The ₹9,967 crore market capitalisation company demonstrated resilience with net profit growing 58.26% year-on-year, though margin compression remains a concern as operating margins (excluding other income) contracted to 13.88% from 15.02% in the previous quarter. The results highlight Safari's ability to drive top-line growth whilst navigating operational challenges in a competitive consumer discretionary landscape.
The September quarter results present a tale of two narratives for Safari Industries. Whilst the company achieved its highest-ever quarterly sales, the sequential decline in profitability raises questions about pricing power and cost management. The luggage manufacturer's ability to sustain its premium valuation—trading at 70x trailing twelve-month earnings—will depend on its capacity to restore margin momentum whilst maintaining revenue growth.
Financial Performance: Growth Amidst Margin Pressure
Safari Industries delivered net sales of ₹533.55 crores in Q2 FY26, representing a modest 1.08% sequential increase from ₹527.83 crores in Q1 FY26. The year-on-year comparison reveals stronger momentum, with revenue advancing 16.55% from ₹457.79 crores in Q2 FY25. This growth trajectory positions Safari favourably within the diversified consumer products sector, where the company has consistently outperformed peers on revenue expansion.
| Quarter | Revenue (₹ Cr) | QoQ Change | Net Profit (₹ Cr) | QoQ Change | PAT Margin |
|---|---|---|---|---|---|
| Sep'25 | 533.55 | +1.08% | 46.94 | -7.03% | 8.80% |
| Jun'25 | 527.83 | +25.36% | 50.49 | +34.32% | 9.57% |
| Mar'25 | 421.06 | -4.89% | 37.59 | +20.71% | 8.93% |
| Dec'24 | 442.71 | -3.29% | 31.14 | +4.99% | 7.03% |
| Sep'24 | 457.79 | +1.73% | 29.66 | -33.21% | 6.48% |
| Jun'24 | 450.02 | +23.15% | 44.41 | +2.82% | 9.87% |
| Mar'24 | 365.42 | — | 43.19 | — | 11.82% |
The margin compression narrative dominates the quarter's financial analysis. Operating profit before depreciation, interest, tax, and other income (PBDIT excluding OI) stood at ₹74.04 crores, yielding an operating margin of 13.88%—down 114 basis points from 15.02% in Q1 FY26. This contraction reversed the margin expansion witnessed in the previous quarter and signals potential pressure from raw material costs or competitive pricing dynamics.
Net profit of ₹46.94 crores declined 7.03% sequentially from ₹50.49 crores, though the year-on-year comparison remains robust at 58.26% growth. The PAT margin of 8.80% contracted 77 basis points quarter-on-quarter, reflecting the operational margin pressure alongside a slight increase in employee costs, which rose to ₹35.47 crores from ₹31.32 crores.
Interest costs remained stable at ₹2.11 crores, whilst depreciation increased marginally to ₹17.55 crores from ₹17.44 crores, reflecting ongoing capital investments. The company's tax rate of 21.94% remained within its historical range, indicating stable effective tax management.
Operational Excellence: Capital Efficiency Amidst Growth Investments
Safari Industries' operational metrics reveal a company investing aggressively for future growth whilst maintaining respectable returns on capital. The company's average return on equity (ROE) of 15.18% positions it competitively within the consumer durables space, demonstrating efficient capital deployment. The latest ROE of 14.98% suggests consistent performance, though marginally below the historical average.
Return on capital employed (ROCE) averaged 18.09% over recent periods, with the latest reading at 19.52%—a positive indicator of improving capital productivity. This metric is particularly significant given Safari's substantial capital investments, with fixed assets expanding to ₹262.06 crores in FY25 from ₹140.15 crores in FY24, representing an 87% increase as the company enhances manufacturing capacity.
Balance Sheet Strength: Net Cash Position
Safari Industries maintains a virtually debt-free balance sheet with net debt-to-equity of -0.11, indicating the company holds more cash than debt. Long-term debt stood at just ₹8.22 crores as of March 2025, down from ₹14.82 crores the previous year. With shareholder funds of ₹953.49 crores and current assets of ₹868.15 crores, the company possesses substantial financial flexibility to fund growth initiatives organically.
The company's five-year sales growth of 29.80% and EBIT growth of 81.43% underscore Safari's market share gains and operational leverage. This growth has been achieved whilst maintaining an average EBIT-to-interest coverage ratio of 15.47x, providing ample cushion for financial obligations. The sales-to-capital-employed ratio of 1.69x indicates reasonable asset turnover, though there remains scope for improvement as new capacity additions mature.
Working capital management presents a mixed picture. The balance sheet shows current assets of ₹868.15 crores against current liabilities of ₹276.03 crores, yielding a healthy current ratio of 3.15x. However, the cash flow statement reveals working capital absorption of ₹133.00 crores in FY25, driven primarily by inventory build-up and receivables expansion—a natural consequence of rapid revenue growth but requiring monitoring to ensure it doesn't constrain cash generation.
