Prabhudas Lilladher's research report on Safari Industries India
We cut our EPS estimates by 10.0%/6.4%/0.5% for FY25E/FY26E/FY27E as we fine tune our GM and A&P assumptions in light of rising competitive intensity. Safari reported a subdued performance with EBITDA margin of 10.5% (PLe 15.1%) due to 1) higher A&P spends to the tune of ~Rs100mn on e-com channel and 2) an additional brand building expense of ~Rs50mn in order to create visibility for Urban Jungle. We believe pricing pressure would prevail in the near term given aggressive discounting by a leading player but Safari will be in a better position to counter this challenge once greenfield plant at Jaipur begins operations. Progress at the site is satisfactory and commercial production is expected to begin soon. Operationalization of new plant will bring in cost competitiveness by optimizing freight & power cost enabling Safari to compete better at mass end of the curve that is most price sensitive.
Outlook
We maintain our positive stance on the stock and expect sales/PAT CAGR of 22%/36% over FY25E-FY27E. Maintain ‘BUY’ with a TP of Rs2,989 (45x FY27E EPS; no change in target multiple). Near term margin volatility given the ongoing price war is a key risk to our call.
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