Motilal Oswal has assigned a 'Buy' rating to Safari Industries with a target price of Rs 2,250. While the company recorded an 11.5% revenue rise for 1QFY27, profitability faced pressure from higher raw material costs and early-quarter demand volatility. Investors are closely monitoring the firm’s capacity expansion in Jaipur and its ability to maintain margins amidst rising competition.
Motilal Oswal has initiated coverage on luggage manufacturer Safari Industries, assigning it a 'Buy' rating and setting a target price of Rs 2,250. The brokerage’s outlook highlights a strategy centered on volume-led growth, even as the company navigates short-term challenges related to input costs and intense market competition.
In the first quarter of fiscal year 2027 (1QFY27), Safari Industries reported revenue of Rs 5.9 billion, representing an 11.5% increase compared to the same period last year. This growth was driven by a rise in sales volumes of approximately 10%. However, profitability did not mirror this top-line performance. EBITDA fell 4.9% to Rs 754 million, while profit after tax (PAT) declined 5.4% to Rs 478 million. The primary factor behind this profit contraction was a 120 basis point drop in gross margins, which analysts have linked to the rising costs of raw materials such as polypropylene and polycarbonate.
Capacity Expansion and Leadership Change
To support future growth, the company is actively expanding its manufacturing capabilities. It is currently adding a production capacity of 0.15 million pieces per month at its facility in Jaipur. The brokerage firm projects this expansion, combined with a product mix shift, to support a 16% revenue compound annual growth rate (CAGR) over the next two fiscal years. Margin stability will be a key metric for investors, with expectations that EBITDA margins may settle between 13.5% and 14.0% as the company balances price adjustments and cost pressures.
Meanwhile, the company is undergoing a change in its finance leadership. Mr. Aditya Bhargava has been appointed as the new Chief Financial Officer, effective August 4, 2026. With over 22 years of professional experience, his role will be critical in managing the company's financial health during this period of significant capital spending.
Sector Dynamics and Risks
The luggage market is currently seeing mixed demand trends. The start of the June quarter saw softer demand, particularly due to a subdued wedding season, though performance reportedly improved as the quarter progressed. Beyond demand, competitive intensity remains a significant risk for the company. The rise of direct-to-consumer brands and aggressive regional players has forced companies in the sector to be cautious with pricing strategies. While the company has implemented price hikes to offset higher raw material costs, its long-term success will depend on its ability to maintain market share without relying on aggressive discounting, which could otherwise squeeze profitability further.