Prabhudas Lilladher's research report on Safari Industries (India)
In an inflationary environment, Safari reported a decent performance with GM of 38.7% (PLe of 36.9%) buoyed by price hike taken towards end of 3QFY22 and favorable product/channel mix. Though top-line declined 5.4% QoQ due to Omicron impact in Jan/Feb, overall demand environment remains strong given easing travel restrictions. While we cut our FY23E EPS estimates by 7% as we trim our GM assumption by 100bps amid persistent RM cost inflation, our FY24E estimates are broadly intact. We expect sales/PAT CAGR of 27%/98% over FY22-FY24E as benefits of distribution network expansion (up from 5,950 in July-18 to >9,300 in Aug21) and SKU extension (up from 100+ in July-18 to 800+ in Aug-21) is yet to play out since sales volumes were impacted by COVID in last 2 years.
Retain BUY with a TP of Rs1,288 (35x FY24E EPS) given 1) leadership position in mass market which is witnessing higher growth than premium/economy segments and 2) better valuation comfort vis-à-vis market leader VIP. Safari trades at 5%/27% discount to VIP on our projected FY23E/FY24E EPS despite having superior sales/PAT CAGR over FY22-24E.
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