Based on the conference call transcripts provided, here are the key takeaways:
For the conference call on February 14, 2023:
- Revenue for Q3 FY23 was Rs 466 crores, up 7.5% YoY. Trade distribution degrew 13.5% due to higher base and lower primary uptake. D2C channels grew 46% YoY.
- Volume for Q3 FY23 was 7 million pairs, up 6% YoY. ASP was Rs 669, up 1.5% YoY.
- EBITDA margin was 19.9% in Q3 FY23 vs 21.5% in Q3 FY22. The margin compression is due to consumption of higher priced raw materials.
- On a trailing 12-month basis, revenue increased 25% YoY to Rs 1,489 crores. TTM EBITDA grew 14% to Rs 278 crores.
For the conference call on May 30, 2023:
- Revenue for FY23 was Rs 1,484 crores, up 24% YoY. Trade distribution grew 10% and D2C grew 48%.
- Volume for FY23 was 23.5 million pairs, up 22% YoY. ASP was Rs 631, up 2% YoY.
- EBITDA margin for FY23 was 17.3% vs 20% in FY22. Margin compression due to investments in brand building, retail network expansion.
- Net profit for FY23 was Rs 117 crores with margin of 8% vs Rs 108 crores and 9% margin in FY22.
- Expect margin profile to improve in near term with price increases, cost optimization and operating leverage.
For the conference call on August 11, 2023:
- Revenue for Q1 FY24 grew 4.8% YoY to Rs 354 crores. Trade distribution degrew 5.5%, D2C grew 20% YoY.
- Volume for Q1 FY24 was 5.6 million pairs. ASP was Rs 629, up 4.1% YoY.
- Gross margin expanded from 36.6% in Q1 FY23 to 39.2% in Q1 FY24 due to favorable channel mix, product mix and sourcing efficiencies.
- EBITDA margin stood at 18.8% in Q1 FY24 vs 18.4% in Q1 FY23. Investments continued in brand building and network expansion.
- Expect growth to improve with festive season and recovery in Tier 2/3 cities. Margin expansion expected in coming quarters.
In summary, the key takeaways are:
- Strong revenue growth over the last few quarters, despite macro headwinds
- Focus on gaining market share even at the cost of some margin compression
- Investment in brand building, network expansion impacting margins in the near term
- Expect margins to recover with operating leverage and passing on of cost increases
- Premiumisation journey continues with higher ASP growth
- Expect growth momentum to pick up in second half with festive season and recovery in small towns
The company remains confident of getting back to its pre-IPO margin profile in the coming quarters, while maintaining healthy growth. Key monitorables are - recovery in small towns, festive season demand, raw material trends, impact of BIS implementation.
Questions & Answers
Q. What's Management's Commentary on Growth and Demand: Reasons for degrowth in trade distribution channel and market share dynamics. Growth trends across regions like North, South, East, West. Outlook on volume and ASP growth. Plans for pricing/discounting to drive volumes. Demand trends in trade channel and outlook. Growth trajectory guidance for next 4-5 years.
A. Based on the management's commentary in the last 3 earnings calls, here are the key points discussed regarding Campus Activewear's growth and demand outlook:
Trade Distribution Channel:
- Degrowth seen in trade channel mainly in North/East markets due to macro slowdown and high base effect
- Early signs of recovery visible in parts of UP/Bihar but full recovery expected with festive season
- No major loss in market share based on industry growth trends
Regional Growth Trends:
- South and West markets (emerging geographies) showing robust growth
- North and East markets (core geographies) impacted by slowdown in Tier 2/3 towns
- Growth trends aligning with industry in terms of regional contribution
Volume and ASP Outlook:
- Expect to maintain historical volume growth rate of 12-15% over medium term
- Taking measured approach to pricing and discounts to balance volumes and profitability
- Focus is on gaining market share through distribution expansion and brand building
- ASP to grow around 6-7% annually through premiumization and mix improvement
Demand Trends:
- Early signs of recovery in trade channel but festive season will determine full demand comeback
- D2C channel continues to grow steadily indicating brand strength
- H2FY24 expected to see demand pickup with good monsoon, macro recovery
Growth Trajectory:
- Confident of getting back to 20%+ revenue growth trajectory in the medium term
- Levers - distribution expansion, premiumization, portfolio expansion, retail footprint growth
- Long runway for growth with low penetration of branded sports/athleisure footwear
In summary, management is optimistic about demand recovery and remains focused on distribution expansion, gaining market share and delivering healthy long-term growth on the back of brand strength and industry tailwinds. Margin expansion is also expected with operating leverage.