The Margin Conundrum: Navigating Cost Pressures
The sequential margin compression witnessed in Q2 FY26 represents the most critical aspect requiring investor attention. Operating margins (excluding other income) have declined from a peak of 18.29% in March 2024 to 13.88% in the latest quarter—a contraction of 441 basis points over six quarters. This trend suggests structural challenges beyond normal quarterly volatility.
| Period | Operating Margin (Excl OI) | Gross Margin | PAT Margin |
|---|---|---|---|
| Sep'25 | 13.88% | 14.56% | 8.80% |
| Jun'25 | 15.02% | 15.70% | 9.57% |
| Mar'25 | 14.45% | 15.40% | 8.93% |
| Dec'24 | 11.38% | 12.54% | 7.03% |
| Sep'24 | 10.46% | 11.47% | 6.48% |
| Jun'24 | 14.64% | 15.94% | 9.87% |
| Mar'24 | 18.29% | 19.05% | 11.82% |
Several factors likely contribute to this margin pressure. Employee costs increased 13.25% quarter-on-quarter to ₹35.47 crores, potentially reflecting wage inflation or headcount additions to support expanded operations. The company's aggressive capacity expansion—evidenced by the near-doubling of fixed assets—may also be creating temporary margin dilution as new facilities ramp up production efficiency.
Key Monitoring Point: Margin Recovery Timeline
Investors should closely monitor Safari's ability to restore margins toward the 15-16% range over the next two quarters. The company's historical margin profile suggests 14-15% operating margins are sustainable, but the current 13.88% level leaves little room for error. Any further deterioration could signal intensifying competitive pressures or structural cost challenges requiring strategic recalibration.
The positive aspect is that gross margins at 14.56% remain relatively stable compared to 15.70% in the previous quarter, suggesting the pressure stems more from operating expenses rather than fundamental pricing or input cost issues. This distinction is crucial—operating leverage should improve as revenue scales, whereas gross margin pressure would indicate more intractable competitive or commodity challenges.
Industry Leadership: Premium Valuation Versus Peer Performance
Safari Industries commands a significant valuation premium within the diversified consumer products sector, trading at 70.42x trailing earnings compared to the industry average of approximately 41x. This premium reflects the company's superior growth profile and market positioning, but also sets a high bar for execution.
| Company | P/E (TTM) | P/BV | ROE % | Div Yield | Debt/Equity |
|---|---|---|---|---|---|
| Safari Inds. | 70.42 | 11.00 | 15.18 | 0.14% | -0.11 |
| Kajaria Ceramics | 45.71 | 6.49 | 16.32 | 1.07% | -0.11 |
| Cera Sanitary. | 31.08 | 5.67 | 16.16 | 1.10% | -0.47 |
| V I P Inds. | NA (Loss Making) | 8.96 | 9.32 | NA | 1.14 |
| Midwest | 54.48 | 11.45 | 0.00 | NA | 0.00 |
| Borosil | 47.54 | 0.48 | 9.03 | NA | 0.08 |
Safari's ROE of 15.18% positions it competitively, though slightly below Kajaria Ceramics (16.32%) and Cera Sanitaryware (16.16%). The company's price-to-book ratio of 11.00x significantly exceeds peer averages, reflecting market expectations of sustained high growth and profitability. This valuation gap is partially justified by Safari's superior revenue growth trajectory—the company has compounded sales at 29.80% annually over five years, substantially outpacing most consumer durables peers.
The comparison with VIP Industries, Safari's direct competitor in the luggage segment, proves particularly instructive. Whilst VIP currently operates at a loss (hence the negative P/E), Safari has successfully maintained profitability whilst scaling operations. This operational superiority underpins Safari's market leadership and premium valuation, though investors must question whether the 70x multiple adequately prices in near-term margin headwinds.
"Safari's premium valuation reflects genuine competitive advantages in brand equity and distribution reach, but the recent margin compression suggests the company must execute flawlessly to justify current multiples."
Valuation Analysis: Expensive Entry Point Despite Quality Credentials
At ₹2,140.00 per share, Safari Industries trades at valuations that leave minimal room for disappointment. The P/E ratio of 70x compares to an industry average of 41x, representing a 71% premium. The price-to-book ratio of 11.00x similarly exceeds peer averages by a wide margin, whilst the EV/EBITDA multiple of 43.54x signals stretched valuations by any conventional measure.
The company's valuation grade of "Very Expensive" reflects these stretched multiples. Safari has traded in expensive-to-very expensive territory since early 2023, suggesting the market has consistently priced in robust growth expectations. The stock's 52-week range of ₹1,781.00 to ₹2,837.20 indicates significant volatility, with the current price 24.57% below the peak reached earlier in the year.
