ICICI Direct's research report on Hawkins Cookers
The nationwide lockdown from mid-March onwards owing to Covid-19 severely impacted operations for Q4FY20. Store closures and decline in primary billing led to revenue contraction of 21.0% YoY to Rs 146.0 crore. Positive impact of benign raw material prices (gross margins up 759 bps YoY) was offset by negative operating leverage (employee & other expenses up 280 bps and 680 bps YoY, respectively). Hence, EBITDA margins declined 193 bps YoY to 10.0%. Subsequently, PAT for the quarter de-grew 30.5% YoY to Rs 9.4 crore. Despite a subdued Q4FY20, Hawkins exited FY20 with healthy margin expansion of 221 bps YoY and higher profitability (up 34% YoY). Furthermore, stringent working capital policy (~20% of revenues) translated into healthy operating cash flow generation worth Rs 66.0 crore (CFO/EBITDA: 64%). With earnings in short-term expected to be negatively impacted (particularly H1FY21E), Hawkins through its strong promoter pedigree and brand patronage (second largest player) is expected to tide over the current situation better than smaller peers.
We continue to remain structurally positive on Hawkins owing to its robust balance sheet and good promoter pedigree. Over the years, the company has maintained balance sheet prudence with controlled working capital cycle (20% of sales), non-leverage balance sheet and generating healthy RoCE of 55%+. The company has consistently maintained healthy dividend payouts with average ratio of ~75%. Hawkins has not declared dividend at the moment, as it focuses on maintaining liquidity to tide over uncertainties. We reiterate our BUY rating on the stock with a revised target price of Rs 4900 (30x FY22E EPS of Rs 163.3).
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