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Continued to outpace industry bellwether

Safari Industries reported healthy revenue growth at Rs3.9bn (+28.3%) led by, (1) shift ns festive season in Q3 and (2) strong wedding season. Notably E-com/ MT channel saw fastest growth followed by GT channel showing strong uptick in demand in T2/T3 towns. Though Safari’s performance was ahead of industry peer we believe growth was led by premium mix driven by hard luggage which contributed +60% revenue share in Q3. Safari has further improved on its market share vs industry peers. With increased back end manufacturing at Jaipur the management remains upbeat on revenue growth momentum driven by T2/T3 rural markets in FY25

Strong revenue coupled with operating leverage hold margins

In Q3 gross margins grew to 48.0% (+294bp), largely attributed to mix change towards hard luggage (+60%), rising contribution from in-house manufacturing, and softening of RM prices. Despite rise in other expenses (+60%) and employee cost (+3.2%) EBITDA at Rs691mn, grew by 25.7% settling EBITDA margin of 17.8% (-37bp) YoY. PAT at Rs438mn grew heathy by 27.1% on the back of other income (+43.9%) and lower interest expenses (-7.3%). Further Safari expanded its capacity to 650k pcs/month, though these capacities are currently running at 100% utilization rate. We expect the new greenfield capacity in Jaipur at the cost of Rs2.15bn is expected to add another 500k pieces/month of capacity in staggered manner spread over next 18-24 months starting Q4FY25. To fund this capex the company allotted preferential issue of 1.2mn equity shares raising Rs2.29bn. In addition the board has approved to subscribe share capital of Safari Manufacturing Limited and Safari Lifestyles Limited wholly owned subsidiaries for an amount of up to Rs750mn/Rs49.5mn.

Valuation and key risks

We expect Safari’s next phase of growth will be drive by, (1) focus on in-house manufacturing, (2) doubling hard luggage capacity and cut dependence on China import, (3) scale up its retail footprint for Urban Jungle brand, and (4) grow market share gaining from unorganised segment. Though we are sanguine on its growth story we expect rising competitive intensity from VIP and Samsonite and also form local players in the soft luggage which may dent Safari’s growth rates. Further we expect heathy mix change and improved channel mix may influence margins ahead. Despite strong operating performance we cut FY24E earnings by 2.6% and increase for FY25E by 0.4%. We retain Buy with a revised TP of Rs2,623 (50x Sept’26 earnings). Risk: delayed capacity expansion and sudden rise/ discounting by regional competition.

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