Buy Campus Activewear for Target price ₹335 recommends SMIFS

[Ravi]

Campus Activewear delivered a muted Q1FY26 performance, broadly below our expectations. Revenue grew 1.2% YoY to Rs3,433mn, supported by a 14.5% increase in ASP to Rs671, offset by an 11.7% decline in volumes. The ASP improvement was driven by pricing actions and favourable product mix. In Q1 Campus consolidated its three warehouses into a modern 300k-pair/day facility, causing a temporary dip in online sales but is expected to boost fulfilment speed, stock accuracy and working capital efficiency in coming quarters. While the macroeconomic environment remains challenging; Campus’s calibrated approach to marketing, adding more touchpoints, new launches and price hike will help market share gains. We expect volume growth of ~10% CAGR over FY25–27E, supported by expanded reach, ramp up of new Haridwar facility and product innovation. Operating leverage and margin discipline are likely to drive EBITDA margin expansion to ~17% by FY27E, in line with the company’s medium-term guidance of 17–19%. We project 19%/24% EBITDA/PAT CAGR over FY25–27E, underpinned by double-digit revenue growth and improving cost structure. We maintain our BUY rating on the stock, valuing it at 55x March FY27E EPS of Rs 6.1, leading to a target price of Rs 335, implying an upside of ~28%.

ASP & Gross margin expands, yet PAT dips

▪ The company sold 5.11mn pairs in Q1FY26, down 11.7% YoY from 5.79mn pairs in Q1FY25, but expects recovery in the coming quarters driven by new product launches, BIS implementation benefits, and network expansion.

▪ ASP increased 14.5% YoY to Rs671 due to a higher share of premium sneakers and sports shoes and a lower share of lower-priced school shoes, sandals, and slippers.

▪ The company launched over 50 new designs in Q1FY26 and expects further category growth in FY26.

▪ Secondary sales showed healthy traction, with distribution channel revenue growing 8.6% YoY and the South region delivering positive YoY growth; distribution channel share increased to 55.6% from 52% YoY on the back of deeper Tier-2/3 penetration.

▪ The retail footprint expanded to over 27,300 touchpoints, with 290+ exclusive brand outlets (EBOs), while the Large Format Store channel continued to scale with a focus on higher throughput stores. The company hosted its largest-ever distributor meet during the quarter, further strengthening trade relationships.

▪ Gross margin expanded 164bps YoY to 54.6% on account of favorable product mix and cost efficiencies.

▪ EBITDA margin contracted 90bps YoY to 14.4% due to higher employee and other expenses. A&P spend was at Rs279mn (8.1% of revenue) with management expecting to maintain similar levels going forward.

▪ PAT was Rs222mn with 12.5% YoY decline and PAT margin of 6.5% impacted by higher depreciation from capacity expansion at its Haridwar Il and Ganaur plants.

Warehouse transition- Online sales suffered, but WC efficiency to improve in future

▪ The company consolidated three warehouses into a modern facility with capacity to handle 300k pairs per day and over 50 on-site fabricators, strengthening logistics and production support.

▪ The transition was scheduled in Q1 to minimise the disruption, as it is seasonally soft quarter. This resulted in lower online channel sales as inventory movement was prioritised for offline distribution.

▪ However, the transition would benefit in future in terms of faster order fulfilment, improved stock accuracy, and better working capital efficiency.

Outlook and Valuation: We expect ASP to improve on back of focus on premiumisation along with recovery in volumes, led by continued investments in advertising, launching newer products & network expansion. We remain positive on the future growth prospects of the company given the industry tailwinds for S&A segment; margin improvement due to increased operational efficiency. Maintain BUY with TP of Rs 335 (55x FY27E EPS).