The Budget announcements certainly benefit a consumption-driven company like Hawkins, especially since pressure cooker becomes a necessity once a household gets a cooking gas connection.
Hawkins Cooker, while prima facie a boring stock, is a definite beneficiary of the Budget announcements made on Thursday.
While the Budget disappointed the middle class, the target audience was the “bottom of the pyramid”, many of whom will be a first time consumer of many items including a pressure cooker.
What difference does the Budget make?
To alleviate rural distress, the government has promised to keep minimum support price for Kharif crops at 1.5x of cost. This will definitely ensure more money in the hands of farmers.
The free cooking gas target has been raised to 8 crore poor women from 5 crore women earlier.
The finance minister has made a mention of giving 4 crore power connections under the Saubhagya Yojana.
To improve the plight of the rural economy, target for agricultural credit in 2017-18 has been fixed at a record level of Rs 10 lakh crore.
The above-mentioned announcements certainly benefit a consumption-driven company like Hawkins, especially since pressure cooker becomes a necessity once a household gets a cooking gas connection.
A soft quarter
In the quarter gone by, the numbers were subdued.
Revenue grew by 4.5 percent and the stability in operating margin resulted in over 7 percent rise in profitability.
We see some predictable tailwinds for the company
In addition to the booster dose for rural India in the form of Budget proposals, we see probability of a shift from unorganised to organised sector post the implementation of GST (goods & service tax).
Hawkins has a strong brand recall and has an extensive pan India distribution network supported by over 700 authorised service centres, which has ensured a wide reach and has helped it build a strong brand franchise.
The company’s last ten-year track record shows a healthy CAGR (compounded annual growth) of 12 percent in revenue, 15 percent in operating profit and 17 percent in after-tax-profit. The company also boasts of industry leading return ratios and has robust cash generation from operations resulting in net debt free status.
It has also been a steady dividend payer.
Despite this, the company’s liquidity position is expected to remain adequate owing to comfortable operating profitability, minimal increase in net working capital requirements and low capital expenditure requirements.
Hawkins over the years has demonstrated its competitive advantage in terms of its superior performance of returns on capital. The stock is valued at 25.9X FY 19 projected earnings.
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