Prabhudas Lilladher has maintained a Buy rating for Safari Industries (India), revising its target price to Rs 2,783. The company reported a 22% volume growth in Q3FY25, but EBITDA margins declined to 11.4% due to rising competition and pricing pressure. Management remains optimistic about long-term growth, supported by new capacity expansions and product improvements. Analysts project a 22% CAGR in sales and a 46% CAGR in PAT between FY25 and FY27, though near-term challenges related to pricing and margins remain significant risks.

Performance Highlights

Safari Industries' financial results for Q3FY25 showcased mixed performance:

Revenue:
The company's revenue rose by 14% YoY to Rs 4,427 million, driven by higher volumes but impacted by competitive pricing.

EBITDA and Margins:
EBITDA declined by 26.1% YoY to Rs 504 million, with a margin of 11.4%, slightly above estimates. This decline was largely due to increased employee expenses and other operational costs, which surged by 26.5% and 27.9% YoY, respectively.

PAT (Profit After Tax):
PAT fell by 27.4% YoY to Rs 311 million, resulting in a 7.0% PAT margin.

Gross Margin Analysis

Gross Margins:
The company's gross margin stood at 45.4%, lower than the 48% recorded in Q3FY24. The decline was attributed to pricing pressure due to heightened competition and increased discounts across e-commerce platforms.

Product Mix Improvements:
Sequential improvements in margins were supported by a better product mix, lower discounting, and relatively stable raw material costs. Management aims to sustain this margin trajectory through greater capacity utilization at the new Jaipur plant.

Operational and Strategic Developments

Capacity Expansion:
The Jaipur plant is now operational with 10% capacity utilization. This facility is expected to serve as a key growth driver, enhancing both volume output and margins over the next few quarters.

E-commerce Focus:
Safari continues to prioritize its e-commerce channels, which contributed approximately 40% of total sales during the quarter. The company is also targeting an increase in its premium product offerings through brands such as Urban Jungle and Safari Select.

Dealer Network:
The expansion of exclusive brand outlets (EBOs) remains a core strategy. The current EBO count stands at 150, with further additions planned to strengthen the company’s retail presence.

Changes to Estimates

In response to increased market competition, Prabhudas Lilladher has reduced earnings estimates for Safari Industries:

These revisions reflect expectations of continued price erosion and competitive pricing tactics from market rivals.

Key Technical Analysis

Support and Resistance Levels:
Safari Industries' stock is trading at Rs 2,383, with important technical levels highlighted below:

Immediate Support: Rs 2,320
Immediate Resistance: Rs 2,600
Key Target: Rs 2,783 (Analyst Target Price)
52-Week High: Rs 2,837
52-Week Low: Rs 1,627
Candlestick Patterns:
The stock recently formed a doji pattern, indicating indecision among traders. A sustained breakout above Rs 2,600 could signal further upside, while a fall below Rs 2,320 may trigger bearish momentum.

Fibonacci Levels:
Applying Fibonacci retracement suggests the following levels:

38.2% Retracement: Rs 2,520
50% Retracement: Rs 2,455
61.8% Retracement: Rs 2,390
These levels may act as interim support and resistance zones in the near term.

Industry and Competitive Position

Safari operates in a highly competitive luggage and travel gear market, with key competitors including:

VIP Industries: The market leader, focusing on both domestic and international sales.
Samsonite India: A global giant with a strong brand presence across premium and mid-tier segments.
Safari’s focus on product innovation, e-commerce expansion, and capacity growth positions it to compete effectively despite aggressive price competition.

Investment Outlook

Growth Prospects:
Safari is poised to deliver robust growth over the next few years, driven by volume expansion, improved product mix, and higher utilization at new plants. Analysts expect a 22% CAGR in revenue and a 46% CAGR in PAT through FY27.

Potential Risks:

Pricing Pressure: Ongoing price wars and discounts in e-commerce channels could affect margins.
Execution Risks: Delays in scaling operations at the Jaipur plant could hinder expected growth.
Market Competition: Increased competition from established players may impact Safari’s market share and profitability.

Conclusion

Safari Industries presents a compelling investment opportunity with strong growth potential. The company's focus on capacity expansion, product diversification, and e-commerce positioning provides a solid foundation for long-term success. However, investors should remain cautious about short-term margin pressures due to pricing competition.

Disclaimer: Investors are advised to perform their own due diligence and consult with financial advisors before making investment decisions.