PL Stock Report: Safari Industries (India) (SII IN) - Q2FY24 Result Update – Capacity expansion on the cards - BUY

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

Rating: BUY | CMP: Rs4,232 | TP: Rs4,752

Q2FY24 Result Update – Capacity expansion on the cards

Quick Pointers:

♦ Announces capex of Rs2.15bn for a new greenfield plant.

♦ Board approval taken for raising funds via QIP for an amount not exceeding Rs5bn.

♦ Announces bonus in the ratio of 1:1 and declares an interim dividend of Rs2.5 per share.

We retain our FY24/FY25E EPS estimates and upgrade FY26E estimates by 7% as full fledge benefits of upcoming capacity expansion will be evident in next 12-15 months. Safari has outlined a capex plan of Rs2.15bn which will double its HL capacity from ~6.5lac pieces per month to ~13lac pieces per month. The company reported decent performance in a seasonally weak quarter with Gross margin/EBITDA margin of 45.5%/17.2% respectively. We maintain our positive stance, 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-FY26E. Maintain ‘BUY’ with a TP of Rs4,752 (earlier Rs4,559) valuing the stock at 45x Sep-25E EPS (no change in target multiple).

Revenue up 18.0% YoY: Top-line increased 18.0% YoY to Rs3,700mn (PLe Rs3,779mn;) led by strong growth across channels.

GM at 45.5%: Gross profit increased 39.3% YoY to Rs1,684mn (PLe Rs1,625mn) with a margin of 45.5% (PLe 43.0%) as compared to a margin of 38.6%/45.1% in 2QFY23/1QFY24 respectively.

EBITDA/PAT margin stands at 17.2%/10.7%: EBITDA increased 51.4% YoY to Rs635mn (PLe Rs612mn) with a margin of 17.2% (PLe 16.2%) as against 13.4% in 2QFY23 and 18.5% in 1QFY24. 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 53.2% YoY to Rs398mn (PLe Rs368mn) with a margin of 10.7% (PLe 9.7%) as compared to a margin of 8.3%/11.7% in 2QFY23/1QFY24.

Plans to double the capacity to ~13 lac pieces per month: Safari has outlined a capex plan of Rs2.15bn that would entail doubling its HL capacity from ~6.5lac pieces per month to ~13lac pieces per month. The new plant is expected to come up in North India and expansion is expected to complete in next 12-15 months.

Other highlights: 1) Trade receivables increased to Rs2,691mn in 1HFY24 from Rs1,693mn in FY23 due to pending recovery from e-commerce channel partners. 2) CSD channel has seen growth in 2QFY24. 3) Current EBO count stands at ~115 and Safari plans to open 1 EBO per week. 4) Current HL:SL mix is ~66%:33%.

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