Prabhudas Lilladher suggests a buy rating for Safari Industries India with a target price of Rs 1610. The firm cut EPS estimates due to weak margins and stiff competition. However, they plan a major capacity expansion by June-28 to boost growth. Experts expect this move to help the company recover.
Prabhudas Lilladher's research report on Safari Industries India We cut our EPS estimates by 7%/7%/6% for FY27E/FY28E/FY29E as we fine-tune our top-line growth and EBITDA margin assumptions. SII IN reported a modest top-line growth of 9.1% due to capacity constraints and festive shift while operational performance was weak with EBITDA margin of 10.3% (PLe 11.5%) amid stiff competition and persistent RM inflation. SII IN has outlined a capex plan of INR2,300mn to increase the capacity by 6lac pieces per month through debottlenecking existing units at Jaipur and Halol. There is an embedded provision (land will be acquired) to increase the capacity by additional 33% at the same location, if required.
Proposed expansion will be complete by June-28 and is expected to lend cost competitiveness. Led by capacity expansion we expect topline CAGR of 13% over the next 3 years with EBITDA margin of 12.0%/13.2%/13.4% in FY27E/FY28E/FY29E respectively. Outlook Retain BUY with a TP of INR1,610 (33x Sep-28E EPS; earlier 35x). We have realigned our target multiple amid growth and margin reset the business is witnessing amid excessive price wars. For all recommendations report, click here Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management.
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