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Review By Dilip Davda on April 21, 2022

•    CAL enjoys a virtual monopoly in the branded sports and athleisure footwear segment. 
•    It witnessed setbacks for FY21 for one-time adjustment of amortization and pandemic.
•    It is now back on track with bright prospects ahead with rising market share. 
•    CAL is set to post new milestones in the coming years with its ongoing plans.
•    Though the prima facie issue appears fully priced, it is a worthy bet for the short to long term.

ABOUT COMPANY:
Campus Activewear Ltd. (CAL) is the largest sports and athleisure footwear brand in India in terms of value and volume in Fiscal 2021. (Source: Technopak Report). The company introduced its brand 'CAMPUS' in 2005 and is a lifestyle-oriented sport and athleisure footwear company that offers a diverse product portfolio for the entire family. CAL offers multiple choices across styles, colour palettes, price points and an attractive product value proposition.

Its strength in the Indian sports and athleisure footwear landscape is demonstrated on account of the following (Source: Technopak Report):
1.    It is the largest sports and athleisure footwear brand in India, both in terms of value and volume in Fiscal 2021.
2.    It is the fastest growing scaled sports and athleisure footwear brand (scaled brands being brands with over Rs. 2 billion of revenue in Fiscal 2019) in India over Fiscal 2019 to Fiscal 2021.
3.    It has an approx. market share of 15% in branded products in the industry.
4.    It currently enjoys a 17% market share in branded sports and athleisure footwear industry in India. 
5.    The only Indian brand in space to compete with dominating international brands.
6.    It covers over 85% of the total addressable market for sports and athleisure footwear in India. 

CAL aims to emerge as the most preferred sports and athleisure brand in India touching the daily active lifestyle of every Indian. 

CAL owns and operates five manufacturing facilities across India with an installed annual capacity for assembly of 28.80 million pairs as of December 31, 2021. It had 57 COCOs and 28 franchisees on the same date. It has also launched EBOs in select geographies in India, with an intent to "premiumize" products across the trade distribution network.

As of December 31, 2021, the Company had 784 employees. Besides these, the company has engaged over 80 independent labour contractors from whom, it keeps getting the required labour force for its operations.

ISSUE DETAILS/CAPITAL HISTORY:
To avail benefits of listing and providing exit to some of its PE investors, CAL is coming out with a maiden IPO of 47950000 equity shares of Rs. 5 each via book building route to mobilize Rs. 1400.14 cr. at the upper price band. The company has fixed the price band of Rs. 278 to Rs. 292 for shares having a face value of Rs. 5 per share. It is a pure secondary offer i.e. Offer for Sale. The issue opens for subscription on April 26, 2022, and will close on April 28, 2022. The minimum application to be made is for 51 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. The issue constitutes 15.76% of the post issue paid-up capital of the company. The company has reserved 200000 shares (0.07%) for its eligible employees and offering them a discount of Rs. 27 per share. From the residual portion, it has allocated 50% for QIBs, 15% for HNIs and 35% for retail investors. 

The joint Book Running Lead Managers to this offer are JM Financial Ltd., BofA Securities India Ltd., CLSA India Pvt. Ltd. and Kotak Mahindra Capital Co. Ltd. and Link Intime India Pvt. Ltd. is the registrar to the issue. 

Having issued initial equity at par, the company issued further equity in the price range of Rs. 54.635 to Rs. 84250.00 per share (on the basis of FV - Rs. 5) between September 2017 and October 2021. It also issued bonus shares in the ratio of 3082 for 1 (with FV of Rs. 5 as it issued bonus shares in the ratio of 1541 for 1 for Rs. 10 paid-up shares) in September 2019. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. NA, Rs. 0.00, Rs. 54.64 and Rs. 55.90 per share. 

Since this is a pure secondary offer, CAL's current paid-up equity capital of Rs. 152.16 cr. will remain the same. Based on the upper cap of IPO pricing, the company is looking for a market cap of Rs. 8886.32 cr.

FINANCIAL PERFORMANCE: 
On the financial performance front, for the last three fiscals, CAL has (on a consolidated basis) posted turnover/net profits of Rs. 596.70 cr. / Rs. 38.60 cr. (FY19), Rs. 734.12 cr. / Rs. 62.37 cr. (FY20) and Rs. 715.08 cr. / Rs. 26.86 cr. (FY21). For the 9 months of FY22 ended on December 31, 2021, it has earned a net profit of Rs. 84.80 cr. on a turnover of Rs. 843.95 cr. 

According to the management, it suffered a setback in its margins for FY21 on account of adjustments for depreciation, deferred tax and amortization as a one-time expense as well as pandemic. It incurred higher staff welfare with payments during no production for nearly five months during COVID. Now it is back on track and poised for bright prospects with rising demands for its products in Tier I and major metros. 

For the last three fiscals, it has posted an average EPS of Rs. 1.34 and an average RoNW of 14.68%. The issue is priced at a P/BV of 22.03 (at the upper cap) based on its NAV of Rs. 13.25 as of December 31, 2021, and also post issue NAV.

If we annualize FY22 earnings and attribute it to post IPO fully diluted equity, then the asking price is at a P/E of 78.49. 

COMPARISON WITH LISTED PEERS:
As per offer documents, CAL has shown Bata India and Relaxo as its listed peers. They are currently trading at a P/E of 366.72 and 101.65 (as of April 21, 2022). However, they are not truly comparable on an apple-to-apple basis. 

DIVIDEND POLICY:
The company has not declared any dividends for the reported periods of the offer documents. It will adopt a prudent dividend policy based on its financial performance and future prospects. 

MERCHANT BANKERS' TRACK RECORDS:
Track records for the four BRLMs associated with this issue are as under:

1.    This is the 26th mandate from JM Financial in the last three fiscals including the ongoing one. All the last 10 listings opened at a premium ranging from 0.05% to 79.38% on the day of listings.
2.    This is the 9th mandate from BofA Securities in the last three fiscals including the ongoing one. Out of the last 8 listings, 3 opened at discount and the rest with a premium ranging from 0.04% to 79.38% on the day of listings. 
3.    This is the 5th mandate from CLSA India in the last three fiscals including the ongoing one. Out of the last four listings, 2 opened at discount and the rest with premiums ranging from 56.56% to 87.50% on the day of listings.
4.    This is the 26th mandate from Kotak Mahindra Capital in the last three fiscals including the ongoing one. Out of the last 10 listings, 4 opened at discount and the rest with premiums ranging from 0.04% to 79.38% on the day of listings. 

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