Campus Activewear

Largest sports and athleisure footwear brand

Wide portfolio covers more than 85% of the total addressable market for sports and athleisure footwear in India

Campus activewear is the largest sports and athleisure footwear brand in India in terms of value and volume in FY 2021.The company is primarily engaged in the manufacturing, distribution and sales of sports and athleisure footwear products.

Campus activewear is a lifestyle-oriented sports and athleisure footwear company that offers a diverse product portfolio for the entire family. Company offers multiple choices across styles, color palettes, price points and an attractive product value proposition.

The company has an approximately 15% market share in the branded sports and athleisure footwear industry in India by value for FY2020, which increased to approximately 17% in FY2021. It is one of the very few established Indian brands in a segment which is primarily dominated by international brands.

The Indian footwear retail market is expected to grow at a CAGR of 21.6% from FY2021 to FY 2025, being one of the fastest growing discretionary categories from FY 2021 to FY 2025. Specific industry segment of sports and athleisure footwear is highly under penetrated, as evidenced by the extremely low footwear penetration per capita as compared to developed economiesand is expected to be the fastest growing segment, with a CAGR 25% between FY2021 and FY2025.

Company covers more than 85% of the total addressable market for sports and athleisure footwear in India as of FY2021, which is the largest market coverage amongst key sports and athleisure footwear brands.

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 FY 2020. Company’s 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.

Company has adopted a fashion forward approach to new product launches to ensure faster design conceptualization and product commercialization cycle. Company is typically able to launch its products within 120 to 180 days from the date of product conceptualization.

Company follows a nimble, fashion forward and segmented approach to curate its product lines. Company launch its products under the following, (1) Flagship collection: launch two collections each year, namely spring-summer and autumn-winter, (2) In-season replenishment: capture any upside demand and cater to positive sales of certain high velocity styles through additional production of high-selling pieces, (3) Design fast track: These are a part of special drops and limited-edition product design initiatives, and (4) Never Out Of Stock: these models are always available in stock and continuously replenished.

Company launched 583 new designs in FY2021. Its 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 on December 31, 2021. Company offers one of the widest portfolios of footwear products among sports and athleisure footwear brands in India in terms of SKUs as of September 30, 2021.

Company has over 425 distributors directly servicing and fulfilling orders of over 19,200 geographically mapped retailers at a pan-India level as on December 31, 2021. Of these approximately 19,200 retailers, its internal sales force of 152 employees has direct field coverage of approximately 11,300 retailers as on December 31, 2021. The remaining approximately 7,900 retailers are covered through its distributor ‘feet on street’ initiative, which further depends on distributor management system, sales force activation application and retailers’ engagement application to streamline engagement with them.

Company owns and operate five manufacturing facilities across India with an installed annual capacity for assembly of 2.88 crore pairs as on December 31, 2021. Its manufacturing facilities have installed capacity to manufacture 48 lakh footwear uppers and 1.08 crore footwear soles annually as on December 31, 2021. Manufacturing facilities gives ability to manufacture 37.50% of its requirements of soles and 16.67% of footwear uppers in-house and 100% in-house assembly of all its products.In addition to in-house manufacturing capacity, company created a large fabricator and sole ancillary supplier network in India.

Company has vertically integrated manufacturing ecosystem. During the nine months ended December 31, 2021, company (i) set up additional footwear assembly lines at its manufacturing facilities in Dehradun, Uttarakhand and Baddi, Himachal Pradesh; (ii) additional manufacturing capacity at its sole manufacturing facility at Ganaur, Haryana; and (iii) additional manufacturing capacity at its uppers manufacturing facility at Haridwar, Uttarakhand. This has allowed greater control over manufacturing process, product quality, costs and improved time to market for product launches.

Company is open to increasing its portfolio of brands through acquisitions to provide consumers with differentiated offerings.

Offer and its objects

The IPO will be complete offer for sale of Rs 1400.14 crore on upper price band, by existing shareholders-Hari Krishan Agarwal, Nikhil Aggarwal, TPG Growth III SF, QRG Enterprises, Rajiv Goel and Rajesh Kumar Gupta.

Up to 200,000 Equity Shares will be reserved for employees.

Price band for the IPO is Rs 278 to Rs 292 per equity share of face value Rs5 each.

Company will not directly receive any proceeds from the Offer, and all the Offer Proceeds will be received by the Selling Shareholders, in proportion to the Offered Shares sold by them.

Promoters of the CompanyareHari Krishan Agarwal and Nikhil Aggarwal.Promoters and promoter groupholds an aggregate of 238,009,004equity Shares, aggregating to 78.21% of the pre-Offer issued and paid-up Equity Share capital.The post IPO shareholding for the same is expected to be around 74.10%.

