On Your Marks, Get Set, Campus ActiveWear Ltd IPO is here!

Published by Sharekhan Education | April 26, 2022

About the IPO

  • Offer for sale: Rs.1400 Cr
  • Price band: Rs.278-Rs.292
  • Post Issue market cap: Rs.8876.8 Cr (on upper price band)
  • Post issue promoter holding: 74.1%
  • Issue open & close: 26th Apr 2022 & 28th Apr 2022

The objective of the Offer is to achieve the benefits of listing the Equity Shares on Stock Exchanges.

On Your Marks, Get Set, Campus ActiveWear Ltd IPO is here!

Campus ActiveWear Ltd. was incorporated in 2008. The company operates in the segment of sports and athleisure footwear, which is highly under-penetrated – but is expected to be the fastest-growing segment. The company has a value proposition of putting its customer first. Its core target market is the 14 to 35 age group, which represented 44% of the sports and athleisure footwear market in India as of Fiscal 2020. It analyses, designs, develops and delivers products keeping the consumer at the forefront and offers a wide range of styles, colours, sizes and functionality options for men, women, kids and children. By the end of 2021, it had 1,433 active styles of footwear for men, 241 active styles for and 485 active styles for children.

As of Fiscal 2021, the company covered more than 85% of the total addressable market for sports and athleisure footwear in India, which is the largest market coverage amongst key sports and athleisure footwear brands. It also managed to increase its market share from 15% in Fiscal 2020 to 17% in Fiscal 2021.

Operations

Campus owns and operates 5 manufacturing facilities across India with an installed annual capacity for assembly of 28.80 million pairs as of December 31, 2021. It has a vertically integrated manufacturing capability of producing uppers, shoe soles and assembly of shoes. This strategic blend of in-house and backward integration gives it design, quality and cost control and gives it additional time to market.

Campus ActiveWear sells its products through a mix of online platforms and offline stores and has a pan-India trade distribution network with over 425 distributors in 28 states and 664 cities. It harnesses consumer and channel insights via digitalization of the sales process, resulting in better demand forecasting and faster time to market.

Focus Areas

Already well established in tier 2 and tier 3 cities, the company has now expanded its presence to metro and tier 1 cities, where its revenue contribution increased from 16.66% in Fiscal 2019 to 26.89% by the end of Dec 2021. The company launches its two collections of products each year in spring-summer and autumn-winter, allowing them to capture any demand upside and cater to positive sales of certain high-velocity styles. The company launches innovative concepts such as special drops, exclusive collaborations and channel partner exclusive merchandise. It sells footwear across segments such as entry-level (MRP at or below ₹1,049), semi-premium (MRP between ₹1,050 and ₹ 1,499) and premium (MRP at or above ₹ 1,500).

Growth Drivers

Here are key points that are likely to help the company increase its revenue:

  • The proclivity toward sports and physical activities has been on a steady growth
  • Sporting leagues are favourably impacting the sporting arena
  • Sports stardom igniting further aspiration in the Indian crowd
  • Academic and training focus on sports as the last decade has witnessed the development of government and private sports academies, training centres, and sports excellence centres to promote sports in India.
  • The increasing ability of home-grown brands to address the underserved demand
  • Emerging sub-segments: Brands have identified these niches such as Speedo in the space of swimwear, QuikSilver for water sports, Callaway and TaylorMade for golfing equipment etc
  • Health Awareness
  • Favourable demographics – growing youth, working-age population and an increasing propensity to spend

Financials

  • The company increased the volume of its products sold from 12.26 million in Fiscal 2019 to 14.36 million in Fiscal 2020. Although it experienced a dip in volume to 13.00 million in Fiscal 2021 due to the COVID-19 pandemic
  • The volume of products sold increased from 8.16 million for the nine months ending December 31 2020, to 13.65 million for the nine months ending December 31 2021, showcasing a recovery post-COVID
  • The revenue contribution from premium products to the sale of goods has also increased over the years from 31.30% for Fiscal 2019 to 40.59% for the nine months ending December 31, 2021
  • The ASP for its products has increased by 27.77% between Fiscal 2019 and the nine months ending December 31, 2021
  • The company enjoys a high EBITDA margin in the range of 16-18% and barring the COVID disruption year of FY21 it has been able to increase its PAT margin from 6% to 10% in 9MFY22
  • The balance sheet of the company has a low long-term debt to equity ratio, but the short-term borrowings remain high on the back of high inventories days. Except for FY20, the company also generates positive free cash flow and hence the need for borrowing remains limited

Valuation

In terms of valuations, the post-issue TTM P/E works out to 93.4x (at the upper end of the issue price band), which is high considering the company’s negative CAGR in profit after tax of  close to 17% over FY19-21. The valuation is in line with its peers like Relaxo and Liberty Shoes but that won’t be an even comparison as their offerings are more diverse. Ideally, investors should wait for an opportune time to enter once the valuation turns reasonable.

Risks and Concerns

Let us leave you with a few areas of concern:

  • The company has a very high dependence on men’s shoes
  • High competition in athleisure and sports, with players such as Puma, Nike, Adidas, Reebok, Skechers, SparX, Power and Asics making it difficult to raise market share. However, Campus has been able to grow at a faster pace than most of those international brands
  • High inventory days – which can lead to a stretched working capital cycle

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