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Result Synopsis

Campus Activewear Ltd (CAMPUS) registered a topline growth of 29%YoY (low base) & decline of 2%QoQ, wherein volumes grew by 36%YoY (low base) & declined by 7%QoQ to 5.36Mn pairs (2 year CAGR stood at -1%). ASP decreased by 5.5%YoY to Rs622/pair in Q2FY25 owing to liquidation of non-BIS inventory by the company resulting in a decline of GPM by 50bps. Margins reduced further by 50bps due to trade promotion & schemes offered to retailers during the meet. Higher adv-spends & Rs20- 25Mn higher commission for online sales also weighed on EBITDA margins. Hence, EBITDA margin came in at 11.5% Vs 15.3% in previous quarter and EBITDA/pair came in at Rs71, a degrowth of 20% sequentially. During the quarter, the company expanded its pan-India store network by 9 stores (including conversion of 5 stores from FOFO to COCO) to 288 stores.

Management Guidance

Management stated that demand has shown signs of improvement post Q2FY25 however, company’s ASP would remain flattish for FY25 as company liquidates its non-BIS inventory. Management expects margins to be higher than FY24 but lower than the earlier guidance of 17-19% for FY25.

Our View

We believe CAMPUS will benefit from the rapid growth that is expected in S&A segment. However, owing to sluggish growth in H1FY25 & higher competitive intensity, we have revised our volume growth estimate for FY25 from 12% to 9%YoY. We reckon company should register volume growth of 11%CAGR over FY24-FY27E. We do not foresee any major improvement in ASP as company aims to liquidate its non-BIS inventory completely by FY25 end. However, ASP should normalize to Rs650/pair by FY26 onwards. Consequently, we expect a topline growth of 11%CAGR over FY24-FY27E. Furthermore, we expect margins to normalize to ~16% for FY26E & FY27E. Hence, EBITDA is expected to grow by 15%CAGR over similar period. At CMP, stock trades at a P/E(x) of 52x on FY27E EPS of 5.9. We continue to value the company at P/E(x) of 60x, arriving at a target price of Rs354. Hence, we maintain our ADD rating on the stock.

Result Highlights

* Revenue stood at Rs3.33Bn (5% below est), a growth of 29%YoY (low base) & remained flattish QoQ.

* EBITDA margins came in at 11.5% (Vs est of 15.5%), Vs 15.3% in previous quarter & 9.5% in Q2FY24. Absolute EBITDA stood at Rs382Mn, a growth of 56% (base impact) & decline of 26%QoQ.

* Net profit stood at Rs143Mn Vs Rs3Mn in Q2FY24 & a sequential decline of 44%.

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