Campus Activewear Limited IPO opens tomorrow: Should You Apply?

Campus Activewear Limited IPO opens for subscription on 26th April. The company is looking to raise up to Rs 1,400 crore through the public issue. Here are the details:

Campus Activewear IPO Details:

Campus Activewear IPO Date: 26 April - 28 April 2022

Campus Activewear IPO Price band: Rs 278 - Rs 292

Campus Activewear IPO Issue Size: Rs 1332 crore - Rs 1,400 crore (Initial Public Offering of equity shares aggregating up to Rs 3600 crore)

Reservation: QIB 50%, Retail - 35%, NII 15%

Post Issue Implied Market Cap: Rs 8,460 crore - Rs 8,886 crore

Minimum Investment: Rs 14,892

Employee Discount: Rs 27 per share

Bid lot: 51 shares, and in multiples of 51 shares

Campus Activewear IPO: Objects of the Issue

The net proceeds from the IPO will be utilized for the following purposes :

• To achieve the benefits of listing the Equity Shares on the Stock Exchanges 
• The offer for sale of up to 47,950,000 Equity Shares

Campus Activewear IPO: About the company

• The company was incorporated in 2008 and is the largest sports and athleisure footwear brand in India in terms of value and volume (FY21).
• The company manufactures and distributes a variety of footwear like Running Shoes, Walking Shoes, Casual Shoes, Flip Flops and Sandals, Floaters, Slippers, available in multiple colors, styles and at affordable prices. 
• 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 (31 December, 2021).
• They have a pan-India trade distribution network, with over 400 distributors in 28 states and 625 cities. The company also has 18,200 retailers across India.
• It 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.
• Campus owns and operates 5 manufacturing facilities across India with an installed annual capacity for assembly of 28.80 million pairs (31 December, 2021).

(Source: DHRP)

Campus Activewear Market coverage

The company covers more than 85% of the total addressable market for sports and athleisure footwear in India as of FY21. It is the largest market coverage amongst key sports and athleisure footwear brands. Their distribution channels are as below:

• Trade distribution: They have a pan-India trade distribution network which provides them with high channel partner stickiness and is difficult to replicate. 
• Direct to Consumer: They have 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 own e-commerce website. 
• Omnichannel experience: It involves a confluence of multiple retail channels covering physical locations and online channels to provide consumers with a seamless experience.

(Source: DHRP)

Campus Activewear Industry Outlook

• The Indian footwear retail market is expected to grow at a CAGR of 8% from FY20 to FY25, and 21.6% from FY21 to FY25, being one of the fastest-growing discretionary categories from FY21 to FY25.
• The specific industry segment of sports and athleisure footwear is highly underpenetrated, as evidenced by the extremely low footwear penetration per capita as compared to developed economies. 

Campus Activewear Financials

• The revenue growth from FY19 to FY20 was 23.06%. It declined by 2.84% in FY21.
• The company reported a net profit of Rs 38.60 crore, Rs 62.37 crore, and Rs 26.86% during the same period. Campus Activewear has posted negative 17% annualised growth in Net Profit between FY19- 21 due to one-off expenses and higher staff welfare expenses.
• The EBITDA for FY19, FY20, and FY21 was Rs 101.86 crore, Rs 138.33 crore, and Rs 119.81 crore, respectively. The EBITDA margin for the same period was Rs 17.12%, 18.90%, and 16.84%.
• The average EPS and RoNW for the last three financial years is 1.4 and 16.4%, respectively.
• Over FY19, FY20, FY21, and 9 months ended December 31, 2020, and December 31, 2021, they have spent Rs 29.84 crore, Rs 26.88 crore, Rs 32.94 crore, Rs 22.06 crore, and Rs 65.48 crore on advertising and sales promotion.
• The split of the sale of goods between online sales and offline sales was 32.37% and 67.63% as of December 31, 2021. It was 21.15% and 78.85% in FY21 compared to 2.87% and 97.13% in FY19. 

