First, let’s take note of R. Srinivasan’s credentials. He shot into stardom when his fund SBI Emerging Business Fund gave an incredible return of 42% in 2012. However, in 2013, Srinivasan has put in a below average performance with SBI Emerging Business Fund under-performing the Sensex and giving negative returns of 7% YOY.
Now, the reason for the stark out-performance of 2012 was that Srinivasan had correctly predicted the boom in the consumer oriented stocks and was overweight them. So, when the consumer stocks took off, SBI Magnum also took off with it.
In 2013, Srinivasan thought (wrongly now, in hindsight) that the consumer stocks were overvalued and that as the interest rate regime was turning benign, the time was ripe to load up on the undervalued finance stocks. So, he bought huge truck loads of stocks like HDFC Bank, Shriram City Union Finance and Muthoot Finance. Even today, SBI Emerging Business Fund is overweight Finance stocks with a 20% allocation as against an allocation to Consumer Non-durables of 7% and a pharma allocation of only 6%. Also, Srinivasan completely overlooked the terrific boom in the Info-Tech stocks and didn’t buy a single stock.
Now, this was a terrible tactical error because the consumer stocks continued to remain in fashion and the finance stocks continued to languish.
The interest rates continued to remain hard and the bank stocks bore the brunt of it. HDFC Bank and Shriram City Union Finance have remained absolutely flat on a YOY basis. To make matters worse, Muthoot Finance got into trouble over the RBI rules governing gold loans and the rise of NPAs. Muthoot has lost 40% on a YOY basis.
Now the important point to note is that there is nothing wrong with Srinivasan’s stock selection. All the core stocks in his portfolio are top quality stocks (HDFC Bank, Shriram City, Divis Labs, 3M India, P&G etc) but it is a case of being too early with the overweight position with finance stocks.
When the sentiment changes and bank stocks come back into fashion, you can be sure that SBI Emerging Business Fund will be among the top performers.
Anyway, now coming back to the main point, SBI Emerging Business Fund already holds 206,377 shares of Hawkins Cookers which is worth Rs. 47 crores at the CMP of Rs. 2300.
On 10th January 2014, SBI Mutual Fund bought 13,644 shares of Hawkins Cookers for Rs. 3.15 crore.
Now, the question is whether anything should be read into this purchase by a savvy investor.
The answer is that Hawkins Cookers is at the cusp of a change. In FY 2012-13, Hawkins suffered a great deal because of the pollution control issues and labour problems. It has overcome both problems. In July 2013, it has introduced “Induction Pressure Cooker” which is priced at a MRP of Rs. 2300. This compares favourably with the other products like “Hawkins Contura” which is available at Rs. 1,525, “Hawkins Ventura” which is available for Rs. 1,950 and “Hawkins Miss Mary Pressure” which is available at Rs. 1,100.
Presumably, young consumers will make a bee-line for the “Induction” cookers, resulting in higher realizations for Hawkins. If you read the consumer reviews at mouthshut.com, you will find that several consumers are gung-ho about the product (though there are several detractors as well).
The Hawkins stock has been flat on a YOY basis though it looks like a coiled spring waiting to explode. The September 2013 results were a precursor to this with a steep rise in profits. If Hawkins is able to replicate this in the December 2013 Quarter as well, confidence will return and the stock will be in great demand.
The other point you have to remember is that Dolly Khanna, who has an uncanny ability to discover multibagger stocks, is the single largest shareholder with a massive 105,227 shares worth Rs. 24 crore. In fact, Hawkins is Dolly’s single largest portfolio holding. Basant Maheshwari of Basant Top 10 is also very bullish on Hawkins as you can see from this video. Even Megh Manseta has a large holding in Hawkins.
The only sobering thought is that Hawkins’ peer, TTK prestige, has reported poor Q3 2014 results. TTK Prestige’s profit slumped 33.12 per cent YOY with a 14.97 per cent fall in sales. The EPS slumped to Rs 25.33 as against Rs 38.88 last year. Worse, T. T. Jagannathan was pessimistic of the prospects. He said consumer sentiment was depressed and higher input costs (including rupee depreciation) had taken a toll on the company’s profitability.
Will Hawkins script a different story? We’ll know on 28th January 2014! Keep your fingers crossed till then!
Good information for new investors.