Lower gross margin dents profitability of Hawkins Cooker
News: Hawkins reported strong growth in revenues for Q3FY22 on a YoY basis, however significantly lower gross margins led to decline in EBITDA and Net profit. Revenue grew by 16% YoY to Rs.269 crore (flat QoQ). Gross margins declined by 930 bps YoY to 47.6% probably due to input cost inflation. In spite of employee and other expense to sales ratio declining by 200 bps and 340 bps YoY respectively, EBITDA margin was lower by 390 bps YoY at 10.2% and EBITDA declined by 16% YoY to Rs.27 crore (Q2FY22: 37 crore). Consequently, PAT registered a YoY de-growth of 21% to Rs.19 crore (Q2FY22: Rs.26 crore).
Views: Hawkin’s exhibited good revenue growth amid sustained demand for kitchen appliances category. However, the company’s gross margin continued to contract which may be due to input cost inflation and company not resorting to price hikes. The key aspect to watch out would be whether the company takes a price hike to shore up its margins. With demand likely to remain upbeat owing to renewed customer interest in cooking appliances (as people preferred home cooked food), we believe that Hawkins revenues should maintain the growth trajectory. We continue to remain 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%+.