Applying conservative valuation methodologies suggests limited near-term upside. If Safari can restore operating margins to 15% and sustain 20% earnings growth, a fair P/E multiple of 45-50x would be reasonable—implying a fair value range of ₹1,800-2,000 per share. This suggests the current price of ₹2,140.00 offers minimal margin of safety, particularly given the margin compression witnessed in recent quarters.
The dividend yield of 0.14% provides negligible income support, with the company retaining 88.91% of earnings for reinvestment. Whilst this aggressive reinvestment strategy makes sense given Safari's growth opportunities, it means total returns depend entirely on capital appreciation—a risky proposition at current valuations.
Shareholding: Institutional Confidence Building Gradually
The shareholding pattern reveals encouraging institutional accumulation over recent quarters, suggesting growing confidence amongst sophisticated investors despite valuation concerns. Mutual fund holdings increased to 18.73% in September 2025 from 16.96% a year earlier, representing a cumulative addition of 177 basis points.
| Quarter | Promoter | FII | Mutual Fund | Other DII | Non-Inst |
|---|---|---|---|---|---|
| Sep'25 | 44.91% | 12.30% | 18.73% | 7.38% | 16.68% |
| Jun'25 | 45.41% | 13.05% | 17.61% | 7.07% | 16.86% |
| Mar'25 | 45.41% | 13.25% | 17.62% | 6.10% | 17.62% |
| Dec'24 | 45.41% | 12.26% | 17.86% | 6.11% | 18.37% |
| Sep'24 | 45.42% | 12.24% | 16.96% | 5.94% | 19.45% |
Promoter holding declined marginally to 44.91% in September 2025 from 45.41% in the previous quarter, representing a 50 basis point reduction. This minor dilution likely relates to employee stock option exercises or other corporate actions rather than promoter selling. Importantly, promoter shares remain entirely unpledged, signalling strong promoter confidence and financial stability.
Foreign institutional investor (FII) participation decreased to 12.30% from 13.05% quarter-on-quarter, suggesting some profit-booking by overseas investors. However, FII holdings remain substantially higher than the 12.24% recorded a year earlier. The presence of 108 FII investors indicates broad-based international interest rather than concentrated positions.
Other domestic institutional investor (DII) holdings increased to 7.38% from 7.07%, continuing a steady upward trend. Combined with mutual fund holdings, total institutional participation now stands at 38.41%—a healthy level indicating professional investor conviction. The presence of 20 mutual fund schemes provides diversified institutional support.
Stock Performance: Exceptional Long-Term Returns, Near-Term Consolidation
Safari Industries' stock performance presents a stark contrast between exceptional long-term wealth creation and challenging near-term momentum. The stock has delivered a staggering 837.98% return over five years and 2,226.09% over ten years, massively outperforming the Sensex's 93.02% and 224.49% returns over the same periods.
| Period | Stock Return | Sensex Return | Alpha |
|---|---|---|---|
| 1 Day | +4.36% | +0.38% | +3.98% |
| 1 Week | +0.01% | -0.53% | +0.54% |
| 1 Month | -4.20% | +1.25% | -5.45% |
| 3 Month | +4.42% | +4.61% | -0.19% |
| 6 Month | +1.61% | +5.14% | -3.53% |
| YTD | -17.30% | +6.91% | -24.21% |
| 1 Year | -3.73% | +5.09% | -8.82% |
| 3 Years | +121.03% | +37.82% | +83.21% |
| 5 Years | +837.98% | +93.02% | +744.96% |
However, recent performance has been lacklustre. The stock declined 3.73% over the past year, underperforming the Sensex by 8.82 percentage points. Year-to-date returns stand at -17.30%, representing a 24.21 percentage point underperformance versus the benchmark. This divergence reflects both profit-booking after the extraordinary multi-year rally and growing investor concerns about near-term margin trajectory.
The stock's technical positioning shows consolidation characteristics. Trading at ₹2,140.00, Safari sits below all major moving averages—the 5-day (₹2,098.65), 20-day (₹2,151.80), 50-day (₹2,181.42), 100-day (₹2,152.67), and 200-day (₹2,145.23) averages. This alignment suggests the stock faces overhead resistance at multiple levels, requiring sustained positive momentum to break through.
The beta of 1.35 indicates Safari exhibits 35% higher volatility than the broader market, classifying it as a high-beta stock. With annualised volatility of 33.35%, the stock experiences significant price swings—a characteristic that magnifies both gains and losses. The negative risk-adjusted return over one year reflects this volatility working against investors during the recent consolidation phase.
Investment Thesis: Quality Business at Stretched Valuations
Safari Industries represents a high-quality business with demonstrated competitive advantages in brand equity, distribution reach, and operational execution. The company's "Excellent" quality grade reflects its strong fundamentals: 29.80% five-year sales growth, 81.43% EBIT growth, zero debt, and consistent profitability. These characteristics position Safari as a long-term compounder in India's growing consumer discretionary sector.
