Buy Campus Activewear Ltd for the Target Rs. 330 by Motilal Oswal Financial Services Ltd
Good 4Q; growth led by both volume and ASP increase
* Campus Activewear (Campus) delivered a healthy 12% YoY revenue growth, led by 8% increase in volumes and higher ASPs, supported by price hikes in open footwear and increased outright sales online.
* EBITDA grew 12% YoY (7% beat), with margins stable at 17.6%, as increased A&P investments offsets better gross margin (+185bp YoY).
* Campus delivered a 10% YoY revenue growth in FY25, with EBITDA rising 16% YoY, driven by a 70bp margin expansion. This was achieved despite lower ASPs and the impact of non-BIS inventory liquidation, as FY24 was impacted by one-off provisions on inventory and receivables.
* Management indicated that while demand trends improved slightly, they remained subdued; however, Campus was able to grow its market share. With an improvement in the demand environment, the company expects to return to mid-teen growth and deliver margins within the guided range (17-19%).
* We raise our FY26-27E earnings by 5-10%, driven by higher volume growth and EBITDA margin expansion to ~19% by FY27.
* We build in a CAGR of 15%/28%/35% in revenue/EBITDA/PAT over FY25- 27. We reiterate our BUY rating with a TP of INR330, premised on 45x Mar’27 P/E.
Revenue up 12% YoY; 7% beat on EBITDA (+12% YoY)
* Revenue grew 12% YoY (vs. 9% YoY in 3Q) to INR4.1b (3% beat).
* Comparatively, Relaxo’s 4Q revenue declined ~7% YoY.
* Campus’ volume grew ~8% YoY to 6.2m pairs (-10% YoY for Relaxo).
* ASP inched up ~3% YoY to INR658, driven by price hikes in open footwear and higher outright sales through the online channel.
* Gross profit was up 16% YoY to INR2.1b (6% beat).
* Gross Margin (GM) expanded 185bp YoY to 51.7% (175bp beat).
* On the other hand, Relaxo’s GM contracted ~535bp YoY.
* Other expenses rose 19% YoY (9% ahead), driven by higher A&P spends, while employee costs increased 12% YoY (4% below).
* EBITDA rose 12% YoY to INR715m (7% beat), led by higher revenue and better gross margin.
* EBITDA margin was broadly stable YoY at 17.6% (70bp beat), as the higher GM was partly offset by higher expenses.
* D&A rose 22% YoY, while finance costs increased 58% YoY.
* As a result, PAT increased 7% YoY to INR350m (5% miss). PAT margin came in at 8.6% (-35bp YoY).
FY25 review: Growth rebounds to double digit; EBITDA margin expands
* Revenue grew ~10% YoY to INR15.9b (on a low base, -2% YoY in FY24).
* Gross profit also grew 10% YoY to INR8.3b, as gross margin contracted ~20bp YoY to 51.8%.
* EBITDA at INR2.4b grew 16% YoY, as margin expanded ~70bp YoY to 15.3%.
* Reported PAT grew 35% YoY to INR1.2b (on a low base, -24% YoY in FY24).
* Net Working Capital (NWC) days improved to 69 in FY25 (from 79 in FY24), driven mainly by reduction in inventory days (87 vs. 100 YoY).
* FY25 OCF (post interest and leases) stood at INR1.9b (vs. INR2.2b YoY) and FCF (post interest and leases) came in at INR1.35b (vs. INR1.7b YoY).
* Campus declared a dividend of INR1/share for FY25.
Key takeaways from the management commentary
* Demand trends: Demand trends remained mixed across regions. North, East, and West regions experienced healthy demand growth, while South and Central India remained flattish. Metros and Tier 1 cities faced a slight dip in salience during 4Q, whereas Tier 2, Tier 3, and rural markets demonstrated better resilience. Overall demand improved but industry growth was still not in line with expectations. Management believes the company was able to increase its market share and anticipates this positive momentum to continue.
* ASP: The increase in ASP in 4QFY25 was driven by price hikes in open footwear and higher outright sales in the online segment. For FY25, ASP was lower due to the higher sale of accessories and higher salience of open footwear (~100bp increase YoY to 15.2%).
* Margins: Management continues to aim for 17-19% EBITDA margin over the medium term. New product development is seen as the biggest driver of margin expansion as overheads are fairly under control.
* A&P spends: Ad spends rose to INR1.3b (8.4% of sales) in FY25, with an additional INR100m jump in 4Q driven by brand and performance marketing. Management expects A&P spends to remain at ~8.5% of sales in FY26.
Valuation and view
* Campus’ innovative designs, color combinations, and attractive price points make it a market leader in the fast-growing Sports and Athleisure (S&A) category.
* We expect Campus to rebound to mid-teens growth with an improvement in consumer sentiment and gradual overall demand revival. BIS-led tailwinds and stabilization in the D2C online channel are likely to support Campus’ margin recovery.
* We raise our FY26-27E earnings by 5-10%, driven by higher volume growth and EBITDA margin expansion to ~19% by FY27.
* We build in a CAGR of 15%/28%/35% in revenue/EBITDA/PAT over FY25-27. We reiterate our BUY rating with a TP of INR330 (earlier INR300), premised on 45x Mar’27 P/E.
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