IPO Size: Rs. 1,400 cr – Entirely OFS

• 60% of OFS by PE fund TPG (17% stake to reduce to 8%)
• 26% by Promoter (78% to drop to 74% post OFS)
• 13% by Investor QRG Enterprises, promoter of Havells (halving 4% stake)

Price band: Rs. 278-292 per share

M cap: Rs. 8,890 cr, implying 16% dilution

IPO Date: Tue 26^th Apr to Thu 28^th Apr 2022, Listing 9^th May 2022

Grey Market Premium (GMP): We are strongly against ‘grey market premium’ as it is an unofficial figure, against SEBI guidelines.

Company Overview

Campus is India’s largest sports footwear brand, with 17% value market share in FY21. 60% revenue is generated through traditional channel of 425 distribution, directly servicing 19,200 pan-India retailers (majorly in tier 2/3 towns) while 5% revenue comes from company’s 85 exclusive brand outlets (EBOs).

Healthy Revenue Growth

One-third of 9MFY22’s Rs. 842 cr revenue was generated through online direct to consumer (D2C) channel, comprising marketplaces like Flipkart and Myntra, brand website etc. Company has clubbed sales on B2B platform Udaan under D2C which is infact wholesale trade.

Up from barely Rs. 17 cr revenue in FY19, online D2C clocked Rs. 272 cr revenue in 9MFY22, its share surging to 32% of revenue, from hardly 3% in FY19. This has been company’s biggest strength, catapulting it as a strong online D2C brand and 9MFY22 revenue of Rs. 842 cr surpassed FY21’s Rs. 711 cr as well as FY20’s Rs. 732 cr revenue.

Expanding Margins

EBITDA margin rose from 17% in FY19 to 19% in FY20 and to 19.6% in 9MFY22, with net margin also expanding to 10% from 8.5% (FY20) and 6.5% (FY19), as online D2C fetches better margin than traditional distribution channel. PAT for 9MFY22 stood at Rs. 85 cr, translating into an EPS of Rs. 2.8 over Re. 0.9 for FY21, Rs. 2.1 for FY20 and Rs. 1.3 for FY19.

High Growth Visibility

1. New products account for 50-60% of revenue and company is moving towards premiumisation, primarily through online D2C and EBO channel, with average selling price up 13% in 9MFY22 to Rs. 615 from FY21’s Rs. 546.
2. Company does not need growth capital, as despite in-house manufacturing, current capacity utilisation is ~60%. It generates ~Rs.125 cr cash annually which can support future capex, if required.

Concern:

Unlike consumer brands, company’s business model is not asset-light, due to 100% in-housing assembly at manufacturing plants, in addition to high working capital (3 months inventory + 1.5 months debtors) which also explains the reason for Rs. 174 cr outstanding debt, against Rs. 200 cr net fixed assets (debt equity ratio of 0.4:1).

On the contrary, most peers like Relaxo, Bata, Metro are cash rich. Moreover, in-house assembly is not yielding significant cost advantage as Campus’ gross margin of 48-50% is lower than 50-57% gross margin of Bata, Metro and Relaxo.

Growth Justifies Pricing

Based on FY22E earnings, the IPO is priced at a PE multiple of 79x, but on FY23E basis, PE multiple is at about 61x, which is the lowest among peers – Relaxo (90x), Bata (80x), Metro (62x). Even the revenue multiple of about 8x (FY22E) and 6.5x (FY23E) is lower than peer range of 8-10x. RoCE and RoE of 22-25%, more on the lines of a retail business and not consumer brand, is nevertheless healthy.