PL Stock Report: Safari Industries (India) (SII IN) - Q1FY24 Result Update - Standout performance - BUY

Safari Industries (India) (SII IN) - Jinesh Joshi - Research Analyst, Prabhudas Lilladher Pvt Ltd

Rating: BUY | CMP: Rs3,195 | TP: Rs3,728

Q1FY24 Result Update - Standout performance

Quick Pointers:

§ Topline increased 45.6% YoY. In context, industry leader had reported a growth of 7.7% YoY.

§ PAT increases 87.8% YoY. 1QFY24 profitability is 65% higher than FY20 (pre-COVID base) PAT.

We upgrade our EPS estimates by 9%/14% for FY24E/FY25E respectively amid healthy beat in 1QFY24 (sales/PAT beat of 25%/34% respectively). Safari reported yet another quarter of stupendous performance with Gross/EBITDA margin of 45.1%/18.5% respectively given rising benefits of indigenous manufacturing and stable RM prices. Additional capacity of 125,000 units per month has come on stream from 01st August 2023 which is likely to further cushion GM as it would reduce reliance on outsourcing. We maintain our positive stance on Safari as consistent gain in market share and rising share of indigenous manufacturing is likely to result in sales/PAT CAGR of 24%/31% over FY23-FY25E. Maintain BUY with a TP of Rs3,728 valuing the stock at 41x FY25E EPS (earlier 40x).

Revenue up 45.6% YoY: Top-line increased 45.6% YoY to Rs4,267mn (PLe Rs3,416mn) amid strong growth across channels.

GM at 45.1%: Gross profit increased 71.1% YoY to Rs1,925mn (PLe Rs1,469mn) with a margin of 45.1% (PLe 43.0%). Rising contribution of indigenous manufacturing and stable RM prices aided margins.

EBITDA/PAT margin stands at 18.5%/11.7%: EBITDA increased 89.5% YoY to Rs790mn (PLe Rs581mn) with a margin of 18.5% (PLe 17.0%) as against 14.2% in 1QFY23 and 19.3% in 4QFY23.

Safari reported healthy EBITDA margin amid strong GM performance and accrual of operating leverage benefits arising from having a lean indirect cost structure. PAT increased by 87.8% YoY to Rs499mn (PLe Rs374mn) with a margin of 11.7% (PLe 11.0%) as compared to a margin of 9.1%/12.6% in 1QFY23/4QFY23.

Increased capacity by 125,000 units per month: On August 1, 2023, Safari commenced operations of additional 125,000 units at its factory situated at Halol, Gujarat. Consequently, the production capacity of Safari Manufacturing Limited, a wholly owned subsidiary, has increased from 225,000 units per month to 350,000 units per month.

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