, Hawkins and Futura. The cooker business contributes almost 90% of the revenues. The company has a capacity to produce 12,000 cookers a day at its three plants, Hoshiarpur in Punjab (45%), Jaunpur in UP (40%) and Thane in Maharashtra (15%).
INVESTMENT RATIONALE
Hawkins is seeing a huge demand for its products but is unable to supply due to production issues post FY10. The company operated at less than 75% of its total capacity in 2011 due to labour issues at its Maharashtra and UP plants, which have now been resolved.
But maximum output has still not been achieved due to halting of operations at its Punjab plant by Punjab Pollution Control Board at the beginning of this year. The company is setting up a pollution control plant at Punjab and will be ready to start production in the next quarter.
The Punjab plant contributes almost 50% to the company's sales. Also, the company increased the price of its products by 7.5-10% in January 2012, while aluminum price (a key raw material) has remained almost stable. This will help company improve its profitability, and its earnings will grow 35-45% in the next two years.
FINANCIALS
Due to production limitations, the company's net sales grew just 10% in the last two years to Rs 350 crore in FY12E, while net profit declined to Rs 25 crore in FY12E from Rs 36 crore in FY10. Decline in net profit was due to erosion in margins arising mainly from increase in raw material costs.
The company has a strong cash flow from operations and a debt-to-equity of 0.3. The company is a consistent dividend payer with a payout ratio of 75% in FY11. Also, the company's return-on-equity is very high. RoE was 75 in FY11 and 112 in FY10.
VALUATION
At Rs 1,568, the company's stock is trading at the FY13E P/E of 21. When compared with its peer TTK Prestige, which is trading at the FY13E P/E of 32 and has a much lower RoE (54% against Hawkins' 75%), Hawkins Cookers' stock appears attractively undervalued.
