Campus Activewear stock skyrockets 14% on robust Q4 results; brokerages retain buy calls

Campus Activewear's shares soared by over 16% following the release of robust earnings for the quarter ending March 2024. As of 12:19 pm, Campus Activewear's shares were trading 15% higher at ₹289.65 on the National Stock Exchange. The stock has now gained almost 40% since its 52-week low of ₹212.80, which was recorded on March 28, 2024, following today's surge.

Following the earnings release, both Motilal Oswal and JM Financial maintained their 'Buy' recommendations on the stock. While Motilal Oswal kept its target price at ₹295, indicating a potential 17% rise from the previous closing price, JM Financial lowered its target price to ₹295 per share.

Footwear maker Campus Activewear's net profit surged 42.6% year-over-year to ₹32.7 crore in the quarter. Revenue increased by 4.6% year-over-year to ₹364 crore. Sequentially, Campus Activewear's net profit increased, but its revenue decreased.

In the fourth quarter of the fiscal year 2024 (Q4FY24), Campus' operating EBITDA surged by 16% year-over-year (YoY), reaching ₹66.4 crore compared to ₹57.1 crore in the corresponding period of the previous year. Furthermore, Campus' EBITDA margin expanded to 18.3% in Q4FY24, a notable increase from 16.4% in the same period of the previous fiscal year.

Motilal Oswal's industry research reveals sustained macroeconomic challenges, especially in the value segment of the northern region, as indicated by the performance of all market participants. Additionally, heightened competition intensifies as rivals introduce low-average selling price (ASP) products and provide generous channel commissions, resulting in distributor attrition.

Campus's strategy of prioritizing the ₹1,000-2,000 ASP segment may encounter challenges due to the current economic downturn, which is leading consumers to opt for lower-priced discretionary items.

The combination of the persistent unfavorable market conditions, distributor turnover, and a reduction in O2O business partnerships has hindered revenue growth. Nonetheless, modest growth in the TD channel has partially compensated for the decline in O2O and B2B businesses. "Elevated SG&A expense will be a headwind for EBITDA margin improvement," it said.

Despite Campus Activewear's management declining to provide an outlook, they anticipate that the transition period is nearing completion. They believe that a confluence of factors, including new product launches, increased brand investments, renewed focus on mid-economy segments, distribution channel optimization, and long-term tailwinds from BIS implementation, will contribute to a resurgence in volume growth.

The company's growth driven by premiumization and average selling price (ASP) will be constrained due to its shift towards the mid- and economy segments, as noted by JM Financial. Financially, the reduction in debt and receivables is a positive development. Volume growth has fallen short of expectations, and the pace of recovery and the sustainability of margins will be crucial monitoring factors for the stock in the coming period, according to the brokerage.

In the last one year, however, the stock has fallen around 19%, underperforming benchmark Nifty 50 which has risen 24% during this period.

Incorporated on September 24, 2008, Campus Activewear Limited is a publicly traded company in the category of public limited companies, headquartered in New Delhi, Delhi.

The company manufactures and distributes a variety of footwear like running shoes, walking shoes, casual shoes, floaters, slippers, flip flops, and sandals, available in multiple colors, and styles and at affordable prices.