Prabhudas Lilladher's research report on Safari Industries (India)
Safari reported exceptional performance with 7.4% QoQ growth in top-line over a seasonally strong base of 1Q. GM was flat at 38.8% (PLe of 38.5%) while EBITDA margin stood at 13.3% (PLe of 12.0%) as benefits of operating leverage kicked in. Given outright beat, we increase our EPS estimates by ~17-19% over FY23E25E and expect sales/PAT CAGR of 20%/44% respectively over the same period as benefits of distribution network expansion and SKU extension have just started playing out. Further, our GM estimate of 43% for FY24E has upside risk (pre-pandemic 5-year average was 43.1%) as additional Rs250mn is ear-marked to further expand HL capacity which is expected to come on stream after December 2022. Safari trades at 33x/25x 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.
Outlook
Retain BUY with a revised TP of Rs2,457 (38x Sep-24 EPS; no change in target multiple).
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