Buy Hawkins Cookers; target of Rs 4000: ICICI Direct

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ICICI Direct's research report on Hawkins Cookers

Hawkins reported a robust set of Q1FY19 numbers with revenues growing 50% YoY to Rs 120.8 crore. Higher raw material expense led to a decline in gross margin by 110 bps YoY to 59.8%. However, with positive operating leverage kicking in, EBITDA margins expanded significantly by 580 bps YoY to 13.9%. Absolute EBITDA grew ~2.6x to Rs 16.8 crore. Lower other income (down 40% YoY to Rs 1.3 crore), restricted PAT growth, to a certain extent. Hence, PAT for the quarter came in at Rs 10.7 crore vs. Rs 4.6 crore in Q1FY18. A revival in revenue growth post sluggish growth in the last few quarters augurs well for Hawkins. We expect the revenue growth momentum to sustain driven by implementation of Ujjwala Yojana scheme of government, which would provide a growth opportunity for the cooker and cookware segment.

Outlook

Hawkins has a lean balance sheet, with debt/equity comfortably placed at 0.3x. Over the years, the company has maintained healthy dividend payouts with average ratio of 75%+. Hawkins has a capital efficient business model, with minimal capex requirements. The asset light nature of the business has led Hawkins to generate industry best asset turns with robust return ratios (RoCE: 50% as on FY18). Going forward, with a gradual pick-up in consumer sentiments in rural markets, constant focus on innovation and new product launches, we expect revenues and earnings to grow at a CAGR of 17% and 22%, respectively, in FY18-20E. Furthermore, implementation of GST would be a key growth trigger, driving the shift from unorganised to organised players. At the CMP, Hawkins is trading at 30x/25x EPS of Rs 113 and Rs 138 for FY19E and FY20E, respectively. Given the robust balance sheet and good promoter pedigree, we have a BUY recommendation on the stock with a target price of Rs 4000 (29x FY20E EPS).

For all recommendations report, click here

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