Safari Industries capacity expansion targets growth amid competition and margin pressure
Safari Industries (India) Ltd.
BUY
₹1,251
₹1,249.05
₹1,610
28.70%
Investment View and Valuation
Prabhudas Lilladher’s November 6, 2026 Q2FY27 result update on Safari Industries retains a BUY rating, although it cuts earnings estimates and lowers the target price to Rs 1,610 from Rs 1,833. The broker views capacity expansion as the principal driver of future growth, but has reset its growth and margin assumptions because of intense price competition and persistent raw-material inflation.
The revised target price is based on 33 times September 2028E EPS, compared with 35 times previously. The lower multiple reflects the broker’s realignment of valuation assumptions for the reset in growth and margins amid excessive price wars.
Q2FY27 Financial Performance
Safari Industries reported consolidated revenue of Rs 5,822 million in Q2FY27, up 9.1 per cent year on year but 1.7 per cent below Prabhudas Lilladher’s estimate of Rs 5,922 million. The broker attributed the modest revenue growth to capacity constraints and a shift in the festive season.
| Metric | Q2FY27 | YoY change | Broker estimate | Variance / comparison |
|---|---|---|---|---|
| Revenue | Rs 5,822 million | Up 9.1% | Rs 5,922 million | 1.7% below estimate |
| Gross profit | Rs 2,577 million | Up 2.6% | — | — |
| Gross margin | 44.3% | Down from 47.1% | 44.0% | Slightly ahead of estimate |
| EBITDA | Rs 597 million | Down 19.3% | Rs 681 million | 12.3% below estimate; below consensus of Rs 706 million |
| EBITDA margin | 10.3% | Down 360 basis points | 11.5% | Below estimate |
| PAT | Rs 369 million | Down 21.3% | Rs 418 million | Below estimate and consensus of Rs 438 million |
| PAT margin | 6.3% | Down from 8.8% | — | — |
Gross margin declined to 44.3 per cent from 47.1 per cent in Q2FY26, although it was slightly ahead of the broker’s 44.0 per cent expectation. Raw-material cost increased 14.9 per cent year on year. Operational performance was weak, with the EBITDA margin compressing to 10.3 per cent from 13.9 per cent a year earlier.
Higher-than-expected employee cost of Rs 416 million, versus the broker’s estimate of Rs 379 million, caused the EBITDA shortfall. PAT margin fell to 6.3 per cent from 8.8 per cent a year earlier, with the earnings miss primarily reflecting weaker EBITDA.
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Management Commentary and Business Developments
- Management intends to implement a mid-single-digit price increase from November 2026.
- Management said volume growth matched value growth in Q2FY27.
- Carlton has recently been launched in Lifestyle and is expected to be launched on e-commerce platforms shortly.
- Management has no current plans to raise funds despite the announced capital expenditure and enabling resolution.
Capacity Expansion Programme
Safari Industries has outlined a capacity-expansion programme through debottlenecking at its Jaipur and Halol units. Prabhudas Lilladher refers to a Rs 2,300 million capex plan to add 6 lakh pieces per month, while management indicated that Rs 2,100 million has been earmarked for the expansion. Around Rs 700 million and Rs 1,400 million are expected to be spent in FY27E and FY28E respectively.
| Capacity measure | Current capacity | Expected capacity |
|---|---|---|
| Subsidiary capacity | 10 lakh pieces per month | 16 lakh pieces per month |
| Parent-level capacity | 2 lakh pieces per month | 2 lakh pieces per month |
| Overall capacity | 12 lakh pieces per month | 18 lakh pieces per month |
The project is due for completion by June 2028 and is expected to improve cost competitiveness. Surplus land at existing sites provides the option to increase capacity by a further 33 per cent if required.
Earnings Outlook
Prabhudas Lilladher expects capacity expansion to support revenue CAGR of 13 per cent over the next three years. Its estimates imply EBITDA margins of 12.0 per cent in FY27E, 13.2 per cent in FY28E and 13.4 per cent in FY29E.
| Estimate | FY27E | FY28E | FY29E |
|---|---|---|---|
| EBITDA margin | 12.0% | 13.2% | 13.4% |
| EPS estimate revision | Down 7% | Down 7% | Down 6% |
The broker reduced its FY27E, FY28E and FY29E EPS estimates by 7 per cent, 7 per cent and 6 per cent respectively, reflecting lower revenue-growth and EBITDA-margin assumptions.
Key Risks
- Sustained competitive pricing and excessive price wars.
- Persistent raw-material inflation.
- Capacity constraints before the expansion is completed.
- Continued margin pressure.
Disclaimer: This is a summary of a research report published by the broker/research house identified above. The views, recommendations, target prices and estimates are those of the respective broker and do not represent DSIJ investment advice. The summary may be AI-assisted, hence please refer to the original report for complete details, disclosures and risks.
