Safari Industries - Execution excellence driving profitable growth | Company Update

We upgrade Safari Industries to HOLD (from REDUCE) with a revised target price of Rs. 2,250, valuing the stock at 45x Q2FY28E EPS (earlier 40x), reflecting the company’s sharp improvement in profitability and operating efficiency. While our earlier stance had factored in heightened competition from D2C players and an aggressive discounting environment — trends that indeed played out through latter part of FY25 — Safari has since witnessed a notable turnaround, led by improved utilization levels at its Jaipur facility, enhanced in-house manufacturing of key components, and stable raw material prices. Q2FY26 results were ahead of expectations, driven by strong growth across e-commerce, modern trade, and institutional channels. With festive and wedding demand remaining robust and discount intensity among D2C peers likely to normalize, we believe Safari is well-positioned to sustain its margin trajectory, supported by its diversified portfolio, backward integration, and strengthening brand presence.

Robust Growth:

Safari Industries reported a strong YoY revenue growth of 16.5% to Rs. 5,336mn, ahead of expectations. Growth was driven by robust traction across e-commerce channels (contributing ~50% of revenues), primarily led by the Big Billion Days sale, along with a sharp uptick in institutional orders (~7% of sales vs. 3% earlier) which were previously impacted by capacity constraints. Modern retail (~15% of sales) also witnessed healthy demand momentum. The product mix continued to shift favorably towards hard luggage (75:25 vs. 70:30 QoQ). Utilization at the Jaipur facility improved to ~75%, while the premium segment (Safari Select and Urban Jungle) contributed ~5% of revenues, up from 3% in the previous quarter, reflecting the company’s growing presence in the higher-value segment.

Margin Expansion Driven by Cost Levers:

The company’s gross margins expanded by 322bps YoY to 47.1% (+129bps QoQ), led by higher utilization levels at the Jaipur facility, a favorable shift in product mix towards hard luggage, and increased in-house manufacturing of key components such as wheels and trolleys, which alone contributed to ~150bps YoY improvement. Additionally, benign raw material prices further aided margin expansion. EBITDA margins improved by 342bps YoY to 13.9%, resulting in a 54.6% YoY growth in EBITDA to Rs. 740mn. Consequently, PAT for the quarter rose 58.3% YoY to Rs. 469mn (down 7% QoQ), reflecting strong operating leverage and improved cost efficiencies.

Outlook:

We remain optimistic on Safari Industries’ growth trajectory, underpinned by healthy demand momentum across e-commerce, modern trade, and institutional channels. The management commentary suggests sustained tailwinds from the festive and wedding season, alongside benefits from the recent GST reduction, which have bolstered consumer sentiment. With capacity utilization at Jaipur improving to ~70% and further ramp-up expected through FY27, coupled with ongoing backward integration of trolleys and wheels, we expect margins to remain resilient in the near term. The company’s continued focus on premiumization through Safari Select and Urban Jungle, along with controlled discounting and disciplined channel management, should help sustain industry-leading profitability. While competition from D2C players remains elevated, we believe pricing intensity is likely to normalize, positioning Safari favorably to gain market share and strengthen its leadership in the organized luggage segment.

Valuations & rating:

At CMP, the stock is trading at 46.6x FY27E and 38.4x FY28E our earnings estimates. We value the stock at 45x Q2FY28E EPS of Rs.50. and arrive at a TP of Rs.2,250.  Key risks: increase in competition and further increase in discounting.

Company website: https://safaribags.com/

Click to download the full Safari Industries (India) Ltd Company Update

Analyst:

• Rahul Dani - Research Analyst, Institutional Equities (NISM-201500034725)
• Vaidik Bafna - Research Associate, Institutional Equities (NISM-202100035711)

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