Top Brokerage Retains Buy On This Multibagger Stock, Target Price Revised, Sees Robust 43% Upside

Prabhudas Lilladher has recently published a report on Safari Industries (India) Limited, where the brokerage retains "Buy" on the stock with a revised target price of Rs 2,457 apiece. According to the brokerage's estimated target price, and the Current Market Price of the stock, it is likely to give a potential 43% return on investment. Safari Industries (India) is a small-cap Travel & Tourism Sector company engaged in the business of manufacturing and trading luggage and luggage accessories. It has a market capitalization of Rs 4,077.52 Crore.

Stock Outlook & Performance

The stock of Safari Industries on NSE last traded at Rs 1,719.80 apiece, after a sharp fall of 2.31% in its share price. The 52-week high of the stock is Rs 1,977, while the 52 week low is Rs 780.05. Its 52 week high was recorded last month on 10 November 2022.
 
 In a week, it has given a 5.2% positive return, whereas, in the last 3 months it has given 15.01% positive returns. Whereas in the past 1 year, it has given 92.3% positive returns. In the last 3 and 5 years, it has given 176.52% and 214.87% multibagger returns to shareholders. 
 

Key Highlights

Halol expansion is on schedule: HL capacity expansion of Rs250mn at Halol is on track for completion by Dec-2022 and optimum utilization is expected from March/April 2023. Post expansion, HL capacity will increase to 0.5mn pieces per month. Rising share of own manufacturing is likely to structurally elevate GM profile (delta can be 200-300bps) of Safari by eliminating freight cost and reducing currency volatility.

Demand momentum remains strong: For the next 2-4 quarters, demand momentum is expected to remain strong.

Margins in 2HFY23E likely to be better: Gross margin in 2HFY23E is likely to be better, given decline in RM prices and liquidation of high cost inventory in 1HFY23. Further, sea freight has also declined and supply side issues have gradually been sorted out which should aid margins.

Targeting 100 EBOs by FY23E: As of Sep end, EBO count was ~60-65 which increased to ~70-75 and is expected to reach ~100 odd by FY23E.

E-com is the fastest growing channel: Contribution of e-com channel is more than 25% and it is the fastest growing channel, whereas growth in CSD (~15% contribution) has been a challenge for quite some time.

China exposure to decline in future: Currently, China exposure is in the range of 10-15% but given expansion in own manufacturing capacity, the share is expected to decline which is likely to be margin accretive as it will reduce freight cost and currency volatility.

Other Key Highlights

• HL:SL mix is 55%:45%. SL is outsourced from India, China and Bangladesh while HL is manufactured in-house. 
• A&P spends to remain in the range of 4-4.5% and there is no plan to rope in brand ambassadors.
• Backpacks price range is between Rs500-Rs2,500. 
• SL pricing is roughly at a ~15% premium to HL.

Outlook & valuation

Safari trades at 31x/24x our FY24E/FY25E EPS estimates and acts as a perfect proxy to play on the brand affinity aspirations of Indian middle class, as product positioning is right at the doorstep of organized market. Shrinking share of unorganized players post-COVID and strong foothold in the mass/value segment is expected to result in above average industry growth in foreseeable future. Retain ‘BUY' with a revised TP of Rs2,457 (38x Sep-24 EPS; no change in target multiple) as we keep our estimates unchanged.

Disclaimer

The stock has been picked from the brokerage report of Prabhudas Lilladher. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to consult with certified experts before making any investment decision.