Campus Activewear Limited — Q3 FY25 earnings call

Call held 11 Feb 2025

Management summary

Campus Activewear reported a strong Q3 FY25 with record revenues of ₹515 crores, up 9.1% YoY, and significant EBITDA and PAT margin expansion. Growth was fueled by strategic distribution, online sales, and a booming sneaker category. While gross margins faced slight pressure from raw material inflation and inventory liquidation, the company remains confident in its strategic initiatives and future growth trajectory, aiming for 17-19% EBITDA margins.

Highlights

  • Achieved highest ever quarterly revenues of ₹514.8 crores, reflecting a 9.1% Y-o-Y growth, driven by aggressive distribution and high online sales.

  • EBITDA margin expanded significantly by 440 bps Y-o-Y to 16.6%, primarily due to improved debtor and inventory health.

  • PAT grew robustly by 86.7% Y-o-Y to ₹46.5 crore, with PAT margins expanding by 370 bps to 9%.

  • Strong growth momentum in the sneaker category (116%) and online channel (11%), alongside the addition of 6 new stores.

  • Successfully strengthened product portfolio with 69 new articles and new SKUs for women, improving product mix.

Concerns

  • Gross margin for the quarter was marginally lower at 51.2% (vs 51.4% in Q3 FY24), primarily due to raw material price inflation and adverse mix.

  • Liquidation of non-moving BIS inventory impacted gross margin by 20-40 bps, though expected to be non-significant by March end.

Key financials

  1. Revenue ₹515 Cr +9.1%YoY
  2. Gross Margin 51.2%
  3. EBITDA ₹85.9 Cr
  4. EBITDA Margin 16.6%
  5. PAT ₹46.5 Cr +86.7%YoY
  6. PAT Margin 9%
  7. Volume (Pairs) 7.6 Mn +10%YoY
  8. Average Selling Price ₹675 -1%YoY
  9. Footwear ASP ₹683 0%YoY
  10. ROCE 22.1%
  11. ROE 17.5%

What they filed

Q1 FY27: revenue up 12.2%, net profit up 18.2% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue333 515 406 343 387 +16%589 +14%456 +12%385 +12%
EBITDA38 82 71 49 50 +32%110 +34%82 +15%55 +12%
Net profit14 46 35 22 20 +43%64 +39%44 +26%26 +18%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Capital allocation

medium confidence
  • Capex Capex disclosed
    • Completion of sole manufacturing unit at Gannaur
    • Completion of Haridwar facility for manufacturing uppers
    The CAPEX for the sole manufacturing unit at our Gannaur facility was completed in Q3 FY25. Furthermore, we anticipate the completion of our Haridwar facility dedicated for manufacturing state of the art uppers in Q4 FY25 with commercial production projected to commence from March 2025.
  • Debt Debt disclosed
    EBITDA to PAT conversion has also significantly gone up as we have become debt free.
  • Dividend ₹0.7/share (interim) Payout ratio 25%
    Sir regarding the dividend, you have first time announced a dividend of INR 0.70 but the percentage shows around 20% to 25%. So, this could be the only dividend or there could also be a final dividend also apart and if you can also highlight the dividend payment policy going ahead as well? ... Not really, we have done about close to 25% at this point for YTD, but totally depends on the board.

Guidance & targets

Profitability

  • EBITDA Margin Profitability · Full Year · High confidence 17-19%
    Absolutely Ali, 17% to 19% is what we are aspiring for.

    — Nikhil Aggarwal, Whole Time Director and CEO

Advertising & Promotion

  • A&P Spend as % of Sales Advertising & Promotion · Full Year · High confidence 7-7.5%
    So our overall numbers for the year will be trending in a similar range, like 7% - 7.5% is what we have been trending at, and we don't see any increase in A&P spend for the entire year.

    — Nikhil Aggarwal, Whole Time Director and CEO

Inventory

  • Non-BIS Inventory Liquidation Inventory · by March end · High confidence Non-significant
    So we do expect that by March end we should be sitting on a non-significant non-BIS inventory.

    — Nikhil Aggarwal, Whole Time Director and CEO

Employee Cost

  • Employee Cost Employee Cost · Short to medium term · High confidence No significant addition
    So, we don't anticipate any significant addition to the employee either head count or the cost overall.