Campus Activewear Listed Peers

• The company has many peers to compete in the footwear space. However, there are only two listed peers - Bata India Limited and Relaxo Footwears Limited. 
• Among the three companies, Relaxo is the market leader in terms of revenue as it has a revenue of Rs 2,381.92 crore. Campus Activewear has only Rs 715.08 crore, last on the list.
• Relaxo has the highest Earning Per Share (EPS) and the RoNW among the three companies. Its EPS is 11.74, and Campus has an EPS of 0.88. RoNW of Campus Activewear is 8.60%, Bata India (5.08)%, and Relaxo Footwear 18.54%.

Campus IPO: USPs

India’s largest sports and athleisure footwear - They are the largest sports and athleisure footwear brand in India in terms of value and volume in FY21. They have a robust product portfolio across the demand spectrum and are not dependent on a single demand factor. 

Sustained focus on design and product innovation - Campus Activewear has a design team that comprises the in-house team in India, a design consultancy in China, and other design sourcing tie-ups. The external design consultancy advises them on the latest design, manufacturing, and raw material trend.

Difficult to replicate integrated manufacturing capabilities - It owns and operates five manufacturing facilities across India with an installed annual capacity for assembly of 28.80 million pairs. Its predominantly India-based supplier network limits the requirement for imports and dependence on offshore suppliers. This limits the risk of supply chain disruptions and foreign exchange fluctuations while reducing manufacturing lead times. 

Robust omnichannel sales and distribution network - By means of the omnichannel approach, they can offer a holistic experience to the consumer throughout the purchase cycle. 

Campus IPO: Growth Potential

Leverage brand and leadership position - The Indian government’s ‘Make in India’ initiatives and GST policies benefit products manufactured in India. The company believes these factors will enable them to maintain and consolidate its leadership position in this industry segment. They intend to enhance the number of styles and products in the women and kids and children category.

Expand and deepen omnichannel experience - The company plans to deepen and expand all the various elements of its omnichannel experience such as trade distribution network, exclusive brand outlet (EBO) presence and increase online sales.

Continue to invest in and integrate the supply chain - It relies on a network of suppliers and manufacturers for many raw materials and components to manufacture its products. They will evaluate options to further backward integrate into other aspects of their manufacturing process. This may be through acquisitions as well.

Targeted acquisitions of products and brands - The company will evaluate opportunities to grow business inorganically from time to time. It would continue to seek opportunities that complement and grow its product offerings and ancillary products in the sports and athleisure category.

Campus IPO: Risks 

Reliant on trade distribution and D2C channels - They are reliant on trade distribution and direct-to-consumer channels for a majority of their sales. Any disruptions to the operations of these channels or limitations on its ability to expand and grow this channel may adversely affect the sales, cash flows, and profitability.

Competition - The sports and athleisure footwear industry is highly competitive in India. They compete primarily against international sportswear brands, local branded manufacturers, and manufacturers from the unorganized sector. Its failure to compete effectively, including any delay in responding to changes in the industry and market, may affect its business.

Environmental regulations - The company generates physical waste, uses certain chemicals in the manufacturing operations, and produces emissions in the manufacturing process. Hence, environmental regulations monitored by various governmental authorities such as the relevant state pollution control boards and state-level environmental impact assessment authorities impose costs and limitations on its operations.
 

Campus Activewear IPO: Review

• Recovering revenues: Revenue increased at 9.3% per year between FY19 and FY21, with numbers in FY21 impacted due to Covid. The company has seen a good 93% YoY growth in revenue in Apr-Dec 21 period. 
• Profit back on track: Campus Activewear has posted negative 17% annualised growth in Net Profit between FY19- 21 due to one-off expenses and higher staff welfare expenses. The company is now back on track with a 5x on YoY rise in profit in Apr- Dec 21 period. 
• Healthy margins: Profit margins had taken a hit in FY21 at just 3.72% from 8.52% in the previous due to adjustments for deferred tax and amortization, and the pandemic. In the Apr-Dec 21 period, PAT margins rose back to 10%.  
• Reasonable valuations: At the higher end of the price band, Campus Activewear IPO is priced at 78 times FY22 annualised EPS. This is cheaper compared to Bata (367 times) and Relaxo (102 times). However, since these peers have a better financial profile they are expected to trade at a premium. 
• Final recommendation: Given factors such as a good recovery in revenues, strong profitability, healthy return ratios, robust margins, leadership position in branded sports and athleisure, and reasonable valuations, analysts remain “Positive” on the prospects of this issue.