Safari Industries (India) Ltd - Avoid
Better stocks are available as alternatives to Safari for long term investing
Company Overview
Safari Industries (India) Ltd is an India-based company primarily engaged in the manufacturing and marketing of luggage and luggage accessories. It offers hard luggage cases, soft luggage cases, and backpacks. The company's product range includes laptop bags, backpacks, suitcase, four and two-wheel trolleys, duffle bags, and rolling duffle bags, among others.
Hard luggages are mainly made of Poly Propylene (PP) and Poly Carbonate (PC) and manufactured in-house by Safari at its Plant located at Halol, Gujarat. Soft luggages are made of fabrics of various kinds and are mainly imported by Safari.
Its brands include Safari, Genius, Genie & Magnum, which are available across India.
Its ambition is to be India’s No. 1 Bags Company.
Share Details
NSE:SAFARI
Closing Price = 2,878.90 (13-Jun-23)
52 Week High = 2,994.95. Trading at 4% below 52 wk high
52 Week Low = 887. Trading at 225% above 52 wk low.
P/E = 55
Market Cap = 6,827 cr ( ~$ 830 million)
Quality: Returns on capital employed in cash
The low margin of the business is an indicator of the brand’s ability to charge a premium in a consumer business. There has been a makred improvement in the PAT margin in FY22-23, but the high margin is not supported by the cash conversion ratio. ROE and ROCE perfromance of the comany is also not spectacular.
Growth
The company growth from a revenue and PAT has been specatcular. Revenue has grown at a CAGR of 26% over 14 years. PAT growth is even more incredible at 38% CAGR during the period of FY10-23. The problem behind the specatular growth momentum is the inability of the company to generate consistent free cash flow over long periods of time.
So What????
If I own the stock, I will wonder why I entered into this business. There are better alternatives available in the stock market.
If I don’t own the stock, I would like to avoid it. I find it difficult to justify a 55 PE for a less than 20%+ ROCE and ROE company where free cash flow generation is erratic.
Disclaimer
It is an analysis of the company data and not a stock recommendation
My analysis can be completely wrong and can change the next minute based on changes in my understanding of the company
I look to own good companies at prices where there is a path to market beating returns over decades