Sunday, July 12, 2020

Remembering Mr. Brahm Vasudeva of Hawkins Cookers

On July 10, Mr. Brahm Vasudeva, promoter Chairman of Hawkins Cookers passed away at the age of 84. More than 10 years ago in 2009 as I came across the speech of Mr. Brahm Vasudeva it immediately moved me. I could tell that the speech is coming from his heart and not a public relations job. It is important now because these days so many promoters speak the same language of working with high integrity and the annual reports are full of quotations on honesty and treating all stakeholders with empathy. This was not the case in 2009.

I have a special regards for Mr. Vasudeva because after reading this speech (reproduced below) and some basic research, Hawkins was the second company that I made investment in after converting to the investment style of partnering with high quality management running businesses with great economics. Hawkins helped me see the power of compounding of this investment style. I am reproducing below his speech from 2009.

Link to the speech: https://www.hawkinscookers.com/3.6.DNA_AGM_09.html

Chairman's Speech at Annual General Meeting 2009 


Hawkins Cookers Limited

Annual General Meeting

July 31, 2009




Speech of the Chairman


Mr. Brahm Vasudeva


The Seven Strands of the DNA of Hawkins

My dear shareholders, ladies and gentlemen: I am very pleased to extend a warm welcome to each of you to the forty-ninth Annual General Meeting of our company. I trust all of you are pleased with the results for the year ended March 2009 and our recommendation for a dividend at the rate of Rs.20 per share – which will be the highest dividend ever declared in the fifty-year life of our company.


In my speech to you today, I shall not speak about our company’s financial performance. The Annual Report has been with you for some time and, in any case, as the lawyers say, res ipsa loquitur – “the thing speaks for itself”. Instead, having just completed our Golden Jubilee Year, I would like to talk to you about the DNA of our company, about our nature and our character, about what makes the Team Hawkins tick. I prefer to do so because I believe a Jubilee should be not only a time for celebration but also for reflection – reflection on who and what we are, a time to look back on history, before we look forward to what will be in the future.


To begin this quick survey of our company over the last fifty years, I can do no better than to quote to you one paragraph from the Directors’ Report in our Annual Report 2008-09:


“In the year of our Golden Jubilee, it is fitting to thankfully remember our founding directors, Mr. and Mrs. H. D. Vasudeva, who started your Company in 1959 with an equity capital of Rs.20,000. More important than the money that they brought to the business was the vision of the need of crores of Indian homes for the convenience and economy of the pressure cooker – at that time an unknown product in India. That vision and the values, energy and tact of Amrit and Hari Dutt Vasudeva are, to a great extent, responsible for what your Company is today. Their son, Brahm Vasudeva, the present Chairman of the Board of your Company, had the good fortune to join his parents in Hawkins as Managing Director in 1968 and to benefit from the guidance of his father for many fruitful years. The survival and growth of your Company for fifty years, and its future promise and potential, are a tribute to the vision and values of our founding directors.”


So what were those values of our founding directors that have taken root in our company and govern its actions today? I would like to present to you what I may call the operating values that have emerged in the actual conduct of our company over the last fifty years. As I look back on the last forty years that I have been privileged to work in and for Hawkins Cookers, I see seven strands in our DNA. These seven strands are not from any hallowed mission statements – in fact, they have been put together in writing for the first time specifically for the purpose of my speech to you today. These are principles deduced inductively after studying the behaviour of our company over its first fifty years.


Principle No. One: Follow the Golden Rule: “Do unto others as you would that they do unto you”. Since we want to be treated fairly and reasonably by all who deal with us, this rule obliges us to deal equally fairly and reasonably with all who come into contact with us. This includes employees at all levels, vendors of goods and services, dealers and consumers. We do it because we believe it is the right thing to do. It also tends to build positive relationships and trust in all who deal with our company and with our brands.


