Buy Safari Industries Ltd for Target Rs. 2,434 By Prabhudas Liladhar Capital Ltd
SII IN reported better than expected results with revenue/EBITDA beat of 3.8%/8.3% respectively. After multiple quarters, volume growth was at par with value growth indicating price wars have stabilized. We expect irrational pricing environment to end soon amid change of guard at top-level within peer set. This is expected to bode well for SII IN as price support to e-com channel partners would come down and tangible benefits of margin expansion resulting from improving utilization at Jaipur would be visible. Additional margin kicker is expected from plans to manufacture trolley and wheels at Jaipur (currently outsourced) by incurring a capex of Rs250mn. We expect sales CAGR of 17.3% with an EBITDA margin expansion of 300bps over FY25-FY27E. Retain BUY on the stock with a TP of Rs2,434 as we increase our target multiple to 47x FY27E EPS (earlier 45x) amid early signs of stabilization in price wars.
Revenue increased 17.3% YoY: Top-line increased 17.3% YoY to Rs5,278mn (PLe Rs5,085mn). Volumes were up 17% YoY. Luggage/backpacks contributed ~82%/~18% to the top-line.
GM stood at 45.8%: Gross profit increased 20.7% YoY to Rs2,416mn (PLe Rs2,365mn) with a margin of 45.8% (PLe 46.5%). GM declined 340bps on a sequential basis due to higher share of premium brands and backpacks that command lower margins as these are traded goods.
EBITDA/PAT margin stands at 15.0%/9.6%: EBITDA increased 20.4% YoY to Rs793mn (PLe Rs732mn) with a margin of 15.0% (PLe 14.4%). PAT increased 13.7% YoY to Rs505mn (PLe Rs474mn) with a margin of 9.6% (PLe 9.3%) as compared to a margin of 9.9% in 1QFY25.
Key highlights from our interaction with the management: 1) HL:SL mix for 1QFY26 stood at 70%:30%. 2) E-com growth was flat in 1QFY26. 3) A&P expense stood at ~7.0% of revenue in 1QFY26 (~5.5% in 1QFY25) driven by higher spends towards premium brands (Urban Jungle & Safari Select). In FY26E, A&P expense is expected to form ~7.0% of revenue. 4) Inventory days declined in 1QFY26 supported by liquidation of Urban Jungle & Safari Select. 5) Safari plans to incur ancillary capex of Rs250mn towards manufacturing of trolley and wheels at Jaipur (currently outsourced). Backward integration is expected to aid EBITDA margins post commissioning in 2HFY26E. 6) Capacity utilization at Jaipur stood at 50%. 7) Urban Jungle and Safari Select contributed ~5% to the top-line in 1QFY26.
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