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Should You Subscribe to Campus Activewear IPO? | Campus Activewear IPO Detailed Analysis

Should You Subscribe to Campus Activewear IPO? | Campus Activewear IPO Detailed Analysis

Published on 27 April 2022 .Views 35 .Comments 0
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India’s largest sports and athleisure footwear brand- Campus Activewear Limited has come up with its Initial Public Offer, its subscription window is open from 26th April 2022 to 28th April 2022. Let’s discuss this IPO in detail with its positives and negatives in this article.

1) IPO Details:

Campus Activewear- IPO Details

  • The IPO Window of Campus Activewear is open from 26th April 2022 to 28th April 2022.
  • The Issue Size of the IPO is Rs. 1,400 Cr. which is purely an Offer for Sale.
  • The IPO consists of an Offer for Sale (OFS) worth Rs. 1,400 Cr. The OFS consists of selling 4.79 Cr. Equity Shares.
  • The IPO is getting listed on both the stock exchange- Bombay Stock Exchange (BSE) and National Stock Exchange (NSE).
  • The price band of the IPO is Rs. 278 to Rs. 292 per equity share.
  • The Face Value is Rs. 5 per equity share.
  • The Investor Quota of the IPO is as follows Qualified Institutional Buyers (QIB)- 50%, Non-Institutional Investors (NIIs)-15%, and Retail Investors- 35%.
  • The IPO Lot consists of 51 shares in 1 lot and multiples thereof up to 13 Lots.
  • The Allotment Date for Campus Activewear IPO is 4th May 2022 and it will get listed on the Stock Exchange on 9th May 2022.
  • The objective of the Issue :
  • To achieve listing benefit in the stock exchange
  • The stake of Promoter’s & Promoter’s Group in the company Pre-IPO was 78.2% which will go down to 74.1% post listing of the IPO.
  • The Selling Shareholders are:

i) Promoters:

  • Harikrishan Agarwal- Up to 80 Lakh Shares
  • Nikhil Aggarwal- Up to 45 Lakh Shares

ii) Other Shareholders:

  • TPG Growth III SF PTE LTD- Up to 2.9 Cr. Shares
  • QRG Enterprises Limited- Up to 60.5 Lakh Shares
  • Rajiv Goel- Up to 1 Lakh Shares
  • Rajesh Kumar Gupta- Up to 2 Lakh Shares

2) About the Company:

  • Campus Activewear Limited was incorporated on September 24, 2008. The Company is the largest sports and athleisure footwear brand in India in terms of value and volume in FY21. (Source: Technopak Report).
  • The company has an expansive pan-India reach with a presence across 28 states and 664 cities in India.
  • The company covers more than 85% of the total addressable market for sports and athleisure footwear in India as of Fiscal 2021, which is the largest market coverage amongst key sports and athleisure footwear brands.
  • Their product portfolio is extensive with 1,433 active styles for men, 241 active styles for women, and 485 active styles for kids and children as of December 31, 2021.
  • Campus owns and operates 5 manufacturing facilities across India with an installed annual capacity for assembly of 2.88 Cr. pairs as of December 31, 2021.
  • They operate on an asset-light model with third-party manufacturing through long-standing vendor relationships and long-term lease arrangements. As of September 30, 2021, they operated 2 warehouses in India, both located at Bhiwandi in Maharashtra, on a leave-and-license basis.
  • Their strength in the Indian sports and athleisure footwear landscape is demonstrated on account of the following:
  • The campus is the largest sports and athleisure footwear brand in India, both in terms of value and volume in FY21.
  • The campus is the fastest growing scaled sports and athleisure footwear brand (scaled brands being brands with over Rs. 200 Cr. of revenue in FY19) in India from FY19 to FY21.
  • The campus had an approximately 15% market share in the branded sports and athleisure footwear industry in India by value for FY20, which increased to approximately 17% in FY21.
  • The campus is one of the very few established Indian brands in a segment that is primarily dominated by international brands.

