1a) Draw the Business Model of the company and explain the determinants of the cost sheet using

basics defined by Goldratt.

Distribution channel
Through retailers,superstores

How o we reac em
Prit mei,TV cmmercils

Value proposition
Offers 57 different pressure cookers

Customer Segment
House wives, restaurants

Revenue

Cost
Manufacturing ,distribution,advertisement cost

Sles, Spsrship f ckery sh w

a. According to Goldratt the determinants of the cost sheet are: y y y Throughpu t Inven tory Operational expense

Throughput is the rate at which the system gen erates money through sales. It measures the amount of mon ey that is flowing into the company. In case of Crompton Greaves Ltd the company is steadily growing. (Rs. in Crores)

2006

2007

2008

2009

2010

Goss l
s

14,516.1

18,459.6

3,650.98

4,255.24

4,951.72

"In
nto is all the money that the system has invested in purchasing things which it intends to sell." Due to the type of the industry that the company is into, it has to invest a substantial amount in the inventory of raw material, etc. (Rs. in Crores

2006

2007

2008

2009

2010

In
ntoi
s

20.24

21.27

26.80

25.47

31.15

"Op
tionl
xp
ns
is all the money the system spends in order to turn inventory into throughput,  i.e. finished goods into sales. he major operational e penses in this industry are that of power & fuel cost and other manufacturing e penses.

(Rs. n Crores

2006

2007

2008

2009

2010

Po
 & Fu
l ost

19.83

23.72

27.42

29.04

Oth manufactuin expenses

28.23

43.51

74.12

97.58

1b

Hawkins Cookers Limited has been in business since 1959. oday, it has two offices, three factories and about 1000 persons working. t is the leader in the pressure cooker market in ndia and has e ported its products since 1974 to various countries in each of the six continents of the world.  Hawkins has sold over 44 million pressure cookers worldwide. oday, it makes 57 different models of pressure cookers in 10 different types. According to the Slywotzky framework the company lies in the Customer Solution Profit model where learning about the customer needs is the key which will help in designing and modifying the product as per the customers need and also the Experience Curve Profit as the company isinto manufacturing cookers and other kitchenware since a very long time.

2a) Competiti e position of the compan usin Poters model

Threat of new Entrants There is a lot of action taking place in the domestic small appliances segment, including cookware, as MNCs and local brands trying to grab the growing !ndian market with mergers, new product launch, and brand building. The huge unorganized sector is also doing their best to expand their reach.

Bargaining Suppliers

power

of

Competiti e "i alry Between existing players Competition between existing players is high as there are few players about the same size; there is not much differentiation between players and their products Bargaining power of Buyers Bargaining power of buyers is high as they buy large volumes

There are no substitutes for a particular input. !t is a cookware industry, the switching cost from one supplier to another will be expensive and will result in low profits and also they may have to compromise with the quality.

Threat of new substitutes Threat of substitutes is not much as they have close customer relationship. They keep a close track of the industries theyre supplying and see how theyre developing and respond with our own plans to take account of and supply future changes.

2b# Evaluate the company on the four tenets of Buffett Management Tenets Founded in 1959, Hawkins Cookers Limited is a professionally managed, public limited company. Hawkins is the leader in the pressure cooker market for the last 35 years and has diversified successfully into the cookware market. Hawkins is known for its fair policies and ethical practices. Value Tenets 295 crores and net profit after tax was 37 crores. The Compound Annual Growth Rate over the last five years is 19% in sales and 74% in net profit after tax. Hawkins is the leader in the pressure cooker market for the last 35 years and has diversified successfully into the cookware market.. Business Tenets The company is into cookware business i.e. they manufacture cookers and there is a lot of action taking place in the domestic small appliances segment, including cookware, as MNCs and local brands trying to grab the growing $ndian market with mergers, new product launch, and brand building. The huge unorganized sector is also doing their best to expand their reach.The exact size of $ndian cookware market is very tough to determine due to its large unorganized sector and varying definition of the segment. As a whole the $ndian appliance industry is currently riding on a growth curve and is catching up fast with most of its global counterparts and around 60% of this market consists of cookware. There is also a great potential for $ndian cookware manufacturers in the export market of other South Asian countries, Middle East and Australasia. $n the short term the business can suffer due to competition but long term business prospects of the company remain good with strong fundamentals . Financial Tenets Analyzing the company statements led to several interesting discoveries.
y y

