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Revenue in line; margins hit by raw material inflation

Safari Industries (SII) reported revenue in line with expectations in 2QFY27. Consolidated revenue grew 9.1% YoY to INR5.8b (-1.1% QoQ). Raw material inflation hurt profitability. Gross margin contracted ~280bp YoY to 44.3%. EBITDA declined 19.3% YoY to INR597m, and EBITDA margin contracted ~360bp YoY (~255bp QoQ) to 10.3%. PAT fell 21.3% YoY to INR369m. For 1HFY27, revenue grew 10.3% YoY to INR11.7b, while EBITDA fell 11.9% to INR1.35b (margin of 11.5%, - 290bp YoY) and PAT fell 13.1% to INR847m. The Board approved capex of up to INR1.7b for SII and up to INR0.6b for its subsidiary Safari Manufacturing (SML). The SML investment will increase monthly capacity from 1.0m to 1.6m pieces by Jun'28 and will be funded through internal accruals. We estimate a revenue CAGR of ~13% over FY26-28, with EBITDA margin recovering from ~11.2% in FY27 to ~12.8% in FY28 as price hikes catch up with input costs. The Board declared an interim dividend of INR2/share

Higher volumes driving growth

Growth remains intact, though at a moderated pace. Revenue grew 9.1% YoY in 2Q, slightly slower than 1Q (+10.3%), with growth mainly volume-led. The 5-6% price hike in April has not fully offset the sharp rise in PP/PC prices amid the West Asia crisis. SML is operating at 100% utilization of its existing 1m pieces/month, constraining further volume until additional capacity comes onstream. The approved addition of 0.6m pieces/month (+60%) is expected to ease this constraint from FY29 onwards. The INR1.7b standalone capex toward infrastructure and land for a new warehouse is expected to support distribution and growth of the premium and Urban Jungle portfolios.

Margins under pressure

Gross margin contracted ~280bp YoY and ~30bp QoQ to 44.3%, as PP/PC inflation outpaced pricing actions. Staff costs increased 17.3% YoY to 7.1% of sales, partly due to higher ESOP expenses of INR71m in 1H vs INR19m in 1HFY26, while other expenses rose 10.4%. Consequently, EBIT declined 27.6% YoY to INR409m, with higher depreciation and interest costs contributing to a 24% decline in PBT despite a 25.7% increase in other income. Operating cash flow declined sharply to INR16m in 1H from INR616m in 1HFY26, primarily due to an INR1.5b increase in receivables since Mar’26, alongside INR372m of short-term debt. However, net cash remains healthy at ~INR 2.4b, providing adequate headroom to fund planned capex through internal accruals.

Valuation and view: Reiterate BUY

We expect SII to deliver industry-leading growth and gain market share by focusing on:

1) strengthening the Urban Jungle brand along with SI-Select (premium positioning)

2) expanding SML capacity and warehousing infrastructure

3) introducing new SKUs

4) steadily expanding its exclusive brand outlet (EBO) network. While we remain confident about SII’s growth prospects, rising competitive intensity from VIP, Samsonite, and D2C players, along with input-cost volatility, could weigh on near-term performance. We factor in FY27E EBITDA margin of ~11.2% and FY28E margin of ~12.8%, and reiterate our BUY rating with a DCF-based TP of INR 1,800. Key risks: Prolonged raw-material inflation and aggressive discounting by regional competitors.

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