Q. What's Management's commentary on Operations: Update on challenger brand launch. Measures being taken to improve working capital cycle. Contribution from North vs South vs East vs West regions. Impact of mandatory BIS certification. Plans for expanding distribution reach.
A. Here are the key points discussed by Campus Activewear's management regarding the company's operations based on the last 3 earnings calls:
Challenger Brand Launch:
- Pilot launch of value-focused challenger brand in sub-Rs1000 segment upcoming soon
- Will address portfolio gap without diluting Campus brand equity
- Extensive market testing being done currently, initial response encouraging
- Will be introduced across channels in a phased manner after piloting
Working Capital Optimization:
- Focus on tightening inventory levels across raw materials, WIP and finished goods
- Debtor days maintained at less than 40 despite slowdown
- Vendor financing and payment term optimization also underway
- Target to bring down working capital cycle from 130+ days to sub-100 days
Regional Contribution:
- North and Central India account for 55% of sales
- West, South and East contribute 20-25% each to sales
- Aligned with industry contribution mix across regions
- Emerging markets driving growth currently
BIS Certification Impact:
- Will restrict import of cheap and low-quality shoes from Jan 2024
- Organized players like Campus already comply with higher quality standards
- Expected to drive formalization and benefit compliant players
- Maintaining higher inventory to avoid transitional challenges
Distribution Expansion Plans:
- Focus on expanding reach in South, West and Central India
- Consolidating North and East distributors to improve wallet share
- Leveraging data analytics for retail mapping and outlet profiling
- Omnichannel distribution model being strengthened
In summary, the management is taking steps across supply chain, working capital, regulatory compliance, distribution footprint and product portfolio to strengthen operational capabilities and enable sustainable profitable growth.
Q. What's Management's commentary on Competition: Growth trends in D2C online and offline channels. Growth prospects and competitive landscape in South region.
A. Here are the key points discussed by Campus Activewear's management related to competitive landscape and growth trends based on the earnings calls:
D2C Channel Growth:
- D2C channels (online + offline) grew by 40%+ in recent quarters
- Online D2C growth driven by marketplaces and own website
- Offline D2C growth fueled by franchisee expansion in focus markets
- Omnichannel presence provides growth cushion against competition
- Plan to rapidly scale D2C presence across metro and Tier 1, 2 cities
Competition in South Region:
- Gaining steady market share in South region over the years
- Regional players like Lakhani, Paragon, Mochi pose tough competition
- Leveraging product Innovation, brand building to gain traction
- Focus on enhancing distribution reach and localized marketing
- Success of Emerging Market Strategy across South and West
Overall Competitive Landscape:
- Market is fragmented with regional brands and unorganized sector
- BIS implementation expected to drive consolidation
- Campus is competitively positioned through its brand appeal, omnichannel presence and integrated manufacturing
- Plan to defend leadership through continued product innovation and brand building
- Distribution expansion in under-penetrated markets also a key priority
In summary, the management aims to drive growth by rapidly scaling up D2C presence and tapping under-penetrated markets. Brand appeal, product range and marketing initiatives will be key differentiators against competition.
Q. What's Management's commentary on Growth outlook: What is the expected growth rate over next 3-5 years? Which markets and segments will drive this growth? What are the plans for expanding in Tier 2/3 cities and rural markets? How will you manage distribution? How will you compete with increasing competition from new D2C brands? Plans to defend market share?
