Buy Safari Industries Ltd For Target Rs. 1,953 by Prabhudas Liladhar Capital Ltd
GM springs a surprise
We upgrade SII IN to a BUY (earlier HOLD) with a TP of Rs1,953 (40x FY28E EPS; no change in target multiple) as performance scorecard of 4QFY26 indicates margin revival is on the cards. SII IN reported better than expected performance with GM of 49.3% (PLe 45.8%) aided by backward integration benefit arising from captive manufacturing of wheels & trolleys at Jaipur and rationalization of schemes & discounts to channel partners. While we do not rule out near term margin headwinds amid inflation in RM prices, we believe the issue is transitory and once input costs stabilize, benefits of price hike (~4-6% taken in May-26) and captive manufacturing will be visible. We expect 14% sales CAGR over the next 2 years with of GM of 46.2%/46.8% and EBITDA margin of 12.5%/13.7% in FY27E/FY28E respectively. SII IN trades at 38x/29x our FY27E/FY28E EPS. Upgrade to BUY.
What has prompted us to change our view on SII IN in a span of 3 months?
We had downgraded SII IN to HOLD in our 3QFY26 result update note citing concerns over margin recovery and heightened competition (Link to our note). Since then, the stock has corrected by 34% as margin concerns aggravated due to increasing RM prices.
Nonetheless, GM/EBITDA margin performance of 49.3%/13.1% in 4QFY26 was noteworthy, indicating recovery in margin profile can be swift once RM inflation stabilizes. Our projections factor in a modest recovery in EBITDA margin of 50bps over FY26-FY28E (13.2% in FY26 to 13.7% in FY28E) indicating limited earnings downside risk over a 2-year time frame. The stock trades at 38x FY27E EPS (26% discount to 1- year forward LPA) providing good margin of safety. Upgrade to BUY.
Key highlights from our interaction with the management:
1) Volumes were up ~19% YoY in 4QFY26, led by higher contribution from cabin luggage and backpacks.
2) E-comm share for the quarter stood ~37%.
3) Share of uprights for the quarter stood at 5%.
4) Backpacks contributed ~17-18% to the topline.
5) A&P expense stood at ~7% of revenue in 4QFY26.
6) Capacity utilization at Jaipur stood in the range of 85-90% for 4QFY26.
7) Steps to increase capacity at Jaipur from 5mn units to 6.5mn units per month is expected to begin shortly.
8) Urban Jungle and Safari Select contributed ~7-8% to the topline in 4QFY26.
9) As of now, SII IN has no plans for any fundraise (enabling resolution is in place to raise INR5,000mn).
10) Cash & cash equivalents (including current financial investments), stood at ~INR2,282mn.
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SEBI Registration No. INH000000271Accumulate Paradeep Phosphates Ltd For Target Rs.141 by Prabhudas Liladhar Capital Ltd