Principle No. Two: Ends and Means. We are not so results-orientated that we will use any means to achieve them. All our people are instructed time and again that the results have to be achieved and the means have to be right. It is not a question of doing one or the other – we have to do both. Each manager, each worker is made aware of his or her responsibility to ensure that the results are achieved only through using acceptable processes that meet our professional and our ethical standards and the country’s legal requirements.


Principle No. Three: Seek the Best. The pursuit of excellence informs all that we do – from the choice of materials and machines to the selection and promotion of our people, we choose to work with the best we can get or create. For example, in the nineteen seventies, when imports were severely restricted and we needed a special purpose flow-forming machine to make a heavy base pressure cooker, we collaborated with the Central Machine Tools Institute in Bangalore to design and produce the machine. Incidentally, for that achievement, we received a Silver Shield from the Government of India for import substitution in machine tools. More recently, last year, when the galloping prices of nickel led a number of manufacturers to downgrade the quality of stainless steel, we chose to maintain our nickel/chromium levels and bear the high costs. For the selection of workers in our three plants, in Maharashtra, Punjab and U.P., we use written tests and physical endurance tests (a five kilometer run) along with hand-eye coordination tests and interviews to select the best workers. For managers at all levels, we use written tests conducted at ten or twelve centres all over India and group discussions and final interviews conducted in Bombay in which top management participates. In the case of both workers and managers, we advertise extensively in the press to invite applications and carefully process each of the many thousands of applications that we receive from time to time. Salary progression and promotions are on the basis of a well-structured appraisal process in which top management participates.


Principle No. Four: Hot Focus. We are a stay-close-to-the-knitting kind of company. It was not always so. Before he started Hawkins in 1959, my father, who was 54 years of age at that time, was already a serial entrepreneur: he had started a general insurance company, a pan-Indian distribution business for imported radios and refrigerators and a company that aimed to manufacture cold storage units. By 1959, he had disposed off his other businesses and was uncharacteristically concentrating solely on pressure cookers. By the time I joined in 1968, there was within our company a division trying to manufacture optical-medical instruments – which we closed down after a few years. Nevertheless, we produced and marketed Four Seasons, a quarterly magazine in four languages, four types of spices specially formulated for pressure cooking and two types of electrical kitchen appliances, the Inframatic and the Simmermatic. All these products were not commercially viable and were closed down almost 25 years ago. Since then, we have diversified only into cookware which is an area where the technology and distribution channels are closely allied to our original business of pressure cookers. I am glad to say that the cookware diversification is successful. Today, we know as much or more than any other manufacturer in the world about pressure cookers and cookware. Our products compare favourably with pressure cookers and cookware manufactured anywhere in the world. Our policy of Hot Focus applies not only to our choice of diversification – it applies to the way we work in the company. For example, we have the practice of gathering relevant managers along with top management in groups ranging from 15 to 30 people for a week at a time on various topics such as technical development, marketing and advertising, once or twice a year. There have been over 50 marketing seminars. Such seminars are held in residential locations outside Mumbai and permit undisturbed concentration for 10 to 12 hours a day on pre-prepared agendas and presentations. They result in greater clarity on policy issues and better operational decisions.


Principle No. Five: Be Prudent. This principle applies to our financial operations as well as general expectations. We are conservative to the point of being stodgy. We do not issue ‘detailed guidance’ to investors. We do not seek out analysts or journalists. We don’t “Bet the Company” on anything, no matter how exciting the prospect is. We believe in vigorous preparation and planning and we never forget the importance of the unforeseen and the contingent.

Principle No. Six: Where an Important Principle is Involved, Be Bold, Brave and Resolute. There have been a few occasions when we have faced situations fraught with consequences. It may be a hugely important customer or a state government or even the Government of India who has in some matter treated us unjustly to the extent that it hurts us in a major way or involves important principles which would prejudice us in the future. In such cases, we have never shied away from representing our case directly to the party concerned or, if all else fails, taking the matter to the appropriate court. I am pleased to report that, in such cases, the authorities have eventually seen reason and have not acted vindictively. I am pleased to say that our principled stand on various issues with various authorities has always benefited us in the long term.