A. Based on the management's commentary in the earnings calls, here are the key points on Campus Activewear's growth outlook:
Expected Growth Rate:
- Expect to maintain historical volume growth rate of 12-15% over next 3-5 years
- Revenue growth expected at 20%+ in medium term driven by distribution, premiumization
- Healthy growth anticipated with low penetration of sports/athleisure category
Growth Drivers:
- Tier 2/3/4 markets will be growth engines with increasing aspiration and disposable incomes
- Women's and kids segments provide huge headroom for growth
- Casual and sneakers range expansion to aid growth in focus categories
- South and West India emerging as high potential markets
Distribution Expansion Plans:
- Mapping high-potential rural clusters based on demographics and economic data
- Adopting hub-and-spoke model for distributing via rural multi-brand outlets
- Leveraging synergies with apparel brands for co-branded retail presence
- Building strong regional teams to drive activation and franchisee engagement
Competing with D2C Brands:
- Leveraging manufacturing edge and cost efficiencies to provide value
- Faster speed-to-market for newer designs and capitalizing on trends
- Investing in digital and social media capabilities to engage withGen Z and millenials
- Building an aspirational brand image through influencer marketing and events
- Focus on product innovation and consumer insights to differentiate
In summary, the management is betting on under-penetrated markets, segments, product categories and geographies to drive sustained high growth for Campus Activewear. Distribution expansion, brand building and product development will be the key strategic focus areas.
Q. What's Management's commentary on Profitability and cash flows: What will be the key drivers for margin expansion in the future? What cost optimization levers are available? What is the outlook on working capital requirements and cash conversion cycle? What is the dividend/capital allocation policy? Any plans for further capacity expansion? What is the CAPEX outlook for next 2-3 years?
A. Here are the key points discussed by Campus Activewear's management on profitability and cash flows based on the earnings calls:
Margin Expansion Drivers:
- Improved product mix towards premium and women's range
- Sourcing efficiencies through supplier consolidation and localization
- Operating leverage benefits as volumes pick up
- Rationalization of conversion costs and overheads
- Calibrated price increases to offset input cost inflation
Working Capital and Cash Flows:
- Aim to bring down working capital cycle from 130+ days to sub-100 days
- Will be driven by lower inventory days through better forecasting and restocking
- Debtor days expected to remain under control through disciplined channel management
- Cash profits to fund store expansion, brand building, capacity growth
- No dividend plans as surplus cash will be re-invested into growth currently
Capacity Expansion Plans:
- Existing capacities enough to support growth for next 12-18 months
- New facility commissioned in Paonta Sahib, will lead to 30%+ capacity expansion
- CAPEX to be around Rs. 60-70 crores annually for next 2 years
- Asset turns to improve with higher throughput and automation initiatives
In summary, levers such as product mix, sourcing efficiencies, costs control and price increases are expected to drive margin expansion along with operating leverage benefits. The focus will be on bringing down working capital cycle and improving cash flows to fund expansion plans.
Q. What's Management's commentary on Products and branding: What is the strategy for new product launches? Which are the focus categories and price points? Are there any plans to enter into new adjacent categories beyond footwear? How much budget will be allocated for marketing to support growth plans? Any shift in media mix?
A. Here are the key points discussed by Campus Activewear's management regarding products and branding:
New Product Strategy:
- Focus on expanding casuals and sneakers portfolio beyond sports shoes
- Launching new designs across focus categories like women's and kids regularly
- Addressing portfolio gaps in sub-Rs1000 segment via challenger brand introduction
- Using data analytics and consumer insights to identify priority segments and trends
- Speed-to-market for translating global footwear trends into India-relevant designs
Category Expansion Plans:
- Currently no plans for adjacencies beyond footwear like apparel or accessories
- Objective is to consolidate leadership in core footwear category
- Scope for peripheral products being evaluated in long term
Marketing Budget and Plans:
- Marketing budget stepped up from 3% to 6% of revenue in last 3 years
- Will continue to allocate around 6% of revenues towards marketing
- Digital and social media emerging as key platforms for youth engagement
- Leveraging influencer marketing and campus ambassadors to drive buzz
- Omnichannel campaigns during key seasons like festive and school reopening
In summary, the focus is on strengthening leadership in core categories through product innovation, faster go-to-market, and sharper consumer segmentation. Marketing investments aimed at youth engagement will continue to expand especially across digital channels.
Extra Highlights
Summary of performance and is there any scope of improvement in the future.
Based on the last 3 quarterly earnings conference call transcripts, here are some key observations on Campus Activewear's performance and outlook:
- Revenue Growth: The company has delivered steady revenue growth in the last 3 quarters, with 4.8% YoY growth in Q1 FY24, after 24% growth in FY23. However, growth slowed down compared to pre-pandemic levels due to macro headwinds.
