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Capacity expansion to drive growth

We cut our EPS estimates by 7%/7%/6% for FY27E/FY28E/FY29E as we fine-tune our top-line growth and EBITDA margin assumptions. SII IN reported a modest top-line growth of 9.1% due to capacity constraints and festive shift while operational performance was weak with EBITDA margin of 10.3% (PLe 11.5%) amid stiff competition and persistent RM inflation. SII IN has outlined a capex plan of INR2,300mn to increase the capacity by 6lac pieces per month through debottlenecking existing units at Jaipur and Halol. There is an embedded provision (land will be acquired) to increase the capacity by additional 33% at the same location, if required. Proposed expansion will be complete by June-28 and is expected to lend cost competitiveness. Led by capacity expansion we expect topline CAGR of 13% over the next 3 years with EBITDA margin of 12.0%/13.2%/13.4% in FY27E/FY28E/FY29E respectively. Retain BUY with a TP of INR1,610 (33x Sep-28E EPS; earlier 35x). We have realigned our target multiple amid growth and margin reset the business is witnessing amid excessive price wars.

Revenue increased 9.1% YoY:

Top line increased 9.1% YoY to INR5,822mn (PLe INR5,922mn) as against INR5,336mn in 2QFY26.

GM at 44.3%:

Gross profit increased marginally by 2.6% YoY to INR2,577mn (PLe INR2,606mn) with a margin of 44.3% (PLe 44.0%) as compared to a margin of 47.1% in 2QFY26.

EBITDA/PAT margin stands at 10.1%/6.3%:

EBITDA decreased 19.3% YoY to INR597mn (PLe INR681mn; CE INR706mn) with a margin of 10.3% (PLe 11.5%) as against 13.9% in 2QFY26. Divergence at the EBITDA level was on account of higher-than-expected employee expenses at INR416mn (PLe INR379mn). PAT decreased by 21.3% YoY to INR369mn (PLe INR418mn; CE INR438mn) with a margin of 6.3% (PLe 7.1%) as compared to a margin of 8.8% in 2QFY26. Miss at the PAT level was mainly on account of weaker performance at EBITDA level.

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