Safari Industries reported better than expected Q2FY22 result. Its sales/ EBIDTA were significantly above our estimates. Safari Industries’ net sales increased by 2x YoY to Rs 1.9 billion as luggage sales jumped up sharply. Even EBIDTA improved to Rs180 million compared to loss of Rs 53 million in Q2FY21 and interest cost fell 26% YoY to Rs14 million. Hence, net profit improved to Rs107 million (loss of Rs90 million in Q2FY21). The company has announced capex of Rs 500 million to set up a new luggage manufacturing plant.

"We raise our FY22 sales/EBITDA estimate by 19%/29% as we anticipate the improvement in travel and tourism which in turn should lead to higher luggage sales.  We also raise our FY23 sales/ EBITDA estimates by 10%/6%. We have introduced FY24 forecast in this report and now value the stock at a PER of 38x FY24 (earlier 40x FY23 EPS) to derive a target price of Rs 1,089 (earlier Rs 888)," stated IDBI Capital Equity Research.

Key highlights and investment rationale

Safari’s H1FY22 performance commendable: Although H1FY22 was impacted by lockdowns; Safari likely gained market share as per our channel checks; hence, its operational performance is commendable in our view. Its announcement to set up additional manufacturing plant indicates worst is over for the luggage industry.  Organized players like Safari have gained market share during the Covid-19 pandemic- the benefits of these would be realized in coming few quarters by way of market share gains.

Maintain our BUY rating: Over the past 4 quarters, Safari has shown resilient performance despite industry headwinds. Also, its cash management has been prudent in the past one year. We remain structurally positive on the growth prospects of luggage industry and in the near-term also we foresee green shoots. We applaud management’s ability to outperform industry sales growth and also cost cutting measures (including improving balance sheet). Hence, we maintain positive outlook on the stock.  

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