- Margin Profile: Gross margins showed expansion in Q1 FY24 driven by favorable mix and sourcing efficiencies. However, EBITDA margins have been under pressure over the last few quarters due to higher input costs, inability to take price hikes and investments in brand building. Margins contracted from 20% in FY22 to 17.3% in FY23.
- Distribution Channel: The trade/MBO channel has seen degrowth in the last few quarters, especially in North/East markets. However, the decline rate has narrowed down indicating early signs of recovery. The D2C channel has consistently grown at 20%+ rate.
- Demand Trends: Demand slowdown was witnessed in Tier 2/3 towns and rural markets. Early signs of recovery are being seen in parts of UP/Bihar. Festive season will be crucial to see pickup in consumer demand.
- Raw Material Costs: Input cost inflation impacted margins over the last few quarters. Some correction is seen now leading to gross margin expansion. However, the environment remains volatile.
- Growth Outlook: The management has maintained its volume growth guidance of 12-15% over the medium term. Focus is on gaining market share even at the cost of margins in the near term.
In terms of improvement, the key factors to watch out for:
- Recovery in Tier 2/3 towns with good monsoon and festive season
- Abilty to take price hikes with correction in input costs
- Operating leverage kicking in with revenue growth recovery
- Impact of BIS implementation in curbing cheap imports
- Continued growth momentum in D2C and premiumization
The company is optimistic of getting back to 18-20% EBITDA margin range in the medium term, while maintaining healthy double-digit revenue growth, aided by the drivers mentioned above. Execution will be key.
Business Model
Based on the information provided in the earnings call transcripts, here are some key aspects about Campus Activewear's business model:
- Product Portfolio: Campus is focused on sports and athleisure footwear, with a portfolio of shoes, sneakers and casual shoes for men, women and kids. It has over 600 design variants.
- Manufacturing: Campus has a vertically integrated manufacturing setup with facilities in India. This provides better cost control and ability to scale up capacities.
- Distribution Network: Campus sells through both distribution channel (multi-brand outlets) as well as direct to consumer (own stores, online). Distribution accounts for over 50% of revenues.
- Pricing: Campus operates in the mid-premium segment, with 70% of products priced above Rs 1000. It takes periodic price hikes to pass on input cost inflation.
- Sourcing: Campus sources raw materials and components from India and imports less than 15% of its requirements. This insulates it from major forex fluctuations.
- Target Consumer: Campus is targeted at youth and college students in the age group of 18-34 years belonging to middle class and upper middle class families.
- Marketing: Campus focuses on digital and social media marketing to build brand awareness. It spends 5-6% of its revenue on brand building.
- Growth Strategies: Campus aims to drive growth through product launches, expanding distribution reach, growing its D2C presence, entering new geographies beyond Tier 1 cities, and gaining market share.
- Financials: Campus has delivered strong revenue growth historically. It aims to maintain EBITDA margins around 18-20% range. Focus is on maintaining healthy cash flows.
In summary, Campus Activewear follows an integrated manufacturing and distribution led business model focused on the value conscious youth segment in India. The company aims to drive growth through brand building and deep distribution.
Some of the major competitors for Campus Activewear in the sports and athleisure footwear
Based on the information in the transcripts, some of the major competitors for Campus Activewear in the sports and athleisure footwear segment include:
- International Brands: Major global brands like Nike, Adidas, Puma, Reebok, Skechers etc. These brands compete in the premium end of the market.
- Indian Brands: Some key Indian competitors are Bata, Liberty, Relaxo, Lakhani, Paragon, Action etc. These compete across price segments.
- Regional Brands: There are several strong regional brands that pose competition especially in Tier 2/3 cities and rural markets. The transcripts mentioned brands like Starwalk.
- Private Labels: Private label brands of large retail chains like Metro, Mochi, Regal etc. also present competition in lower price segments.
- Unorganized Sector: Cheap imports and unbranded players make up 50% of the market. They compete mainly in sub-Rs 1000 segment.
In terms of positioning, Campus competes with brands like Lakhani, Relaxo, Action in the economy/value segments while competing with Paragon, Bata, Liberty in premium segments. Against international brands, it competes on value proposition.
The competitive landscape is quite fragmented with a long tail of regional and unorganized players. Consolidation and shift towards organized segment is expected with BIS implementation. Campus' scale, manufacturing advantage and brand focus positions it well to compete across segments. Execution of strategies will be key for future growth amid competition.
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