Principle No. Seven: Do Your Best and Leave the Rest to God. This most important principle prevents us from developing an exaggerated view of our own importance and allows us to sleep soundly at night. It also enables us to enjoy our work without undue anxiety. Nothing more is expected of any of us than we work sincerely and to the best of our God-given abilities. It enables our employees and our associates to work in an open and collaborative atmosphere, free from fear. It enables people at all levels to freely contribute to decision making and implementation without being unduly anxious about how they will be perceived or the final outcome. It enables all to give of their best.


Based on an historical analysis, those are the seven strands of DNA that I see in our company. As to the future, based on all that I know, I feel optimistic and confident. I feel the first fifty years have laid a good foundation and created good work habits in the Team Hawkins. I know the future will call for the best efforts of all Hawkins employees and associates and the continuing grace of God. You, dear shareholders, will draw your own conclusions – based more on what we deliver than on what we say.


The financial results of the June quarter of 2009-10 are excellent. Net Sales are Rs.54 crores, up 22.5% over the June quarter of the previous year. Net Profit After Tax in June quarter 2009-10 is Rs.7.12 crores, up 68% over the June quarter of the previous year.


Finally, I must express my profound gratitude to all of you, dear shareholders, for the steadfast confidence you have reposed in our company and the Team Hawkins through thick and thin. And thank you for the patient hearing that you have given to my rambling thoughts today.

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Saturday, March 24, 2018

My Investment Framework

A few days ago I gave a presentation titled "My Investment Framework". Rather than discussing about the individual investment products, it concentrates on the fundamental principles on which I base my entire investment structure. I am sharing it here:

https://www.dropbox.com/s/2aqk3zn4td13rmg/My%20Investment%20Framework.pdf?dl=0

Thursday, November 23, 2017

Lessons learnt from this bull market of high quality businesses

A friend of mine recently sent me a link to an excellent and candidly written article on the mistakes learnt over the past decade from stock market. Here's the link:


I have known Vishal from Altaisadvisors for a while although we haven’t been in contact for past 1 to 2 years. It was pleasant to go through his latest thoughts through this article. I can’t agree more with their thoughts although there are some points where I prefer to have a different take. Hence I thought to note it down in this blog.

I am writing this blog entry after a long long time. The purpose is to note down my current thoughts and to check their correctness a decade from now. Obviously, I shall be wrong on some of them and right on some. However, if you can tell right now that I am obviously wrong on certain points, then I would welcome to hear your thoughts in the comments section below. Infact, counter arguments are most welcome.

1. Selling good businesses too early: Totally agree with this.

2. Going down the Quality curve: This is so true.

3. Waiting for a little lower price to buy: I think it is too early to reach any conclusion on this point. We are in the bull market for high quality businesses (mostly mid-cap and small-cap businesses) since past 3-4 years wherein any business that has been successful in creating a perception of high quality (just perception is enough) has run up. I would reach a conclusion after the current investment style of high quality business goes out of favour.

5. Not experimenting enough in the portfolio: How can one disagree with this? One has to keep on experimenting on a small portion of the portfolio. I would only prefer to experiment when there is dis-interest in the stock market rather than when there is so much investor interest. In a bull market most of the stocks are likely to do well and hence one may reach wrong conclusions about the success of the new strategy under experimentation.

6. Having a very large cash allocation: I neither disagree nor agree with this. I prefer to wait for a complete market cycle (bear/bull market to next bear/bull market) to take a call on this point. However, I could be wrong in waiting for a complete cycle to reach a conclusion.

7. Holding on to the non-performers for too long: Can’t agree more with this. As soon as one realizes one’s mistake one should cut the losses and move on.

8. Thesis change, market view changes: Totally agree that one has to have an open mind about the developing thesis. I would only add that if one had not identified the new data points clearly before market recognizes it, then one can remain happy about the investment working out but not to note this case down as an investment success. Basically, if an investment works out for different reasons than the ones identified before the market recognizes it, then one has to be honest to not note it down as an investment success.