    — Nikhil Aggarwal, Whole Time Director and CEO

Capacity

  • Sneaker Capacity Addition Capacity · High confidence 2.4 million pairs
    We would be adding around 2.4 million pairs of sneaker capacity through our Haridwar new unit.

    — Sanjay Chhabra, CFO

Retail Expansion

  • EBO Additions Retail Expansion · in the year · High confidence 40-50 stores
    So, we did add around six stores in this quarter, but our strategy would continue to be 40 to 50 stores addition in the year.

    — Sanjay Chhabra, CFO

Pricing

  • Price Hike Pricing · last quarter · Medium confidence 7-10%
    So, we have taken a price hike of anywhere between 7% to 10% in select product categories which are less price sensitive.

    — Sanjay Chhabra, CFO

What to watch in Q4 FY25

Non-BIS Inventory Liquidation

by March end
Current Impacting gross margin by 20-40 bps
Target Non-significant

Why it matters

Successful liquidation will remove a drag on gross margins and improve working capital efficiency.

From next year, we see the margins normalizing as we intend to liquidate majority of our non-BIS inventory within by March end. ... So we do expect that by March end we should be sitting on a non-significant non-BIS inventory.

Risks & concerns

  • Raw material price inflation

    medium

    Raw material price inflation led to a marginal drop in gross margin by 20 bps Y-o-Y.

    Management acknowledged

  • Challenging macro environment

    medium

    Management noted that the macro environment is still challenging, and demand is not yet 'absolutely normal'.

    Management acknowledged

  • Non-moving BIS inventory liquidation

    low

    Liquidation of non-moving BIS inventory impacted gross margin by 20-40 bps, but is expected to be non-significant by March end.

    Management acknowledged

Q&A highlights

6 direct
Gross Margin Decline and BIS Inventory Impact Direct
So as far as the BIS inventory liquidation is concerned, that impact is in the range of anywhere between 20 to 40 bps, depending on in the last three quarters. So, it varies depending on article-to-article. But as I said, that on a regular basis it's 50 bps. So, it's a combination of the mix the non-BIS component and the raw material price increases which we have not been able to pass on.

Analysts sought clarification on the reasons for gross margin decline, specifically the impact of raw material inflation and the liquidation of non-BIS inventory, which management quantified.

Asked by Gaurav Jogani

A&P Spend Outlook Direct
So our overall numbers for the year will be trending in a similar range, like 7% - 7.5% is what we have been trending at, and we don't see any increase in A&P spend for the entire year.

Analysts inquired about advertising expenses, and management provided clear guidance on the expected full-year percentage and flat absolute spend.

Asked by Gaurav Jogani

Employee Cost Trajectory Direct
So, we don't anticipate any significant addition to the employee either head count or the cost overall. We did, we have been investing ahead of the curve in terms of the employee count, and we believe that with volume like what we have seen in quarter three, with good volumes even going forward we should be able to bring down the employee cost as a percentage.

Analysts questioned the future trend of employee costs, and management clarified that no significant additions are expected, with costs potentially decreasing as a percentage of sales.

Asked by Gaurav Jogani

Discrepancy in Guidance vs. Performance Partial
We never said that those guidance's were for FY25. We have always maintained that the company is on good track to get to these numbers and we have been showing improvement quarter-on-quarter to get to these guidance's numbers.

An analyst challenged management on not meeting prior guidance for revenue growth, ASP, and EBITDA margins, prompting management to clarify the timeframe and ongoing progress towards those aspirations.

Asked by Priyank Chheda

Strategy for Women, Kids, and South Markets Direct
The focus very much remains on the growth levers we have called out repeatedly which is women, kids is certainly a big growth lever. And there has been an increase significant focus, in terms of increasing the pipeline of designs, the overall SKU account that we offer within these two categories has significantly gone up.

Analysts sought specific strategies for key growth segments, and management detailed efforts in product development and market penetration.

Asked by Priyank Chheda

Sneaker Capacity Expansion Direct
We would be adding around 2.4 million pairs of sneaker capacity through our Haridwar new unit. Currently we are under 10% in terms of volume share, and with the new capacity addition, we definitely expect to ramp up further.

An analyst inquired about sneaker market opportunity and capacity, leading to the disclosure of significant new capacity addition plans.

