Buy This Luggage Stock For 51% Return: Brokerage Firm

Brokerage firm Prabhudas Lilladher in a report recommended investors to buy the stocks of Safari Industries for a 51.92% return. Now, Safari's market share is 23% as of FY21, which was up from 10% in FY15.

Target Price

The Current Market Price (CMP) of Safari Industries is Rs. 832. Prabhudas Lilladher has estimated a Target Price for the stock at Rs. 1264. The stock is expected to offer a 51.92% upside, in 1 year.

Stock Outlook
Current Market Price (CMP)	Rs. 832
Target Price	Rs. 1264
1 year return	51.92%

Company performance

In FY21, Safari's top-line declined 52% YoY to Rs. 3,280mn, due to Covid impact. However, with travel restrictions gradually easing out, sales recovery of luggage companies is displaying stark improvement. Safari is one of the fastest-growing luggage brands (pre-COVID sales/EBITDA CAGR of 26%/43% respectively over the last 5 years) with a market share of 23% as of FY21. Safari's distribution network has expanded rapidly with the number of touchpoints increasing from 5,950 in July, 2018 to 9,300 in August, 2021.

Comments by Prabhudas Lilladher

We initiate coverage on Safari Industries (Safari) with a BUY rating given 1) it is one of India's fastest growing luggage brand having a 23% market share as of FY21 2) planned hard luggage (HL) capacity expansion of Rs. 500mn at Halol will reduce reliance on outsourcing, and structurally elevate GM profile and 3) full benefit of distribution network expansion and SKU extension is yet to play out, as sales volumes were impacted by COVID in last 18-24 months." However, the firm added, "Near term pressure on GM due to RM cost inflation is a key risk to our call."

About the company

Safari has a diverse product portfolio comprising of 800+ SKUs across HL, SL, backpacks and school bags. The distribution network is well entrenched with 9,300+ customer touch points covering CSD, modern trade, MBO, EBO, E-com and institutional segments. Safari's manufacturing plant is located at Halol in Gujarat, wherein capacity expansion is lined up by incurring capex of Rs. 500 mn. While HL (~41% of sales in FY21) is manufactured in-house, SL is outsourced from China (imports were negligible during the pandemic), Bangladesh and India.

(Also read: Anand Rathi Recommends To Buy This Stock For 40% Upside In Near Term)

Disclaimer

The above stock was picked from the brokerage report of Prabhudas Lilladher. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.