i) Geographical Presence:

  • The company is having over 425 distributors directly connecting with over 19,200 geographically mapped retailers at a pan-India level as of December 31, 2021.
  • Of these approximately 19,200 retailers, an internal sales force of 152 employees has direct field coverage of approximately 11,300 retailers
  • The remaining approximately 7,900 retailers are covered through the distributor ‘feet on street’ initiative, which further depends on the distributor management system, salesforce activation application, and retailers’ engagement application
  • The company has an extensive online sales presence through third-party pure-play marketplaces, third-party managed marketplaces, and online-to-offline B2B platforms such as Flipkart, Myntra, Fynd, and Udaan among others as well as its e-commerce website.
  • The company operates EBOs under two models: through company opened company-operated stores (COCOs) and franchisees. The company has 57 COCOs and 28 franchisees as of December 31, 2021. As of 9MFY22, the EBOs contribute around 2.71% to the total sales of the company.

i) Company Owned and Company Operated (COCO):

  • The company is having 57 COCO stores spread across Delhi NCR (29), Uttar Pradesh (20), Haryana (6), Maharashtra & Bihar (1 each)

ii) Franchisee:

  • The company is having 28 Franchisee stores spread across Haryana (3), Rajasthan (1), Uttar Pradesh (7), Gujarat (8), Maharashtra (2), Bihar (4), and Uttarakhand (3)

3) Industry Prospects:

i) Footwear Industry:

Source: Campus Activewear Limited RHP

  • The global average annual footwear consumption per capita is estimated to be approximately 3.2 pairs. India’s annual footwear consumption per capita is very low, compared to developed and other developing countries, at approximately 1.9 pairs suggesting headroom for growth.
  • The domestic footwear retail market in India is estimated at Rs. 72,000 crores in FY 2020 is projected to grow at a CAGR of ~8% to reach Rs. 1,05,000 crore by FY 2025 and by around 22% between FY21 to FY25.
  • Men’s footwear currently dominates this market with approximately 48% share, however, growth in the women’s footwear segment will outpace the growth in men’s to account for an almost equal share by value in FY 2025 against the current share of 41%.

ii) Sports and Athleisure Retail Market:

Source: Campus Activewear RHP

  • The Indian sports and athleisure market is estimated to be Rs. 19,500 crores in FY 2020 and is expected to grow at a rate of approximately 16% by FY 2025, almost doubling in size to around Rs. 40,200 Cr.
  • There is a high level of under penetration of sports and athleisure footwear in India compared to global trends, leaving a huge opportunity for the key players to explore and grow in the segment with new designs and products.
  • The key categories in the segment are:

1. Apparel

2. Footwear

3. Gear (Yoga mats, health equipment, etc.)

  • The campus covers more than 85% of the total addressable market for sports and athleisure footwear in India as of Fiscal 2021, which is the largest market coverage amongst key sports and athleisure footwear brands

Source: Campus Activewear RHP

  • The campus covers more than 85% of the total addressable market for sports and athleisure footwear in India as of Fiscal 2021, which is the largest market coverage amongst key sports and athleisure footwear brands

4) Financials:

i) Revenue Mix:

a) Region-Wise:

Source: Campus Activewear RHP

  • The company has a Significant D2C presence in underpenetrated geographies that complements the Trade Distribution network to enable a diversified revenue mix.
  • The company derives over 50% of revenue from the North region and the rest 19%, 13%, 9%, and 6% are generated from the East, West, South, and Central regions respectively.
  • Sales of products are primarily concentrated in North India, which generates over more than 50% of the revenue of the company as of 9MFY22.

b) City-Wise:

Source: Campus Activewear RHP

  • In terms of the city, the company generates the majority of its revenue from Tier-II and Tier-III cities which is at around 73% while Metro and Tier-1 Cities just account for 27% of the total revenue of the company.
  • Rapid penetration & Tier-I markets are enabled by diverse D2C platforms.

