Basant Maheshwari, our friendly neighbourhood stock wizard, has made hefty gains from his stock picks. Repco Home Finance, a stock that he recommended in the end of December 2013 has given gains exceeding 100%. Similarly, his other stock pick, Page Industries, has given gains of 140% on a YOY basis.
Basant has now announced Hawkins Cookers as his stock pick for 2015 in the latest issue of Outlook Business. He calls it “the classic proxy to the evergreen Indian middle-class boom story”.
Hawkins Cookers has always been Basant’s favourite stock though its returns have been moderate. He first recommended the stock in July 2011 when it was quoting at Rs. 1828. At today’s CMP of Rs. 3831, there is a gain of 109% from the stock in three and a half years. This works out to a CAGR of nearly 23.5%.
While the CAGR of 23.5% is good, it pales into mediocrity in the context of the current raging bull market.
In the Outlook Business article, Basant has explained that Hawkins’ past returns are moderate owing to the labour and pollution control problems that it had. He has given cogent reasons why Hawkins Cookers is the stock to bet on for 2015:
(i) Hawkins is gaining market share over arch rival TTK Prestige. This is shown by the fact that Hawkins’ H1FY15 sales have grown 20% while TTK Prestige’s sales grew only 10%. Also, Hawkins’ products are priced higher than that of TTK;
(ii) Hawkins has an average ROE of more than 76% over the past five years;
(iii) The free cash flow nature of the business ensures that nearly 80% of the profits are paid out as dividends;
(iv) There is a huge scale of opportunity for the Company’s products. Cookers have penetrated only 20% of rural India. Gas stoves have a market size of Rs. 1700 crore, induction cook tops are a Rs. 1400 crore market opportunity and rice cookers are a Rs. 400 crore opportunity;
(v) There is also a huge replacement demand opportunity and repeat orders as families go nuclear;
(vi) There is a strong possibility that Hawkins may introduce new products in the second quarter of FY16.
Basant also pointed out that though Hawkins Cookers looks expensive when you look at its P/E of 49x, it is, by no yardstick, expensive if you consider the fact that its market cap is only Rs. 2000 crore and that it is catering to a market size of 125 crore Indians, its market domination, pricing power and brand image. “Hawkins is still a good stock to buy” Basant added with confidence.