Campus Activewear IPO Analysis & Review

Most of you would have seen someone wearing Campus Shoes. Almost everyone has taken to putting those shoes on, rightly relating to its popularity that multiplied in a comparatively short span of time. From cute little children to chic teenagers to our dapper grandparents, we've witnessed them all, wearing and flaunting it. 

Peter Lynch's number one piece of advice and as of Mr. Pranjal Kamra for value investing is to invest in stocks that you consume. In that way, you would never doubt your stock investments. So tell me now, would you be interested in becoming a stakeholder in Campus Activewear? 

From April 26 to April 28, Campus Activewear's initial public offering (IPO) will be available for subscription. Let's take a look at its business model, strengths and shortcomings, and examine it from all angles as an investment possibility. But first, let's take a look at the Indian footwear sector as a whole. Baby steps, people, baby steps!

Footwear Industry Overview

The Indian footwear industry is quite versatile and is expected to grow at a CAGR of 21.6% from FY2021 to FY2025, according to the report on the Footwear Retail in India. It is one of the fastest-growing direct consumer use categories from Fiscal 2021 to 2025. In this footwear industry, the particular segment of sports and athleisure footwear is highly underpenetrated. That is evidenced by the extremely low footwear penetration per capita as compared to developed economies and as a result, this segment is expected to grow at a CAGR of 25% from FY2021 to FY2025. One of the industries with the highest number of SKUs.

Company Overview

Campus Activewear is one of the largest sports and athleisure footwear brands in India, covering around 17% of the whole footwear market share in India. It is also one of the very few established Indian brands in which international brands like Nike and Puma generally predominate. Campus Activewear was established in 2005, and in such a small duration, it has managed to capture a large portion of the Indian market. 

They have a huge number of SKUs, more than 6000 which are sold through their massive 100 exclusive brand stores, Around 65 company-owned stores and in other retail stores through their large network of 400 distributors in 28 states. And the company continues to strengthen its distribution network by widening its distribution channel. 

With the advent of digitalisation, its digital sales has also grown 20x times in only the last 3 years. 

The company mainly focuses on affordable, stylish, and comfortable footwear, with more emphasis on the affordable aspect. Affordability of its footwear has been its focus and owing to the affordability of its stylish shoes, it is more prevalent in the more budget-friendly segment of people living in Tier 2 and Tier 3 cities.

Around 75% of its sales come from non-metro cities, and only 25% from Tier1 and metro cities.

Key details of IPO

The Campus Activewear IPO minimum market lot is 51 shares with ₹14,892 application amount. The retail investors can apply up-to 13 lots with 663 shares or ₹193,596 amount.

Campus Activewear IPO Date & Price Band

Financial of the company

The organization has experienced constant growth over the last 15 years, with both total assets and revenue increasing. This has contributed to good net profit margins of 8-10%, which are difficult to achieve in the retail sector. These gains, which have since been re-invested in the company, have aided in its expansion. 

The company's market share is steadily expanding. However, the fact that the majority of its income has been reported in the last two quarters of any year, when the company provides high discounts and offers clearance sales, is a huge source of concern. This prevents the company from achieving better gross margins, implying that its customers are price-sensitive, and even a small rise in prices can harm sales.

 Strengths & Weaknesses of Campus Activewear IPO 

The following are the strengths of this company:

• It is India’s largest sports and athleisure footwear brand in terms of value and volume.

• It has a robust product portfolio across the demand spectrum covering over 85% of the total addressable market.

• Pan India presence with a focus on tier 2 and tier 3 cities.

• Growing D2C presence at the rate of 17%  through online and offline channels.

• Sustained focus on design and product innovation, facilitating access to the latest global trends and styles.

• Integrated manufacturing capabilities supported by a robust and competent supply chain.

• Strong brand recognition, innovative branding and marketing approach.

• Experienced management team with experience in managing successful businesses for the last 27 years.

These are a few points of concern to consider if you are thinking of investing in this shoe-making company:

• Highly competitive industry with so many companies making the same type of product with no restrictions whatsoever, and also a possibility of copyright infringements on anyone’s products. This gives rise to copycats making similar products and eating up market share.

• Excessive reliance on trade distribution channels for a majority of sales (81.36% in FY2021).

• Dependence on third parties to manufacture slippers. 

• Limited control over the ultimate retail sales by distributors and retailers. 

• Seasonal nature of the business (revenues in third and fourth quarters tend to exceed remaining quarters). 

• Negative cashflows in recent years. 

• The company has in the past entered into related party transactions and will continue to do so in the future and also cannot assure you that they could have achieved more favorable terms if such transactions had not been entered into with related parties. This statement had been mentioned in the company’s DRHP, this is a huge weakness and the company needs to work of diversifying its customer base.

Final Thoughts…

This IPO is merely an offer for sale, or, as I like to put it, a mechanism for promoters to dump their shares at exorbitant prices to us retail investors. The price demanded here corresponds to a P/E multiple of 315. That's absurd 🤯. This kind of valuation is unusual in any industry. 

The company does not require any extra capital to operate, and existing shareholders' offers to sell at such high values are seldom a positive sign to stay invested. Even if the footwear retail industry is predicted to grow at a 25% CAGR in the next few years, it's unclear whether the company will follow suit.

So, in order to be an intelligent investor, such valuations need to be kept in mind and decisions should be taken wisely, considering the company’s past performance and future predictions.

Visit Ticker by Finology to learn more about future IPOs and to read about these companies so that you can make an informed decision about whether or not to apply. You'll find updates on all impending IPOs here, as well as a go-to tool for fundamental research of any company, which will aid you in your investment journey.

Please let us know on what topic you would like our next blog to be.

Until then, Happy Investing…👋