c) Premiumization:

Source: Campus Activewear RHP

  • In the context of the revenue mix of the company in terms of brands then the dependency of entry-wise brands revenue has gone down over the years from 47.6% in FY19 to 46.1% in FY20, and finally to 38.1% in 9MFY22.
  • The revenue contribution of Semi-Premium brands has remained constant at around 21% over the years.
  • The company has witnessed a jump in its premium segments as its revenue contribution was around 31% in FY19 which now stands at 40.6% as of 9MFY22.

d) Distribution-wise:

Source: Campus Activewear RHP

  • As of FY19, the company revenue mix stood at 94% from Trade Distribution and 6% from Direct to Consumer (D2C channel).
  • The share of the D2C channel in the revenue mix got increased to 24.6% in FY21 while the share of Trade Distribution got down to 75.4% in the same period.
  • As of 9MFY22, the revenue mix of the company stands as follows: 63.4% from Trade Distribution and 36.6% from D2C Channel.

ii) Performance:

a) Selling Performance:

Source: Campus Activewear RHP

  • The company sales volume got an increase from 1.22 Cr. in FY19 to 1.3 Cr. in FY21 and 1.36 Cr. in 9MFY22.
  • The Average Selling Price (ASP) of the company has remained on an upward trend over the years from Rs. 481 in FY19 to Rs. 546 in FY21 and Rs. 615 in 9MFY22.

b) Revenue and Profitability:

Source: Campus Activewear RHP

  • The revenue of the company has grown at a CAGR rate of 19% between FY19 to FY21 from Rs. 595 Cr. in FY19 to Rs. 712 Cr. in FY21, and finally Rs. 842 Cr. in 9MFY22.
  • The Earnings before Interest, Taxes, and Depreciation & Amortization (EBITDA) of the company has also increased from Rs. 102 Cr in FY19 to Rs. 120 Cr. in FY21, now which stands at Rs. 165 Cr. in 9MFY22.
  • The EBITDA margin over the years has remained above 17% and currently stands at 19.6% as of 9MFY22.

Source: Campus Activewear RHP

  • On account of the Covid-19 pandemic the profitability of the company has got a hit and fell to Rs. 27 Cr. in FY21 from Rs. 39 Cr. in FY19. As of 9MFY22, the Net Profit of the company stands at Rs. 85 Cr. while the Net Profit Margin is around 10%.
  • According to the management, it suffered a setback in its margins for FY21 on account of adjustments for depreciation, deferred tax, and amortization as a one-time expense as well as pandemic. It incurred higher staff welfare with payments during no production for nearly five months during COVID.

c) Brand Building:

Source: Campus Activewear RHP

  • The Advertising & Sales Promotion (A&P) cost of the company has increased over the years from Rs. 30 Cr. in FY19 to Rs. 33 Cr. in FY21, and Rs. 65.5 Cr. in 9MFY22.
  • The A&P cost of the company as % of sales has also shot up from 5% in FY19 to 7.8% in 9MFY22.
  • Further, Digital spending has also increased from Rs. 1.5 Cr. in FY19 to Rs. 10.4 Cr. in FY21 and Rs. 16.8 Cr. in 9MFY22. In % terms, 0.2% in FY19 to 2% in 9MFY22.

d) Return Ratios:

Source: Campus Activewear RHP

  • The return ratios of the company have also remained above 20% over the years except for FY21. As of 9MFY22, the Return on Capital Employed (ROCE) of the company stands at 21.4% and the Return on Equity (ROE) of the company is at 23.7%.

