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GM shows signs of improvement

Quick Pointers:

* Volumes increased by 22%. 

* After hovering in the region of mid-40’s in the last 3 quarters, GM improves to 49.2%.    

We cut our EPS estimates by 6%/5% for FY26E/FY27E as we fine tune our top-line growth assumptions amid persistent pricing pressure (volume growth of 22% has resulted in value growth of 15%). Safari reported better-than-expected performance with EBITDA margin of 14.5% (PLe 12.8%) led by improvement in GM amid 1) reduction in RM prices, 2) better product & channel mix, and 3) lower discounts on e-com channel. Progress at the new site in Jaipur is satisfactory and capacity utilization stood at 20% in 4QFY25. As capacity utilization at the new plant improves further; Safari will become increasingly cost competitive and will be in a better position to fend the ongoing price war. Backed by the expansion, we expect sales/PAT CAGR of 19%/36% over FY25-FY27E. Maintain ‘BUY’ with a TP of Rs2,437 (45x FY27E EPS; no change in target multiple). Excessive pricing pressure is a key risk to our call. 

Revenue increased 15.2% YoY: Top-line increased 15.2% YoY to Rs4,211mn (PLe Rs4,308mn). Luggage/backpacks contributed ~85/~15% to top-line in 4QFY25.  

GM improves to 49.2%: Gross profit increased 12.0% YoY to Rs2,072mn (PLe Rs1,996mn) with a margin of 49.2% (PLe 46.3%) as compared to a margin of 50.6% in 4QFY24. After hovering in the band of mid-40s for past few quarters, GM’s improved to 49.2% due to benign RM prices, improvement in product & channel mix and reduction of discounts in online channel.

EBITDA/PAT margin stands at 14.5%/8.9%: EBITDA declined 9.0% YoY to Rs609mn (PLe Rs550mn) with a margin of 14.5% (PLe 12.8%). Other expenses declined sequentially due to reduction in warehousing cost following commencement of operations at Jaipur (warehousing space at Ahmedabad and Gurgaon was renounced for Jaipur). PAT decreased by 13.0% YoY to Rs376mn (PLe Rs336mn) with a margin of 8.9% (PLe 7.8%) versus a margin of 11.8% in 4QFY24.

Key highlights from our interaction with the management: 1) Volume growth for 4QFY25/FY25 stood at 22%/25%.  2) HL:SL mix for FY25 stood at 70%:30%. 3) Capacity utilization of Jaipur plant was at ~20% in 4QFY25, with March achieving an exit run-rate of ~30%. 4) E-com’s share in channel mix stood at ~40% in 4QFY25. 5) Current share of premium brands (Urban Jungle & Safari Select) was 3% in FY25. Plan is to double the share next year. 6) A&P spends accounted for ~7.5% of revenue in FY25. 7) Inventory days increased from 63 to 72 due to higher stocking of premium brands (Urban Jungle & Safari Select), aimed at meeting the anticipated demand in 1QFY26. 8) Receivable days increased from 39 to 50 as higher credit is given in e-comm channel. 

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