Shares of Safari Industries India Ltd fell over 3% on Wednesday despite strong fundamentals and growth prospects. The luggage maker’s stock closed at Rs 1,994.45, down 3.44% from its previous close.
An Attractive Valuation Despite the Dip
With a price to earnings (P/E) ratio of 57.25, Safari Industries is trading at a discount compared to the industry average of 32.34. The company has zero debt on its balance sheet with a debt to equity ratio of just 0.26. The stock is also attractively valued with a price to book ratio of 23.
Analysts remain overwhelmingly bullish on the stock with 5 strong buy and 1 buy recommendations out of 7 analysts covering the stock. No analyst has a sell rating on the stock.
Impressive Financial Performance
In its latest quarterly results, Safari Industries posted a strong 38% year-on-year rise in net profit to Rs 39.76 crore. Over a 3-year period, the company’s profits have jumped by a cumulative 89%.
Safari Industries has generated robust return ratios over the years. Its return on capital employed stood at 29.2% in FY22 while return on equity was 21.5%.
The company has consistently paid dividends with a 5-year average dividend yield of 0.2%. The healthy dividend payout indicates its strong cash flows.
Gaining Market Share in Organized Luggage Segment
With increasing disposable incomes and rising aspirational needs, the Indian luggage market is expected to grow at a brisk pace over the next decade.
Safari Industries is well positioned to capitalize on this potential with its strong branding, wide product range and expanding distribution reach. The company has outpaced industry growth in recent years, enabling it to gain market share.
As per management commentary, Safari Industries has expanded its exclusive brand outlets by over 30% in FY22. It is targeting over 100 new store openings in FY23. The expanding offline retail presence provides a long growth runway for the company.
Safari offers products across price points to cater to a wide spectrum of customers under brands like Safari, Genius and XFactor. This strategy has worked well for Safari as it has emerged as one of the most recognized luggage brands in India.
Strong Promoter Holding Provides Stability
Safari Industries promoters hold close to 47% stake in the company providing stability and signaling their confidence in future growth prospects.
Mutual funds have marginally trimmed their holding in the stock from 4.01% to 3.98% in the latest quarter. However, foreign institutional investors (FIIs) have raised their stake from 13.09% to 13.25%. The increase in FII holding is another vote of confidence for the company’s future outlook.
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What Should Investors Do?
The 3% plus decline in Safari Industries stock price seems excessive considering its strong fundamentals. Investors can utilize this opportunity to accumulate the stock on dips for solid long-term gains.
Here are some key positives for Safari Industries:
- Attractive valuation with P/E of 57.25 versus industry average of 32.34
- Zero debt on books and consistent dividend payout
- Strong brand recognition and distribution reach
- Growing organized market share by outpacing industry growth
- Healthy return ratios and consistent profit growth
- High promoter holding lends stability
In conclusion, Safari Industries remains a fundamentally strong company in the luggage industry. The current dip presents a good buying opportunity for investors with a long-term perspective.