The issue, through the book-building process, will open on 26 April 2022 and will close on 28 April 2022.

Strengths

Company is largest and the fastest growing scaled sports and athleisure footwear brand (scaled brands are brands with over Rs 200 crore of revenue in FY 2019) in India over FY 2019 to FY 2021. Company had approximately 15% market share in the sports and athleisure footwear industry in India by value for FY2020, which increased to approximately 17% in FY 2021.

Company offers one of the widest portfolios of footwear products among sports and athleisure footwear brands in India in terms of SKUs as of September 30, 2021. It covers more than 85% of the total addressable market for sports and athleisure footwear in India as of FY 2021.

New launches in premium category has enabled the company to increase the volume of premium products sold over the years. Company sold 21.3 lakh, 20.4 lakh, 28.1 lakh, 15.6 lakh and 37.9 lakh premium footwear products in FYs2019, 2020 and 2021 and nine months ended December 31, 2020, and December 31, 2021, respectively. The revenue contribution from premium products to total sale of goods has also increased over the years from 31.30% for FY 2019 to 40.59% for nine months ended December 31, 2021.

For FYs2019, 2020 and 2021 and nine months ended December 31, 2020 and December 31, 2021, ASP (average selling price) per pair was Rs 481, Rs 509, Rs 546, Rs 533 and Rs 615, respectively. It reflects an increase in ASP by 27.77% between FY 2019 and nine months ended December 31, 2021.

Company has expansive pan-India reach that enabled it to sell 1.22 crore, 1.43 crore, 1.30 crore, 0.8 crore and 1.36 crore pairs in FYs 2019, 2020, 2021 and nine months ended December 31, 2020, and December 31, 2021, respectively. It has expanded its presence in metro and tier 1 cities and increased revenue contribution from metro and tier 1 cities to total sale of goods from 16.66% for Fiscal 2019 to 26.89% for nine months ended December 31, 2021.

Company cater to consumer needs across different demographics and price ranges. Ithas a strong presence in the category for men which contributed 83.41%, 83.24%, 87.62%, 87.28% and 83.27% of total sale of goods in Fiscals 2019, 2020 and 2021 and nine months ended December 31, 2020 and December 31, 2021 respectively.

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

Company’s fashion forward approach to retailing has led to faster design conceptualization and product commercialization cycle. Company is typically able to launch its products within 120 to 180 days from the date of product conceptualization.

Company’s omnichannel network has resulted in enhanced accessibility across markets. Its omnichannel experience, coupled with D2C channel scale-up, helped unlock new consumer bases while accelerating portfolio premiumization.

Company’s fabricator and sole ancillary supplier network enables it to balance high capital expenditure costs and protect its design intellectual property. Also it is difficult to replicate integrated manufacturing capabilities supported by robust supply chain

Company has rolled out financing options for its distributors by assisting them in obtaining financing through select banks as channel partners. These efforts have resulted in receivables days being reduced from 110 days in Fiscal 2019 to 41 days in the nine months ended December 31, 2021. As of December 31, 2021, 51 distributors representing 18.05% of its sale of goods in Fiscal 2021 have signed up for channel financing.

Weaknesses

There have been volatile fluctuations in company’s revenues and financial parameters such as profit after tax margin, Earnings before interest, taxes, depreciation and amortization (EBITDA) margin and Gross margin in the past. For instance, profit after tax margin decreased significantly from 8.52% in Fiscal 2020 to 3.78% in FY2021, there is no guarantee that these will improve in the future.

Company is reliant on its trade distribution and direct-to-consumer channels for a majority of total sales, any disruptions to the operations of these channels may adversely affect sales. For nine months ended December 31, 2021, Trade Distribution contributed 67.71% of total volume sold, Direct-to consumer (online) 28.81% and Direct-to consumer (offline) 3.48%.

The sports and athleisure footwear industry is highly competitive in India. Company compete primarily against international sportswear brands, local branded manufacturers and manufacturers from the unorganized sector. Failure to compete effectively may result in a decline in revenues and profitability.

Company’s success depends on its ability to identify, originate and define sports and athleisure footwear trends as well as to anticipate, gauge and react to changing consumer demands for footwear in a timely manner. The failure of the new product lines to gain market acceptance could adversely affect business.

As of FY2021 and the nine months ended December 31, 2021, the sales of its products were primarily concentrated in North India as a whole, and therefore success is closely tied to the general and local retail market and economic conditions of North India as a whole, which are outside of company’s control.