5) Brief Comparison between Bata India, Relaxo Footwears, and Campus Activewear:

6) Key Strengths & Risks:

i) Key Strengths:

a) India’s largest sports and athleisure footwear brand:

  • The company manufactures and distributes a variety of footwear like Running Shoes, Walking Shoes, Casual Shoes, Floaters, Slippers, Flip Flops, and Sandals, available in multiple colors, styles, and at affordable prices under the brand name ‘CAMPUS’.
  • As per Technopak Report, the company has approximately 15% market share in the sports and athleisure footwear industry in India by value for Fiscal 2020, which increased to approximately 17% in Fiscal 2021.
  • The company covers more than 85% of the total addressable market for sports and athleisure footwear in India as of Fiscal 2021, which is the largest market coverage amongst key sports and athleisure footwear brands.

b) Difficult to replicate integrated manufacturing capabilities supported by a robust supply chain:

  • The company owns and operates five manufacturing facilities across India with an installed annual capacity for assembly of 2.88 Cr. pairs as of December 31, 2021.
  • The company manufacturing facilities have installed the capacity to manufacture 0.48 Cr. footwear uppers and 1.08 Cr. footwear soles annually as of December 31, 2021.
  • The manufacturing facilities can manufacture 37.50% of the company’s requirements of soles and 16.67% of footwear uppers in-house and 100% in-house assembly of all the products.
  • The company believes that having a fabricator and sole ancillary supplier network enables it to balance high capital expenditure costs and protect design intellectual property.
  • The company outsources 83.33% of the manufacturing work of the upper part of footwear, while the company outsources 62.50% of the work for the sole segment.

c) Robust omnichannel sales and distribution network with pan-India presence and move to premium category

d) Strong brand recognition, innovative branding, and marketing approach

e) Experienced management team

  • Chairman has over 37 years of experience in the footwear industry in India. Further, the senior management team is a professional team with a combined experience of over 125 years in FMCG, retail, technology, and consulting businesses.

ii) Key Risks:

a) The company may not be able to maintain financial parameters

  • On account of sales slowing down due to Covid-19 disruptions and increased capital expenditure.

b) High reliance on trade distribution and direct-to-consumer channels for a majority of the sales of the company

  • Trade Contribution contributes around 63.2% and Direct to Consumer (Online) contributes around 32.3% to the total sales of the company.

c) Highly Competitive Industry

  • Presence of International brands like Puma, Adidas, Nike along with some reputed Indian brands like Metro, Bata, Relaxo, etc.

d) Pricing pressure from customers may affect gross margin, profitability, and ability to increase prices

e) Seasonal Business

  • The company recorded fluctuations in its Average Selling Price wherein the third and fourth quarter generates more revenue for the company.

f) Manufacturing facilities and sales are highly dependent on the North region.

g) Manufacturing facilities and sales are highly dependent on the North region.

  • Like sales, the manufacturing facility of the company is also dependent on the North region as all the manufacturing facilities in the north region i.e., Himachal Pradesh, Uttarakhand, and Haryana.

7) Valuations:

Source: Investyadnya.in, Stock-o-meter, Campus Activewear RHP

  • Campus Activewear is having a very expensive P/E ratio of 331x as per FY21 EPS of 0.88.
  • The Expected market cap of the company at the time of listing is around Rs. 8,886 Cr.
  • The Company’s Market Cap to Sales Ratio stands at 12.4x.
  • The other listed players in the market include big names Bata India, Relax Footwears, etc.

Should you Invest?

The Footwear Retail Industry and the overall retail industry in India are highly underpenetrated in India and hence a good space available is for the company to grow. Currently, the Grey Market of this IPO is around Rs. 25 per share and hence a decent listing gain is available. Investors who are looking at this stock for the long-term, should wait for a while and analyze the performance of the company for a few more quarters, and then should take a call.

Disclaimer: The information here is provided for reference purposes only and should not be misconstrued as investment advice. Under no circumstances does this information represent are commendation to buy or sell stocks or MF.

Originally Published On: https://blog.investyadnya.in/should-you-subscribe-to-campus-activewear-ipo/

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