Expanding Product Portfolio With New SKUs In Women's Category Will Broaden Customer Base

Key Takeaways

• Aggressive market expansion and a bolstered online presence are set to increase sales and capture a larger market share.
  
• Expanded product portfolio and improved manufacturing efficiency may boost margins and profitability through better cost management and customer alignment.
  
• Decreased gross margin, inventory challenges, and subdued demand amidst intense competition could hinder Campus Activewear's profitability, revenue growth, and market share acquisition.

Catalysts

Engages in the manufacture, trading, distribution, and sale of sports and athleisure footwear and accessories for men, women, and kids and children in India and internationally.

• Campus Activewear's strategic focus on expanding reach in key markets, particularly through aggressive distribution and online sales, is expected to drive revenue growth. The company's foray into southern markets and bolstering its online presence are poised to capture a larger market share and increase overall sales.
  
• The expanding product portfolio, including the introduction of new SKUs, particularly in the women's category, is likely to enhance the product mix. This indicates potential for increased revenue and improved net margins as the company caters to a broader customer base.
  
• Campus Activewear's execution of a data-driven strategy allows it to adapt to evolving consumer preferences, potentially stabilizing net margins by ensuring the product offerings align closely with consumer demands.
  
• Completion of capital expenditures on new manufacturing facilities in Gannaur and Haridwar is anticipated to enhance production efficiency and capacity, potentially boosting operating margins and earnings through cost advantages and increased output.
  
• The company's ability to manage working capital effectively, evidenced by improved EBITDA margins and lower inventory provisioning, reflects better financial health. This could lead to increased earnings and stronger net margins as operational efficiencies enhance profitability.

Campus Activewear Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Campus Activewear's revenue will grow by 13.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from 7.7% today to 10.2% in 3 years time.
• Analysts expect earnings to reach ₹2.3 billion (and earnings per share of ₹7.59) by about May 2028, up from ₹1.2 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 62.4x on those 2028 earnings, up from 62.3x today. This future PE is greater than the current PE for the IN Luxury industry at 23.4x.
• Analysts expect the number of shares outstanding to grow by 0.15% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 14.8%, as per the Simply Wall St company report.

Campus Activewear Future Earnings Per Share Growth

Risks

• The company's gross margin decreased due to raw material price inflation, impacting profitability as costs rise without being fully passed on to consumers. This can affect net margins and earnings.
  
• ASP (Average Selling Price) has dropped by 1% year-on-year, indicating price sensitivity in the market and a challenge to premiumize, potentially impacting revenue and profitability.
  
• There are concerns about the liquidation of non-moving BIS inventory, which has adversely affected margins. This inventory issue could continue to impact profitability until fully resolved.
  
• The competitive landscape remains intense with potential normalcy not yet fully established, which could challenge Campus Activewear's ability to secure market share and grow revenue.
  
• Demand remains somewhat subdued and not fully normalized, with uncertainties around achieving double-digit growth consistently. This could impact revenue growth and investor expectations.

Valuation

• The analysts have a consensus price target of ₹312.875 for Campus Activewear based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₹390.0, and the most bearish reporting a price target of just ₹256.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹22.8 billion, earnings will come to ₹2.3 billion, and it would be trading on a PE ratio of 62.4x, assuming you use a discount rate of 14.8%.
• Given the current share price of ₹242.68, the analyst price target of ₹312.88 is 22.4% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.