Strong growth in revenue: For Q2FY2019, Safari Industries (Safari) posted a strong yoy growth of 44% in revenue to `127 cr mainly led by volume growth. The company is garnering market share from the unorganized market and seeing good demand in its backpacks and new categories which is driving such strong growth in its top line.
Margins were little subdued: In spite of strong growth in revenue, OPM were stable at 9% on yearly basis which has come down from the peak level of 12.9% reported in Q1FY2019. First quarter is also the strongest quarter of the year in terms of revenue, hence Q1 margins are usually better than the Q2 margins. Margin pressure was seen mainly due to rise in input cost. This was driven by rupee depreciation as most of the luggage is imported from China. The company is expecting some margin pressure to continue in coming few quarters if the rupee depreciation continues.
PAT rose by 72% yoy: With a moderate rise in interest and depreciation, PAT grew to `6 cr, a growth of 72% yoy.
Outlook and Valuation: We remained convinced about its long term growth story as the company is in sweet spot in a fast growing luggage industry. We have maintained our estimates and are expecting a CAGR of ~30%/60% in revenue/ earnings over FY18-20E. The stock has given 44% return since our initiation in April and is attractively trading at 30.5x our FY2020 earnings, post recent correction. We feel that the current valuations are attractive looking at its robust growth trajectory and it offers a good entry point to the long term investors. Hence, we recommend BUY with a target price of `1000 (40x FY2020E EPS).

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