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

using basics defined by Goldratt.


Throughput

Inventory

Operational expense
Revenue
Sales, Sponsorship of a
cookery show

a. According to Goldratt the determinants of the cost sheet are:

“Throughput is the rate at which the system generates money through sales.” It measures the
amount of money that is flowing into the company. In case of Crompton Greaves Ltd the company is
steadily growing.
(Rs. in Crores)
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 2006 2007 2008 2009 2010

Gross Sales 14,516.1 18,459.6 3,650.98 4,255.24 4,951.72

"Inventory 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

Inventories 20.24 21.27 26.80 25.47 31.15

"Operational expense is all the money the system spends in order to turn inventory into throughput,
i.e. finished goods into sales.” The major operational expenses in this industry are that of power &
fuel cost and other manufacturing expenses.

(Rs. In Crores)

2006 2007 2008 2009 2010

Power & Fuel 19.83 23.72 27.42 29.04

Cost
 Other
manufacturing
28.23 43.51 74.12 97.58
expenses

1b)

Hawkins Cookers Limited has been in business since 1959. Today, it has two offices, three factories
and about 1000 persons working. It is the leader in the pressure cooker market in India and has
exported 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. Today, 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 is into
manufacturing cookers and other kitchenware since a very long time.
 2a) Competitive position of the company using Porters’ 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
Indian market with mergers, new product launch, and
brand building. The huge unorganized sector is also
doing their best to expand their reach.

Competitive Rivalry
Between existing
Bargaining power of Suppliers players

There are no substitutes for a Competition Bargaining power of

particular input. It is a cookware between existing Buyers
industry, the switching cost from players is high as
one supplier to another will be Bargaining power of
there are few players
expensive and will result in low buyers is high as they
about the same size;
profits and also they may have buy large volumes
there is not much
to compromise with the quality. differentiation
between players and
their products

Threat of new substitutes

Threat of substitutes is not much as they have close customer

relationship. They keep a close track of the industries they’re
supplying and see how they’re 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

In 2009-10, sales were 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 Indian 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
Indian cookware market is very tough to determine due to its large unorganized sector and varying
definition of the segment. As a whole the Indian 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 Indian cookware manufacturers in the export
market of other South Asian countries, Middle East and Australasia. In 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.

 The company’s total debt has increased from 8.79cr of previous year to 12.27 in 2010

 The Reserves & 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.
 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 persons working. It is the leader in the pressure cooker market in
India and has exported 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.
Today, it makes 57 different models of pressure cookers in 10 different types. All Hawkins
pressure cookers are listed by Underwriters Laboratories Inc., USA, a not-for-profit
institution testing products for public safety. Having been in the industry Hawkins Cookers
has a lot of experience and doing R&D activities helps the company better understand
customer requirements and design the cookware as per the changing customer’s needs with
the help of PCA Engineers limited which is a subsidiary of Hawkins Cookers Ltd. which
results in increasing revenue by reducing operational costs. According to the Morningstar
model the company fits very effectively into the Cost Advantage business moat.

3a. Input the 5-year annual reports in the formats

Profit & Loss account of Hawkins Cooker ------------------- in Rs. Cr. -------------------

