Hawkins Cookers:
Hawkins Cookers is one of India’s leading and trusted manufacturers of Pressure Cookers.
The company was formed in 1959, as a technical collaboration between H.D. Vasudeva and L.G. Hawkins & Co Ltd (England).
In 1968, Brahm Vasudeva joined the company. Under his stewardship, the company focused its efforts predominantly in the Pressure Cooker segment and built the ‘Hawkins’ brand. By doing so, the company was able to streamline its supply chain and this undeviating approach ensured superior product quality. I believe that by consciously choosing not to diversify, the company was able to build a reputable brand image whilst its competitors set about diversifying thereby diluting the brand association with their core products.
In the late 1980s and early 1990s, the company eventually forayed into the Cookware segment through the ‘Futura’ category (Hard anodized cookware & stainless steel tri-ply cookware) and bolstered their Pressure Cooker product line with the additions of,
- Contura – Launched in 1987 to appeal to the newer generations and ensure strong brand continuity
- Miss Mary – Smaller sized and highly economical Pressure Cookers
- Bigboy – Large volume Pressure Cookers ideal for Canteens, Colleges, and other institutions
Brahm Vasudeva laid a strong emphasis on advertising to promote and sustain the brand image for the company. He was disappointed with the advertising agencies poor reader data harvesting ability and disclosures. He campaigned for better access to this data which would help in understanding the efficacy of the advertisement. Through his efforts, the Indian Readership Survey (IRS) was launched in 1995.
Unfortunately, Brahm Vasudeva passed away this year. His legacy and his unwavering commitment to the development of high-quality products will remain at the core of Hawkins Cookers future endeavors!
Revenue Distribution:
Distribution by Product Segment:
- Pressure Cooker – 80%
- Cookware – 17%
- Others (Spares etc.) – 3%
Distribution by Geography:
- India – 94%
- Exports – 6%
Sourcing – Manufacturing – Distribution:
Industry Structure:
The Pressure Cooker and Cookware industry segments are incredibly competitive with unorganized small-scale players, regional players, and organized large national level players competing for the consumer’s pocket.
Hawkins Cookers belongs to the latter group and boasts a 30%+ market share in the Pressure Cooker segment across India. Its key competitors in the organized player group include TTK Prestige (30%+ market share in Pressure Cooker segment), Bajaj Electricals, StoveKraft (Pigeon brand), Philips, and Butterfly. Hence, a large portion of the existing market (60%+) is occupied by just two organized players.
The industry lacks real product differentiation and hence having a strong brand is paramount in generating ‘perceived product differentiation’ thereby leading to above-average profitability. I believe that Hawkins and TTK Prestige have been able to do so. Furthermore, constant brand reinforcement is the key to success. This is evident from ever increasing advertisement spends as the brand pull in the industry is ephemeral (short lived due to consumers buying these products once in every four-five years).
Hawkins Cookers brand has allowed them to earn higher margins on their products when compared to the entire competitor set (barring TTK Prestige which also has a strong brand). However, it has not protected them from heavy discounting at the dealer level in a bid to protect market share.
Both Hawkins Cookers and TTK Prestige have had to set aside roughly 8-10% and 5-6% of gross revenues respectively to cover the discounts provided at the dealership level. The practice of discounting has been severe in certain local markets where regional players happen to be strong. However, aggressive discounting will hurt the entire industry whilst benefitting only the end consumer.
In a bid to entice and entrap customers, nearly all the companies in this industry offer cashback schemes where the older product can be returned to the dealer, and a rebate can be taken on the purchase of the new product of the same brand. This leads to low-moderate levels of customer captivity.
In terms of market growth, urban areas are expected to grow at a low pace due to high penetration of Pressure Cookers (over 90% + already) and this market is now a replacement market. The rural areas should see better growth due to government support for LPG connections through PMUY as well as lower penetration levels (around 35-40%).
| Company | Key Geographical Area of Operation |
| Hawkins Cookers | Pan India |
| TTK Prestige | Pan India |
| Bajaj Electricals (Consumer) | Pan India |
| Butterfly | Southern India |
| StoveKraft (Pigeon) | Southern India |
Opportunities and Growth Drivers for Hawkins Cookers:
- Regulations / Government Initiatives
- GST – With the implementation of GST around 2 years ago, the increased compliance and costs have hampered the growth of unorganized competitors. Hence, for Hawkins Cookers to continue growing, it will have to capture market share from these weakened players
- ISI Mark – The Government of India has made it compulsory for every pressure cooker to have the ISI mark. Hence, this is likely to benefit the organized sector due to average higher product quality
- Pradhan Mantri Ujjwala Yojana (PMUY) – Distribution of LPG connections in rural areas will broaden the existing market. Companies like Hawkins Cookers which have robust distribution networks are likely to benefit more than the unorganized players
- The company can easily leverage its existing brand strength to push new product lines into the market
- Rising number of nuclear families
- A short-term boost due to Covid-19 leading to a higher preference for home cooking
- Covid-19 led disruptions will affect the regional and unorganized sector more and hence will provide ample opportunity for the organized sector to capitalize upon
- Price advantage over TTK Prestige (closest competitor) – On an average, Hawkins Cookers products happen to be priced around 8-10% lower than TTK Prestige’s range
Risks:
- Severe and sustained discounting from regional players will bring down profitability
- Limited size and growth prospects of the Pressure Cooker market. However, the diminished growth prospects could be a boon since it will likely keep out new competitors and further consolidation could occur
- Volatility in Aluminum and Steel prices – Aluminum is the primary raw material for the company and does display significant price volatility (March 2020 – $1600 per tonne, December 2020 – $2000 per tonne). The company does not undertake any hedging activities and instead looks to transfer increase in raw material prices via price hikes on their products. Beyond a point, the company will have to absorb increasing prices themselves if they are to maintain their market share
Valuation:
The global Pressure Cooker market is expected to grow at the rate of 3.5% over the next few years. I expect the Indian Pressure Cooker market to grow marginally higher at about 5-6% annually. The Cookware market should be able to grow slightly faster than the Pressure Cooker market.
There will be market share gains for the organized sector at the expense of the unorganized sector.
Despite a highly competitive environment as well as raw material price fluctuations, Hawkins Cookers and TTK Prestige, have managed to maintain margins between 13-15%. Together, they constitute over 60% of the Pressure Cooker market and this number is likely to grow. This duopoly should help in sustaining these margins.
I have capitalized R&D expenditures and Advertisement expenditures since they generate long term benefits.
Intrinsic Valuation Base Case:
Intrinsic Valuation Bull Case:
Hence, the intrinsic value as per my analysis is between INR 2804.82 (Base case) and INR 3306.97 (Bull case).
Hawkins Cookers happens to be a low-float stock with an outstanding track record and superior profitability metrics, thereby leading to the stock being highly valued.
An opportunity to enter the stock did come about in March 2020, however, catching it at that price would have been incredibly hard!
Hawkins Cookers is a company that is driven by three key tenets: Integrity, Hardwork, and Pleasing Customers, which is quite evident from their performances over the years.
Finding such companies at the right valuations tends to be a rarity but I hope that an opportunity comes by soon!