Ashish Kacholia Loves this Stock. Is it Right for You?

After spending years writing and studying how the most successful people in the investing world reason their way through problems, I've learned some valuable lessons and their approach to life and business.

Many of them like to point to their success stories and go over them all over again and again.

And then there are the ones who keep a low-profile but whose track records speak for themselves.

One such name that I could think of is Ashish Kacholia.

Ashish Kacholia co-founded Hungama Digital with none other than the big bull Rakesh Jhunjhunwala and started his own company Lucky Securities in 2003.

He started his career at Prime Securities and also had a brief stint at Edelweiss Capital before establishing Lucky Securities.

Kacholia's interest in the stock market began when he started investing his savings in stocks. He started out as a small investor, but over time, he developed a keen eye for identifying promising companies with high growth potential.

He is fondly believed as the 'Big Whale' of the Indian stock market.

In recent weeks, we looked at Rakesh Jhunjhunwala's favourite bets - Titan and Vijay's Kedia's favourite stock - Atul Auto.

In this editorial, let's look at one of Ashish Kacholia's biggest bets - Safari Industries.

As of June 2023, Safari Industries continues to be the biggest holding by value in Ashish Kacholia's portfolio.

He holds 543,000 shares of Safari Industries worth Rs 2.1 billion (bn).

Here's how his holding has fared over the past couple of quarters -

The growth story of Safari Industries

The ace investor initially bought a stake in Safari Industries in 2019 when it was trading at Rs 550 per share.

He bought around 2.18 lakh shares in the company for a total value of Rs 120 million (m). Prior to this, he never owned shares in this mass luggage maker.

His big bet also came at a time when the company had lowered its revenue growth guidance to 15-20% for the upcoming quarters.

This was due to a slowdown in discretionary spends and closure of many luggage units in China.

But the company had a strong distribution network and a dominating position in the mid- to lower-segment of the market.

Back then, the company's financials were on a growth trajectory with sales almost trebling between 2015-19. Margins were also improving gradually.

The company had also raised funds from an alternate investment fund and FPIs for debt-funded capex.

Since then, Safari Industries has come a long way in gaining market share in the industry, directly competing with established players like VIP Industries.

Financial Snapshot

Rs m, consolidated	FY14	FY15	FY16	FY17	FY18	FY19	FY20	FY21	FY22	FY23
Revenue	1,664.7	2,159.3	2,781.3	3,435.4	4,190.5	5,776.5	6,858.7	3,279.8	7,051.7	12,119.8
Growth (%)	-	29.7%	28.8%	23.5%	22.0%	37.8%	18.7%	-52.2%	115.0%	71.9%
Operating Profit	76.7	128.9	193.6	254.7	428.9	537.6	729.1	(26.3)	632.1	2,063.2
OPM (%)	4.6%	6.0%	7.0%	7.4%	10.2%	9.3%	10.6%	-0.8%	9.0%	17.0%
Net Profit	1.2	42.6	77.5	101.8	215.4	272.1	306.6	(209.0)	223.7	1,250.9
NPM (%)	0.1%	2.0%	2.8%	3.0%	5.1%	4.7%	4.5%	-6.4%	3.2%	10.3%
Dividend (Rs)	0.0	0.2	0.2	0.4	0.5	0.5	0.0	0.0	0.8	3.5
Debt to Equity (x)	4.4	0.5	0.6	0.4	0.3	0.5	0.3	0.0	0.0	0.1

Data Source: Ace Equity

In the financial year 2021, the company was badly affected by Covid. The restrictions put in place on travel significantly impacted on its operating performance.

The company's management was quick to partially overcome the muted demand aspect as it put in place certain cost control measures and offered lower price discounts.

Some of these measures also include consolidation of warehouses and other administrative costs.

The introduction of GST and disruptions caused by the pandemic led to a decline in the unorganised sector, which worked in Safari's favor.

Additionally, a growing consumer inclination toward branded hard-shell luggage over soft luggage also allowed the company to secure a larger share of the market.

What next?

Going forward, the company's growth prospects look bright as its management continues to follow the same strategy of launching 3-4 stores per month and cater to high cost as well as mass scale segments.

Moreover, the company has laid out an impressive financial target to increase its revenue by a substantial 33% from FY22 to FY25.

To achieve this impressive revenue target, the company has formulated a well-thought-out strategy to open four new retail sites every month.

Additionally, the company's focus on expanding its product offerings in the premium segment is a smart move to stay ahead in the market.

By catering to the discerning needs of premium customers, the company aims to attract higher-value sales, which can significantly improve its profit margins over the next two to three years.

Valuations

At the current price of Rs 3,691, the company trades at a PE multiple of 59x and a price to book value multiple of 18.6x.

Its 5-year median PE stands at 65.5x and its 10-year PE multiple comes to 72.1x.

On the price to book value front, the company's 5-year average P/BV stands at 7x and its 10-year average stands at 6.7x.

Here's a table showing historical valuations of Safari Industries.

Historical Valuations of Safari

	FY19	FY20	FY21	FY22	FY23
PE Ratio	59.5	29.3	0.0	97.0	38.8
Price to Book Value	8.1	3.9	4.9	7.2	11.5
Dividend Yield	0.1	0.0	0.0	0.1	0.2
Marketcap/Sales	2.8	1.3	4.1	3.1	4.0

Data Source: Ace Equity

You can also compare Safari Industries with its peer VIP Industries.

Comparative Analysis

Company	Safari Industries	VIP Industries
ROE (%)	34.7	25.9
ROCE (%)	43.4	30.3
Latest EPS (Rs)	62.4	9.9
TTM PE (x)	59.2	68.7
TTM Price to book (x)	18.6	14.1
Dividend yield (%)	0.1	0.7
Industry PE	56.8
Industry PB	11.4

Data Source: Ace Equity

Share price performance

In the past five years, shares of the company have rallied 324%. In the year gone by, shares are up around 135%.

In 2023 so far, Safari Industries share price is up 119%.

Shareholding

Mutual funds have consistently increased their stake in Safari Industries for the past eight quarters.

In September 2021, their holding stood at 1.96% which currently stands at 12.6%.

On the other hand, promoters of the company have been trimming their stakes at regular intervals.

Even FIIs have reduced their stake in recent quarters.

In September 2023, Bahrain-based asset manager Investcorp exited its investment in Safari Industries.

The company had initially invested US$ 10.36 million in the company back in February 2021.

The asset manager in a statement said that during their holding period, Safari Industries increased its production capacity and expanded its physical stores footprint in new and under-served markets in India.

For more, check out the detailed shareholding pattern of Safari Industries.

Conclusion

So there you go...we've shared all the facts and given reading and analysis of the whole situation. Now it is up to you to come up with your own estimates.

Whatever you do, please do not base your decision on emotions or sentiments or what other investors think.

Have a proper, independent rationale irrespective of whether it turns out to be right or wrong. This way, you will develop a sound framework which would hold you in good stead over the long term.

Happy Investing!

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...