Asked by Priyank Chheda

Demand Environment and Premiumization Partial
But what I can tell you is that, the demand is not like absolutely normal in terms of how it used to be let say two years ago, or three years ago rather. It is certainly an improvement from last year in Q3 as well and Q4 also. But I don't know if the demand is, we can call it absolutely normalized demand. So, there is still some pain in the market.

An analyst probed the current demand environment, especially for premium products, and management provided a nuanced view of ongoing market challenges despite year-on-year improvement.

Asked by Aditya Ketan

O2O and B2B Channel Evolution Direct
So, this 020 was something one and a half years back when some of the players wanted to players like Udaan and Ajio wanted to get into an online retail sort of business, or cater to the last leg of the retailers. And these channels suddenly show disproportionate growth, and then, let's say after a year or so, they scaled down because of the profitability issues, and it was just a cannibalization, these channels started catering to some of the distribution business, and when they were out of business, again the volume shifted back to the normal pockets of distribution online.

An analyst asked about past issues and current status of O2O and B2B channels, revealing how the company adapted to changes in online retail models and resolved channel conflicts.

Asked by Resha Mehta

3 min read 7 chapters

Detailed narrative

Q3 FY25 Performance Highlights

Campus Activewear reported its highest ever quarterly revenues of ₹514.8 crores in Q3 FY25, marking a 9.1% year-on-year growth. This performance was largely driven by an aggressive distribution strategy and strong online sales, benefiting from the festive season. The company sold approximately 7.6 million pairs, a 10% increase year-on-year, with an average selling price of ₹675 per pair, down 1% year-on-year, while footwear ASP remained flat at ₹683 per pair.

Margin Dynamics and Raw Material Impact

The gross margin for the quarter stood at 51.2%, a marginal decrease of 20 basis points compared to Q3 FY24, primarily due to raw material price inflation and an adverse product mix. However, the EBITDA margin expanded significantly by 440 basis points year-on-year to 16.6%, reaching ₹85.9 crore. This expansion was attributed to improved debtor and inventory health, leading to lower provisioning and better working capital management. PAT grew by 86.7% year-on-year to ₹46.5 crore, with PAT margins expanding by 370 basis points to 9%.

Strategic Initiatives and Market Share Gains

The company's strategic focus on multiple initiatives, including reach expansion in key markets and a multimedia marketing campaign featuring brand ambassador Vicky Kaushal, contributed to market share gains. The sneaker category demonstrated exceptional growth of 116% year-on-year. Campus Activewear also strengthened its product portfolio by launching 69 new articles and new SKUs for women, catering to diverse consumer needs and improving the product mix.

Capital Expenditure and Manufacturing Expansion

Campus Activewear completed the CAPEX for its sole manufacturing unit at Gannaur in Q3 FY25. Furthermore, the Haridwar facility, dedicated to manufacturing state-of-the-art uppers, is expected to be completed in Q4 FY25, with commercial production projected to commence from March 2025. This expansion will add approximately 2.4 million pairs of sneaker capacity, supporting the company's growth aspirations in this category.

Distribution and Online Channel Performance

The company continued its distribution drive, achieving a 9% growth in distribution and an 11% growth in online sales. Six new Exclusive Brand Outlets (EBOs) were added during the quarter, bringing the total count to 290. The company also expanded its presence on Zepto, a quick commerce platform, to enhance prompt delivery convenience for customers. Management noted that distribution inventories are healthy, around 80-90 days pan-India, with no significant push sales.

Outlook and Guidance Clarification

Management reiterated its aspiration for 17-19% EBITDA margins for the full year, emphasizing continuous quarter-on-quarter improvement. While prior guidance for mid-teen revenue growth and flat ASP was not explicitly for FY25, the company aims to achieve these targets through premiumization, especially with the growing sneaker portfolio. Advertising and promotion (A&P) spends are expected to trend at 7-7.5% of sales for the year, with no absolute increase. The majority of non-BIS inventory is expected to be liquidated by March end, and no significant additions to employee headcount are anticipated.

Competitive Landscape and Demand Environment

Management believes the competitive intensity peaked last year and sees some normalization, though the macro environment remains challenging. Demand is not yet 'absolutely normal' compared to two to three years ago, but it has shown improvement year-on-year. The company has taken selective price increases of 7-10% in less price-sensitive categories to mitigate raw material inflation. Campus Activewear has outperformed in key states across North, West, Central, and East regions, indicating market share gains.

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