9. The need to be Contrarian: Totally true. Can’t add more.

10. Focusing on macro: Which follower of Munger and Buffet would dare to disagree with this?


Finally, I would want add one observation that is unrelated to above.

Today, the BSE mid-cap and small-cap indices have closed at an all time high (yet again). I am sure there shall come a time when the current favoured style of investing in high quality businesses becomes less popular (some other investing style or asset class may become more popular). At that time, the current high valuations of these mid-cap and small-cap businesses may come down. This does not mean that it is going to happen tomorrow. What I don't know is when is this going to happen. It may happen in next 5 months or 5 years. However, I have no doubt that it is going to eventually happen.

It is hard to find genuine investment ideas these days because I see several company's management have begun to speak what value investors like to hear. I wouldn't be surprised if in a few years a fraud is discovered in few of such businesses pretending to be of high quality.

Wish you a safe (investing) journey!

Friday, February 17, 2012

My reply to concerns about Engineers India Ltd.

Recently, an analyst wrote to me about the following concerns in regards to Engineers India Ltd (EIL):

  1. Refining overcapacity in India.
  2. The slowdown in order book of EIL.
This was my reply to him:

XXX, India's current refining capacity is around 190-200 mtpa. This includes private refiners - Reliance and Essar whose capacity is around 70 mtpa. Essar supplies a part of its output to Indian Oil Corporation and maybe to others as well. Majority of private refinery's output is exported for it is not feasible for them to sell at the controlled fuel prices. Total demand for petroleum products in India is between 140-145 mtpa. So there is some over capacity but I am not overtly concerned about it. I believe some 10 to 20% overcapacity is required to account for disruption like terrorist attack, breakdown or other unknown/unknowable events.

If all the fuel prices are practically de-controlled and Reliance and Essar can run their fuel retailing business in India profitably, then this concern is valid for EIL.

Businesses operate within the economic ecosystem and cannot help but get affected by the up and down economic cycles. This gets reflected in the order book. When the economic cycle turns and order books increase in respond to that, Mr. Market cheers and takes the share price of the business to the sky. The future is never clear, and you pay a very high price in the stock market for a cheery consensus. Uncertainty is the friend of the buyer of long-term values, as Buffett says.

My original blog post parsing the business of EIL is here.

Monday, January 2, 2012

All those who have acquired foreign country citizenship can now invest directly in Indian stocks

FYI for all those who have acquired foreign country citizenship - Foreigners can now invest directly in Indian stocks.

This is a great opportunity to be able to earn in a high income country and simultaneously be able to invest in a high growth country.

Check this out - http://economictimes.indiatimes.com/markets/regulation/foreigners-can-now-invest-directly-in-indian-stocks/articleshow/11331305.cms

Saturday, December 31, 2011

Revised Certificate of Deposit (Fixed Deposit) rates for NRE accounts

FYI for all those in the US and other countries - All the major banks in India have revised Certificate of Deposit (Fixed Deposit) rates for NRE accounts from 3.25% - 3.9% range to 9% and above i.e. an increase of more than 125%!

Wish you a great New Year!

Thursday, December 15, 2011

Pricing Power and Cera Sanitaryware

The single most important decision in evaluating a business is pricing power. If you've got the power to raise prices without losing business to a competitor, you've got a very good business. And if you have to have a prayer session before raising the price by 10 percent, then you've got a terrible business.

- Charles Munger / Warren Buffett


In the current business environment, how many businesses can confidently say that they are able to pass on the 'Cost Push' on account of inflation?
Not Voltas, Blue Star or Steel companies.

How many businesses are not afraid of goods getting dumped from China?
Not L&T and BHEL. They have been lobbying with the government for more than past 6 months to have anti-dumping duty on imported power equipments from China.

In this context, checkout the following interview of the executive director of Cera, Mr. Vidush Somany. From this interview, one can get answers to the above two questions.

I believe, Cera has got a reasonable pricing power.