$n 2009-10, sales were

The companys total debt has increased from 8.79cr of previous year to 12.27 in 2010 The %eserves & Surplus has increased 56&76% from 21&44 crores to 33.61 crores.Sales of the company have been increasing. Cost of Materials as a %age of sales has came down to 37.26% for 2009-10 as compared to 44.80% for the previous year, mainly on account of lowered prices. Net profit has increased 92.76% from 19.11 crores to 36.83 crores. Net profit margin has increased to 12.89% from 7.91%. Taxes as a %age of sales was 6.66% for 2009 -10 as compared to 4.12% for the previous year. The Proposed Dividend forms 57.42% of Net Profit as compared to 55.31% for the previous year.

y y

2c. which category does the business moat belong according to the Morningstar model?

Hawkins Cookers Limited has been in business since 1959. Today, it has two offices, three factories and about 1000 pers ons working. 't is the l eader in the pressure cooker market in 'ndia and has exported its products since 1974 to various countries in each of th e six continents of the world. Hawkins has sold over 44 million pressure cookers worldwide. Today, it makes 57 different models of pressure cookers in 10 different types. All Hawkins pressure cookers are listed by Underwriters Laboratori es 'nc., USA, a not -for-profit institution testing products for public safety. Having been in the industry Hawkins Cookers has a lot of experi ence and doing R&D activities helps the company better understand customer requirements and design the cookware as per the changing customers needs with the help of PCA Engineers limited which is a subsidiary of Hawkins Cookers Ltd. whi ch result s in increasing revenue by reducing operational costs. According to the Morningstar model the company fits very effectivel y into the Cost Advantage business moat.

3a. Input the 5-year annual reports in the formats Profit & Loss account of Hawkins Cooker Mar '06 ------------------- in (s. Cr. ------------------Mar '07 Mar '08 Mar '09 Mar '10

12 12 mths mths

12 mths

12 mths

12 mths

'ncome
Sales Turnover Excise Duty Net Sales 145.51 184.81 8.41 11.05 218.05 13.46 204.59 0.59 3.03 208.21 255.29 12.84 242.45 3.52 -3.28 242.69 296.05 9.84 286.21 3.07 1.47 290.75

137.10 173.76 0.10 0.32

)ther 'ncome
Stock Adjustments Total Income Expenditure

-4.02 -0.64 133.18 173.44

Raw Materials Power & Fuel Cost Employee Cost

56.92 83.27 1.84 2.41

97.61 2.63 28.21 10.70 44.32 4.55 -0.66 187.36 Mar '08

107.34 3.41 31.46 13.66 49.63 5.46 -0.67 210.29 Mar '09

109.79 3.70 34.03 18.26 61.66 4.67 -0.65 231.46 Mar '10

23.33 24.79 6.36 8.31

*ther Manufacturing Expenses

Selling and Admin Expenses Mi scellaneous Expenses Preoperative Exp Capitalised Total Expenses

30.62 37.00 5.07 3.28

-0.52 -0.57 123.62 158.49 Mar '06 Mar '07

12 12 mths mths

12 mths

12 mths

12 mths

*perating Profit
PBD+T

9.46 9.56 2.08 7.48 1.51 0.00 5.97 0.02 5.99 1.96 4.03 66.70 0.00

14.63 14.95 1.75 13.20 1.54 0.00 11.66 0.00 11.66 4.15 7.49 75.22 0.00

20.26 20.85 1.46 19.39 1.57 0.00 17.82 0.00 17.82 6.55 11.26 89.75 0.00

28.88 32.40 1.37 31.03 1.66 0.00 29.37 0.00 29.37 10.23 19.12 102.96 0.00

56.22 59.29 1.71 57.58 1.69 0.00 55.89 0.00 55.89 19.04 36.84 121.68 0.00

+nterest
PBDT Depreciation

*ther Written *ff

Profit Before Tax Extra-ordinary items PBT (Post Extra-ord +tems, Tax Reported Net Profit Total Value Addition Preference Dividend

Equity Dividend Corporate Dividend Tax Per share data (annualised Shares in issue (lakhsEarning Per Share (RsEquity Dividend (%) Book Value (Rs)

