Safari Industries Q3 Results Review - Expansion Plan On Track: Prabhudas Lilladher

Prabhudas Lilladher Report

Safari Industries India Ltd.’s operational performance was broadly in-line with our estimate despite better than expected gross margin of 48.0% (our estimate: 45.0%) amid higher rent, freight, advertising and promotion and pre-operationalisation expense pertaining to upcoming plant in Jaipur. The expansion plan is on track and ~40-50% of the amount earmarked towards new plant is likely to be spent in FY24E itself.

Capacity expansion will emerge as key earnings lever as freight cost will reduce given demand emanating from Northern belt will get catered from the new plant.

Further, rising share of own manufacturing will result in better control over sourcing and lead to improvement in working capital. Consequently, we increase our gross margin estimate to 46.1%/46.2%/46.7% in FY24E/FY25E/FY26E but our overall earnings per share estimates are broadly intact (excluding the dilution impact from preferential issue) as we re-align our indirect cost assumptions.

We maintain our positive stance on Safari and expect sales/PAT compound annual growth rate of 24%/30% over FY23-FY26E.

Maintain ‘Buy’ with a target price of Rs 2,271 valuing the stock at 45 times Sep-25E EPS (no change in target multiple).

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