However, the investment case faces significant headwinds. The "Very Expensive" valuation grade accurately captures the stretched multiples—70x P/E and 11x P/BV leave minimal margin of safety. The "Flat" financial trend designation reflects the margin compression witnessed in recent quarters, whilst the "Sideways" technical trend indicates lack of near-term momentum.
The company's Mojo score of 55/100 and "HOLD" rating appropriately balance these competing factors. Safari remains a fundamentally strong business, but current valuations price in near-perfect execution. Any disappointment on margin recovery or growth deceleration could trigger meaningful multiple contraction.
Key Strengths & Risk Factors
KEY STRENGTHS
- Market Leadership: Dominant position in organised luggage segment with strong brand recall and extensive distribution network
- Debt-Free Balance Sheet: Net cash position with debt-to-equity of -0.11 provides financial flexibility for organic and inorganic growth
- Consistent Growth: Five-year sales CAGR of 29.80% and EBIT CAGR of 81.43% demonstrate sustained market share gains
- Strong Returns: ROE of 15.18% and ROCE of 18.09% indicate efficient capital deployment and competitive advantages
- Capacity Expansion: Doubling of fixed assets positions company to capture growing luggage demand in India
- Institutional Confidence: 38.41% institutional holdings with 20 mutual funds and 108 FIIs signal professional investor conviction
- Zero Promoter Pledging: Unpledged promoter shares indicate strong promoter confidence and financial stability
KEY CONCERNS
- Margin Compression: Operating margins declined to 13.88% from 18.29% peak, raising questions about pricing power and cost management
- Stretched Valuation: P/E of 70x and P/BV of 11x leave minimal margin of safety; vulnerable to multiple contraction
- Sequential Profit Decline: Q2 net profit fell 7.03% despite revenue growth, indicating operational leverage challenges
- Working Capital Intensity: ₹133 crores working capital absorption in FY25 constrains cash generation despite profitability
- High Volatility: Beta of 1.35 and 33.35% volatility expose investors to significant price swings
- Competitive Intensity: Organised luggage market seeing increased competition from domestic and international players
- Execution Risk: Capacity expansion success depends on demand materialisation and operational efficiency improvements
Outlook: What to Watch
POSITIVE CATALYSTS
- Margin Recovery: Restoration of operating margins toward 15-16% range would significantly improve earnings trajectory
- Capacity Utilisation: Improved efficiency from new manufacturing facilities could drive operating leverage
- Market Share Gains: Continued growth in organised luggage penetration benefits category leader
- Product Innovation: Premium product launches could support pricing power and margin expansion
- Festive Season Demand: Strong Q3 performance could alleviate near-term growth concerns
RED FLAGS
- Further Margin Decline: Operating margins below 13% would signal structural challenges requiring strategic reset
- Revenue Growth Slowdown: Deceleration below 15% YoY would question premium valuation sustainability
- Working Capital Deterioration: Continued cash flow absorption would constrain financial flexibility
- Promoter Stake Reduction: Material decrease in promoter holdings would raise governance concerns
- Competitive Pressure: Aggressive pricing by competitors could trigger margin-eroding price wars
The Verdict: Quality Business Awaiting Attractive Entry Point
Score: 55/100
For Fresh Investors: Avoid initiating positions at current levels. Safari Industries represents a high-quality business with excellent long-term prospects, but the 70x P/E valuation leaves no margin of safety. Wait for a meaningful correction toward ₹1,800-1,900 levels or evidence of sustained margin recovery before considering entry. The recent margin compression adds execution risk that isn't adequately reflected in current valuations.
For Existing Holders: Continue holding with a long-term perspective, but consider reducing positions on any rally toward ₹2,300-2,400 to rebalance portfolio risk. The company's fundamental strengths remain intact, and the debt-free balance sheet provides downside protection. However, near-term returns will likely remain muted given stretched valuations and margin headwinds. Set a stop-loss at ₹1,750 to protect against significant downside.
Fair Value Estimate: ₹1,900 (11% downside from current levels). This assumes restoration of 15% operating margins and application of a 50x P/E multiple—still premium to industry averages but more reasonable given execution risks.
Note- ROCE= (EBIT - Other income)/(Capital Employed - Cash - Current Investments)
⚠️ Investment Disclaimer
This article is for educational and informational purposes only and should not be construed as financial advice. Investors should conduct their own due diligence, consider their risk tolerance and investment objectives, and consult with a qualified financial advisor before making any investment decisions. Past performance is not indicative of future results. The author and publisher do not guarantee the accuracy or completeness of the information provided and shall not be liable for any losses or damages arising from the use of this information.