2.64 0.37

3.70 0.63

5.29 0.90

10.58 1.80

21.15 3.51

52.88 52.88 7.62 14.17

52.88 21.30 100.00 37.80

52.88 36.15 200.00 50.55

52.88 69.67 400.00 73.57

50.00 70.00 25.52 31.51

Balance sheet of Hawkins cookers Mar '06 Sources /f Funds Total Share Capital Equity Share Capital Share Application Money Preference Share Capital Reserves Revaluation Reserves Networth Secured Loans Unsecured Loans Total Debt Total Liabilities Application /f Funds Gross Block Less 0 Accum. Depreciation

------------------- in .s. Cr. ------------------Mar '07 Mar Mar '08 '09 Mar '10

5.29 5.29 0.00 0.00 8.21 0.00 13.50 8.21 6.83 15.04 28.54

5.29 5.29 0.00 0.00 11.37 0.00 16.66 3.41 7.41 10.82 27.48

5.29 5.29 5.29 5.29 0.00 0.00 0.00 0.00

5.29 5.29 0.00 0.00

14.70 21.44 33.62 0.00 0.00 0.00

19.99 26.73 38.91 0.09 0.00 7.93 8.79 8.02 8.79 0.00

12.27

12.27

28.01 35.52 51.18

30.30 31.65 33.02 34.83 37.67 16.57 17.85 19.12 20.45 21.95

Net Block Capital Work in Progress Investments

13.73 13.80 13.90 14.38 15.72 0.40 0.10 0.40 0.89 0.78 1.18 0.10 0.10 0.10 0.10

1nventories
Sundry Debtors Cash and Bank Balance Total Current Assets Loans and Advances Fixed Deposits Total CA, Loans & Advances Deffered Credit Current Liabilities Provisions Total CL & Provisions Net Current Assets Mi scellaneous Expenses Total Assets Conting ent Liabilities Book Value (Rs)

20.24 21.27 26.80 25.47 31.15 14.46 20.76 21.17 26.65 28.03 1.74 2.67 2.57 2.15 2.78

36.44 44.70 50.54 54.27 61.96 4.25 0.15 4.11 4.59 5.95 6.75 0.15 1.20 12.22 36.64

40.84 48.96 56.33 72.44 105.35 0.00 0.00 0.00 0.00 0.00

22.30 29.57 35.54 36.73 44.37 4.24 6.22 7.67 15.44 26.80

26.54 35.79 43.21 52.17 71.17 14.30 13.17 13.12 20.27 34.18 0.00 0.00 0.00 0.00 0.00

28.53 27.47 28.01 35.53 51.18 4.78 3.62 3.02 2.81 3.36

25.52 31.51 37.80 50.55 73.57

3b. explain the DuPont Synthesis and conclude on the company credentials? RATIOS - DUPONT MODEL - Anuh Pharma Ltd As on 07/12/2010 COMPANY/RATIOS/DUPONT MODEL/2916/Anuh Pharma 201003 PBIDT/Sal es(%) Sal es/Net Assets PBDIT/Net Assets PAT/PBIDT(%) Net Assets/Net Worth ROE(%) 11.2 3.07 0.34 64.16 1.06 21.43 200903 200803 200703 12.24 2.91 0.36 54.88 1.01 20.97 11.56 2.82 0.33 57.93 1.06 21.4 14.24 2.46 0.35 55.7 1.04 21.91 200603 13.66 2.64 0.36 60.09 1.05 24.82

4a. Explain the business arbitrage that exists in your company. According to Dhandho investor a business should always look for arbitrag e opportuniti es with spread as wide and as long as possible. It helps the company to earn high return on investments with low level of ri sk. I t can be seen as an advantage for the company as it can generate cash flows by intelligently investing the money earned by the company and earn Capital gains. The Business arbitrage can be cal culated as follows 2 (ROCE WACC) The return on capital employed is 28.3 % and the WACC can be cal culated as follows 2 WACC = w eight of equity * cost of equity + weight of debt * cost of debt Cost of equity cal culation Assuming a market return of 12% and risk free return of 8% and cal culated beta for Foseco India which is .07 we get KE = .12 + .07(.12 - .08) = .1228 =12.28% The cost of debt can be cal culated as follows 2 Total interest/Total debt = .18 Cr. / 11.05 Cr. = 1.62% WACC = 0.84 x 0.1228 + 0.16 x 0.0162 = .1031 + .0025 = .1056 = 10.56%

The Business arbitrage is 28.3% - 10.56% = 17.74%