Buy This Multibagger Small-Cap Stock For Target Price Of Rs 1,850, Stock Surged Over 8% In A Week

Monarch Networth Capital Research is bullish on small-cap Safari Industries (India) Limited for a target price of Rs 1,850 apiece. Safari Industries Plastic is a leading plastic product sector company engaged in manufacturing luggage bags. The company's product portfolio includes luggage, backpacks, school bags, fashion bags for girls & travel accessories. It has a market capitalization of Rs 3,460.02 crore.

According to the brokerage firm, the company's current quarter was the best the company has ever reported both in terms of revenue and profitability.

Stock To Buy

The current market price of Safari Industries is Rs 1545.10 apiece. The 52 week low of the company's stock is Rs 750 apiece recorded on 25 October 2022 and the 52-week high is Rs 1,576 apiece recorded on 30 August 2022, respectively.

If the stock of the company is bought at the current market price, considering the estimated target price, investors can expect a potential gain of 20%.

Returns on investments

In the past 1 week, it has given a positive return of 8.4%. In the past 1 and 3 months, the stock surged 38.98% and 68.09%, respectively. The stock over the past 1 year gained 90.83%. In the past 3 years, it has given a multibagger return of 176.38% and in the past 5 years, it has given whooping 391.6% return.

Robust Revenue Growth

The Company reported revenue growth of 144% YoY (+52% QoQ, +44% as compared Q1FY20, 3yr CAGR of 13%) to Rs. 2,932mn (the best the company has ever reported). The growth was led primarily by the hard luggage segment. The company's new PP plant was commissioned on June 22 and is currently running at 60% capacity utilization. Safari expects to ramp this up to close to 80% in the next couple of months.

Strong operating leverage drives OPM expansion

Gross margins for the quarter remained constant YoY at 39.2%, while QoQ improved by ~50bps. OPM for the quarter stood at 14.2% (all-time high) vis-à-vis 5.9% YoY (+540bps YoY, +370bps as compared to Q1FY20). We believe the company is reaping the benefits of a move towards in-house manufacturing supported by Raw material prices peaking from their historical levels. EBITDA for the quarter stood at Rs.417mn as compared to Rs.70.3mn YoY (+146% QoQ, +94% as compared to Q1FY20).

Move towards in-house manufacturing to add immense value

The Company recently commissioned its Polypropylene (PP) plant; this new unit will also help the company to increase its sales of PP-based hard luggage. PP-based hard luggage is cost-effective compared to PC (Polycarbonate)-based hard luggage. Margins in PP hard luggage are highest followed by PC hard luggage followed by soft luggage. The company has incurred a total capex of Rs 500mn which could give them an additional revenue of close to ~Rs.4000mn at peak utilization.

Outlook

The broekrage said, "We expect Safari Industries to be one of the biggest beneficiaries given its focused approach on the mass segment. Moreover, the company now focusing more on in-house manufacturing (new PP) which is margin accretive. Finally, the company is augmenting its distribution and entering new geographies which should help sustain growth. Given the robust performance during the quarter and strong outlook on both revenue and margin front we upgrade our earnings estimate upwards (+110% FY23E and +42% in FY24E)."

Valuations & rating

According to the brokerage firm, "We believe the company will continue its superior growth rate driven by higher growth in the mass segment, market share gain from unbranded/unorganised players and efforts toward brand premiumization, evident from the fact the company has seen a sharper recovery as compared to peers. This is also reflected by the share price being more stable as compared to its peers, and the valuation gap with the market leader VIP progressively narrowing. We currently value the stock at 35x FY24E to arrive at our fair value of Rs 1850."

Disclaimer

The stock has been picked from the brokerage report of Monarch Networth Capital Research. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.