Narayana Murthy, the legendary founder of Infosys, the blue chip behemoth, follows a relatively simple investing philosophy. He keeps an eye on companies with top-quality management, high ROE, dominant market presence etc. When the stock reports weak quarterly results and slumps, Narayana Murthy moves in and scoops up a truckload. He is careful to keep his buying quiet so that it stays off the radar. Having bought his quota, he waits patiently for the stock to regain its mojo and become the investors’ favourite again.
We saw Narayana Murthy execute this brilliant strategy in the case of Ambika Cotton a few days ago. Ambika Cotton is a no-brainer buy because it has received the green signal from none other than Prof Sanjay Bakshi, the authority on value investing. When the Prof gives his all-clear, you can be sure that you are buying into a stock with pristine credentials. However, because Ambika’s Q1FY16 results were poor, the stock lost favour with the investing masses and plunged into a deep dive. That gave Narayana Murthy (through his investing arm Catamaran Management Services) the perfect opportunity to buy the stock.
Hawkins Cookers is the latest example of Narayana Murthy’s brilliant strategy at work. In the period from July to September 2015, his investing arm, Catamaran Management Services, bought 84,307 shares of Hawkins. The holding is worth Rs. 20.56 crore at the CMP of Rs. 2439.
If you ponder over the situation, you will realize the brilliance in Narayana Murthy’s strategy. Today, Hawkins Cookers is so much in the dumps that no one has any expectations from it. We have already seen how Dolly Khanna jettisoned the stock a few months ago. We have also seen how the bitter acrimony relating to the stock caused the untimely and tragic demise of Basant Top 10, Basant Maheshwari’s popular stock recommendation service. The stock has left such a bitter taste in the mouths of some investors that they don’t even want to hear its name.
This is what makes Hawkins Cooker the perfect stock for a contrarian who is willing to go against the tide. The downside is limited while the upside is huge. There is no doubting the excellent credentials of the stock. The management is known for its honesty and integrity. The company has a powerful brand image. It is debt-free. It has high return ratios. There is also no doubting the size of the cookery-ware market in India. Almost every single household needs a pressure cooker.
The only thing lacking in the stock is growth. However, Brahm Vasudeva, its Chairman, vowed in the recent AGM that the company would get its act together and march on the path of higher sales and profit. He solemnly promised “We believe the outlook for our business is excellent. In this year, we have further strengthened the good reputation we have amongst our consumers and customers and we expect to increase our sales and profits handsomely.”
At this stage, we must note that TTK Prestige, Hawkins’ arch rival, reported bumper results for Q2FY15. The revenue increased 10.2 percent to Rs 421 crore during July-September quarter compared to Rs 382 crore in same period last year while the profit increased 21.4 percent to Rs 34 crore from Rs 28 crore in the year-ago period. This clearly shows that the Industry is seeing growth come back. It is reasonable to expect that Hawkins Cookers would see similar traction is Narayana Murthy’s expectation!