Campus Activewear - IPO - Strong Business Model, but Valuation is Stretched

About the Company

Campus Activewear (Campus) is the largest and fastest-growing sports and athleisure (S&A) footwear brand in India. The company's market share has further increased to 17% in FY21, from 15% in FY20. Campus is one of the very few established Indian brands in a segment that is primarily dominated by international brands. Campus covers 85% of the total addressable market for sports and athleisure footwear in India. The product portfolio includes running shoes, walking shoes, casual wears, floaters, slippers, flip-flops and sandals offered in multiple colors, styles and price range. Campus has 1,433 active styles for men, 241 active styles for women and 485 active styles for kids and children. The company has a PAN India presence with a network of over 400 distributors in 28 states and 625 cities. It also has 18,200 retailers across India. Moreover, Campus owns and operates 5 manufacturing facilities across India and has an installed capacity of 25.6mn pairs as of 2QFY22. The company has announced an IPO with a full OFS of Rs14bn with a price band of Rs278-292. At the higher band, the IPO is seen at Rs89bn.

Financials in Brief

Campus has reported strong financials in the last decade with a revenue CAGR of 27%. Financials in FY21 were impacted due to Covid-led disruptions, though the company witnessed a healthy growth in 9MFY22. Its revenue grew by 93% YoY to Rs8.4bn in 9MFY22. EBITDA during 9MFY22 stood at Rs1.6bn, from Rs510mn YoY, while margin expanded to 19.4% in 9MFY22, from 11.7% in 9MFY21. The company reported a PAT of Rs848mn in 9MFY22, against Rs168mn YoY. Moreover, RoE during 9MFY22 stood at 21.1%, against 5.6% YoY.

Strong Industry Dynamics

The Indian footwear retail market is expected to clock 22% CAGR between FY21 to FY25, being one of the fastest-growing discretionary categories. The specific industry segment of sports and athleisure footwear is highly under-penetrated, compared to developed economies, and is expected to be the fastest-growing segment. The target segment is growing due to a combination of factors such as the transition from the unorganized to organized sector driven by enhanced preference for branded and quality footwear, increasing health awareness, rising levels of disposable income in India, favorable trends in Indian demographics such as increasing population of young adults, and the growing demand for women's footwear.

Our View

On FY22 annualized financials, the IPO is valued at 42x EV/EBITDA, 8x EV/sales and 79x P/E, which is largely compared with the recently-listed Metro Brands. Campus Activewear is the fastest-growing scaled sports and athleisure footwear brand covering more than 85% of the total addressable market. With its focus on design and product innovation, robust omni-channel network and PAN India presence, integrated manufacturing capabilities supported by robust supply chain and access to the latest global trends and styles, the company looks to further expand into the under-penetrated Indian market. The Indian footwear retail market is expected to record a CAGR of 21% over FY21-FY25, and this will provide opportunities for the company to multiply its reach. Moreover, an experienced management team, strong brand recognition and a move to premium category further solidifies the company's position. The Company is the largest and fastest-growing player in a rapidly growing S&A footwear brand in India with continued focus on channel expansion, rising contribution from premium category, but the IPO is aggressively priced and hardly leaves anything meaningful on the table for investors in the medium term perspective.

Source : Equity Bulls

Keywords

CampusActivewear IPO FundRaising RelianceSecurities