Company has entered into related party transactions in the past, such related party transactions may potentially involve conflicts of interest with equity shareholders. In FYs 2019, 2020, 2021 and for period December 31, 2020 and December 31, 2021, the aggregate amount of such related party transactions (excluding transactions within the Group) was Rs 20.44 crore, Rs 19.73 crore, Rs 7.68 crore, Rs 5.76 crore and Rs 6.49 crore, respectively.

Company’s operations are labor-intensive, it needs contract labor for a majority of manufacturing requirements. Any inability for independent contractors to procure laborers for facilities or any other shortage in contract laborers may require the company to employ laborers directly which may result in higher costs and reduced margins. Company has spent Rs 37.40 crore, Rs 59.50 crore, Rs 64.00 crore, Rs 40.91 crore and Rs 77.66 crore constituting 6.29%, 8.13%, 9.00%, 9.38% and 9.23% of total revenue from operations in FYs 2019, 2020, 2021 and nine months ended December 31, 2020 and December 31, 2021, respectively, towards wages and compensation paid to contract labor.

Company allows its trade distribution customers to return products if there are any manufacturing defects, subject to return policy. If the rate of merchandise returns increases significantly its financial condition and operating results could be harmed.

Company’s online sales are dependent on sales channels controlled by third party online market places. Any significant changes to business arrangements with these market places may impact revenue from operations. Sale of goods generated from online sales was Rs 16.91 crore, Rs 57.23 crore, Rs 150.16 crore, Rs 93.86 crore and Rs 271.59 crore, which accounted for 2.87%, 7.83%, 21.15%, 21.56% and 32.37% of total sale of goods for FYs2019, 2020 and 2021 and nine months ended December 31, 2020, and December 31, 2021, respectively.

Company is reliant on its production sites for the manufacturing of products. Any unscheduled or prolonged disruption of manufacturing operations, including any shortage or non-availability of electricity, fuel or water or an increase in fuel prices, could adversely affect business.

Company has limited control over the ultimate retail sales by its distributors and retailers. These distributors and retailers may cease to sell products or damage its market standing on account of factors such as design failures, competitive pressure and slow offtake of products.

Company may face credit risks in the ordinary course of business. For FYs 2019, 2020 and 2021 and nine months ended December 31, 2020 and December 31, 2021, total trade receivables amounted to Rs 162.01 crore, Rs 144.31 crore, Rs 98.19 crore, Rs 98.17 crore and Rs 122.26 crore, representing 51.81%, 33.44%, 25.63%, 28.27% and 21.76% of total current assets, respectively.

Valuation

For FY 2021, consolidated sales were down by 2.84% to Rs 711.28 crore compared to FY 2020. OPM decreased by 230 bps to 16.31% which led to 14.85% decrease in operating profit to Rs 116.01 crore. Other income increased 83.20% to Rs 3.80 crore, while interest cost rose 3.96% to Rs 17.16 crore and depreciation increased 41.80% to Rs 32.71 crore.PBTdecreased 29.17% to Rs 69.94crore.Tax expenses for FY2021 was of Rs 43.08 crore compared to tax expense of Rs 36.39 crore in FY2020. Minority interest for FY2021 was negative Rs 0.01 crore compared to positive Rs 0.77 crore in FY2020, Net profit went down 56.37% to Rs 26.87 crore.

For 9M FY2022, consolidated sales were up by 93.01% to Rs 841.84 crore compared to 9M FY2021. OPM increased by 770 bps to 19.38% which led to 220.05% increase in operating profit to Rs 163.11 crore. Other income decreased 36.51% to Rs 2.10 crore, while interest cost rose 5.03% to Rs 13.53 crore and depreciation increased 73.62% to Rs 37.73 crore.PBTincreased 479.47% to Rs 113.96crore.Tax expenses for FY2021 was of Rs 29.15 crore compared to tax expense of Rs 2.83 crore in FY2020. Minority interest for FY2021 was negative Rs 0.78 crore compared to negative Rs 0.02 crore in FY2020, Net profit rose 407.74% to Rs 85.58 crore.

The TTM EPS on post-issue equity works out to Rs 3.10. At the upper price band of Rs 292, P/E works out to 92.95.

As of 21 April 2022, its listed peers such as Bata India trades at TTM P/E of 360.07, Relaxo footwear trades at TTM P/E of 103.93 and Metro Brands trades at TTM P/E of 83.33. For FY2021, Campus Activewear OPM and ROE stood at 16.31% and 8.60%, respectively, compared to 9.49% and negative 5.07% for Bata India, 21% and 18.54% for Relaxo footwear, 21.44% and 8% for Metro Brands, respectively.