Mar
Mar '07 Mar '08 Mar '09 Mar '10
'06

12
12 mths 12 mths 12 mths 12 mths
mths

Income

Sales Turnover 145.51184.81 218.05 255.29 296.05

Excise Duty 8.41 11.05 13.46 12.84 9.84

Net Sales 137.10173.76 204.59 242.45 286.21

Other Income 0.10 0.32 0.59 3.52 3.07

Stock Adjustments -4.02 -0.64 3.03 -3.28 1.47

Total Income 133.18173.44 208.21 242.69 290.75

Expenditure
Raw Materials 56.92 83.27 97.61 107.34 109.79

Power & Fuel Cost 1.84 2.41 2.63 3.41 3.70

Employee Cost 23.33 24.79 28.21 31.46 34.03

Other Manufacturing Expenses 6.36 8.31 10.70 13.66 18.26

Selling and Admin Expenses 30.62 37.00 44.32 49.63 61.66

Miscellaneous Expenses 5.07 3.28 4.55 5.46 4.67

Preoperative Exp Capitalised -0.52 -0.57 -0.66 -0.67 -0.65

Total Expenses 123.62158.49 187.36 210.29 231.46

Mar
Mar '07 Mar '08 Mar '09 Mar '10
'06

12
12 mths 12 mths 12 mths 12 mths
mths

Operating Profit 9.46 14.63 20.26 28.88 56.22

PBDIT 9.56 14.95 20.85 32.40 59.29

Interest 2.08 1.75 1.46 1.37 1.71

PBDT 7.48 13.20 19.39 31.03 57.58

Depreciation 1.51 1.54 1.57 1.66 1.69

Other Written Off 0.00 0.00 0.00 0.00 0.00

Profit Before Tax 5.97 11.66 17.82 29.37 55.89

Extra-ordinary items 0.02 0.00 0.00 0.00 0.00

PBT (Post Extra-ord Items) 5.99 11.66 17.82 29.37 55.89

Tax 1.96 4.15 6.55 10.23 19.04

Reported Net Profit 4.03 7.49 11.26 19.12 36.84

Total Value Addition 66.70 75.22 89.75 102.96 121.68

Preference Dividend 0.00 0.00 0.00 0.00 0.00

Equity Dividend 2.64 3.70 5.29 10.58 21.15

Corporate Dividend Tax 0.37 0.63 0.90 1.80 3.51

Per share data (annualised)

Shares in issue (lakhs) 52.88 52.88 52.88 52.88 52.88

Earning Per Share (Rs) 7.62 14.17 21.30 36.15 69.67

Equity Dividend (%) 50.00 70.00 100.00 200.00 400.00

Book Value (Rs) 25.52 31.51 37.80 50.55 73.57

Balance sheet of Hawkins cookers ------------------- in Rs. Cr. -------------------

Mar Mar
Mar '06 Mar '07
'08 '09

Sources Of Funds

Total Share Capital 5.29 5.29 5.29 5.29

Equity Share Capital 5.29 5.29 5.29 5.29

Share Application Money 0.00 0.00 0.00 0.00

Preference Share Capital 0.00 0.00 0.00 0.00

Reserves 8.21 11.37 14.7021.44

Revaluation Reserves 0.00 0.00 0.00 0.00

Networth 13.50 16.66 19.9926.73

Secured Loans 8.21 3.41 0.09 0.00

Unsecured Loans 6.83 7.41 7.93 8.79

Total Debt 15.04 10.82 8.02 8.79

Total Liabilities 28.54 27.48 28.0135.52

Application Of Funds

Gross Block 30.30 31.65 33.0234.8337.67

Less: Accum. Depreciation 16.57 17.85 19.1220.4521.95

Net Block 13.73 13.80 13.9014.3815.72

Capital Work in Progress 0.40 0.40 0.89 0.78 1.18

Investments 0.10 0.10 0.10 0.10 0.10

Inventories 20.24 21.27 26.8025.4731.15

Sundry Debtors 14.46 20.76 21.1726.6528.03

Cash and Bank Balance 1.74 2.67 2.57 2.15 2.78

Total Current Assets 36.44 44.70 50.5454.2761.96

Loans and Advances 4.25 4.11 4.59 5.95 6.75

Fixed Deposits 0.15 0.15 1.20 12.2236.64

105.3
Total CA, Loans & Advances 40.84 48.96 56.3372.44
5

Deffered Credit 0.00 0.00 0.00 0.00 0.00

Current Liabilities 22.30 29.57 35.5436.7344.37

Provisions 4.24 6.22 7.67 15.4426.80

Total CL & Provisions 26.54 35.79 43.2152.1771.17

Net Current Assets 14.30 13.17 13.1220.2734.18

Miscellaneous Expenses 0.00 0.00 0.00 0.00 0.00

Total Assets 28.53 27.47 28.0135.5351.18

Contingent Liabilities 4.78 3.62 3.02 2.81 3.36

Book Value (Rs) 25.52 31.51 37.8050.5573.57

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 200903 200803 200703 200603

 PBIDT/Sales(%) 11.2 12.24 11.56 14.24 13.66

 Sales/Net Assets 3.07 2.91 2.82 2.46 2.64

 PBDIT/Net Assets 0.34 0.36 0.33 0.35 0.36

 PAT/PBIDT(%) 64.16 54.88 57.93 55.7 60.09

 Net Assets/Net Worth 1.06 1.01 1.06 1.04 1.05

 ROE(%) 21.43 20.97 21.4 21.91 24.82

4a. Explain the business arbitrage that exists in your company.

According to Dhandho investor a business should always look for arbitrage opportunities
with spread as wide and as long as possible. It helps the company to earn high return on
investments with low level of risk. It 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 calculated as follows:

(ROCE – WACC)
The return on capital employed is 28.3 % and the WACC can be calculated as follows:

WACC = weight of equity * cost of equity + weight of debt * cost of debt

Cost of equity calculation

Assuming a market return of 12% and risk free return of 8% and calculated beta for Foseco
India which is .07 we get

KE = .12 + .07(.12 - .08) = .1228 =12.28%

The cost of debt can be calculated as follows:

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%