Prabhudas Lilladher has upgraded Safari Industries to a BUY rating from HOLD, assigning a revised target price of Rs 1,953 against the current market price of Rs 1,427, after the company delivered a surprisingly strong margin performance in Q4FY26. The brokerage believes Safari’s operational efficiency measures, particularly backward integration and reduced channel discounts, are beginning to materially improve profitability despite persistent raw material inflation. Gross margins expanded sharply to 49.3%, significantly above estimates, reinforcing confidence that earnings recovery may accelerate once commodity pressures stabilize. PL expects revenue CAGR of nearly 14% over FY26-FY28E, supported by premiumization, manufacturing efficiencies and stronger category mix.

Safari Industries Delivers Margin Surprise as Operational Levers Begin to Work

Safari Industries stunned the Street with a stronger-than-anticipated profitability profile in the March quarter. The company posted consolidated revenue of Rs 4,733 million for Q4FY26, marking a 12.4% year-on-year increase compared with Rs 4,211 million in the corresponding quarter last year. The topline growth was primarily supported by higher traction in cabin luggage and backpacks, along with resilient demand across organized travel accessories.

However, the defining feature of the quarter was not revenue growth alone — it was the sharp rebound in gross margins.

Gross profit climbed 12.7% YoY to Rs 2,335 million, while gross margin expanded to 49.3%, substantially ahead of analyst expectations of 45.8%. The improvement came despite rising raw material costs during March, a development that had earlier triggered concerns around profitability pressure across the luggage segment.

PL Capital said the margin expansion was aided by two major factors:

• Benefits from backward integration at the Jaipur facility, particularly in trolleys, locks and wheels.
• Rationalization of trade schemes and discounts offered to channel partners.

The brokerage noted that Safari’s captive manufacturing strategy is now beginning to create meaningful operating leverage.

EBITDA Recovery Changes Market Narrative Around Safari

The Q4FY26 performance may represent a turning point in investor sentiment toward Safari Industries.

Just three months earlier, PL Capital had downgraded the stock to HOLD amid concerns surrounding margin recovery and intensifying competition. Since then, the stock corrected nearly 34%, as investors worried that raw material inflation would continue to erode profitability.

But the latest quarterly numbers appear to have altered that narrative materially.

EBITDA came in at Rs 618 million, significantly ahead of estimates of Rs 388 million. EBITDA margin stood at 13.1%, exceeding expectations by nearly 460 basis points.

Although EBITDA margin remained below the unusually strong 14.5% reported in Q4FY25, analysts believe the trajectory is now clearly stabilizing.

PL Capital stated that the company’s margin profile could improve swiftly once raw material inflation moderates, especially after Safari implemented a price hike of nearly 4-6% during May 2026.

Management Commentary Signals Confidence in Growth Momentum

Management commentary following the results reflected confidence in both demand conditions and manufacturing scalability.

Volumes grew approximately 19% YoY during the quarter, driven by strong contribution from cabin luggage and backpacks. E-commerce contribution remained elevated at nearly 37%, reinforcing Safari’s growing digital presence.

Several operational indicators also stood out:

• Backpacks contributed nearly 17-18% of revenue.
• Urban Jungle and Safari Select contributed roughly 7-8% to quarterly sales.
• Advertising and promotional spending remained healthy at around 7% of revenue.
• Jaipur facility utilization reached 85-90% during the quarter.
• The company plans to increase Jaipur capacity from 5 million units to 6.5 million units monthly.

Safari also maintained a strong liquidity profile. Cash and cash equivalents, including current financial investments, stood at approximately Rs 2,282 million by the end of FY26.

Importantly, management clarified that there are currently no immediate plans for fund-raising despite having enabling approval in place for a potential Rs 5,000 million raise.

Margin Expansion Outlook Remains Central to the Investment Thesis

The brokerage’s revised investment thesis hinges largely on Safari’s ability to sustain gross margin gains over the medium term.

PL Capital now expects Safari to deliver revenue CAGR of nearly 14% between FY26 and FY28, while EBITDA margin could improve from 13.2% in FY26 to approximately 13.7% by FY28.

The brokerage projects FY28 earnings per share at Rs 48.7.

Analysts believe the downside risk to earnings has reduced materially over a two-year horizon, especially given the operational efficiencies already visible in the latest quarter.

Valuation Discount Creates Fresh Entry Opportunity

PL Capital believes Safari Industries now offers an attractive risk-reward setup following the sharp correction in the stock.

The brokerage highlighted that the stock currently trades at nearly 38x FY27 estimated earnings and 29x FY28 estimated earnings — levels that represent a substantial discount to its historical premium valuation.

The target price of Rs 1,953 is based on 40x FY28 estimated EPS, with the brokerage retaining its valuation multiple despite revising operational assumptions modestly lower.

Key valuation metrics currently stand as follows:

• FY27E PE: 38.6x
• FY28E PE: 29.2x
• FY28E RoCE: 18.5%
• FY28E RoE: 17.2%
• FY28E EV/EBITDA: 17.9x

PL Capital believes the recent correction has already priced in most near-term risks related to raw material inflation and competition.

Technical and Strategic View for Investors

The operational revival narrative has significantly strengthened Safari’s medium-term positioning.

The company continues to benefit from premiumization trends within the organized luggage market, rising travel demand, expanding e-commerce penetration and deeper manufacturing integration.

While near-term volatility linked to commodity costs may persist, analysts increasingly believe the company is entering a more stable profitability cycle.

From an investor perspective:

• Current Market Price: Rs 1,427
• Target Price: Rs 1,953
• Upside Potential: Nearly 37%
• Brokerage Rating: BUY

Investors may continue monitoring raw material trends, competitive intensity and execution at the Jaipur expansion facility as key triggers over the coming quarters.