Motilal Oswal has reiterated a ‘Buy’ rating on Campus Activewear, setting a target price of Rs 360, which indicates a potential upside of 17% from the current price of Rs 307. The recommendation follows Campus’s 2QFY25 results, which reflect solid revenue growth but weaker-than-expected margins, impacted by discounting and increased advertising costs. Despite these pressures, Motilal Oswal projects revenue, EBITDA, and PAT growth driven by strong demand recovery, an improved product mix, and expanded retail reach.

Revenue Growth and Operational Highlights

- Revenue Surge: Campus Activewear’s revenue rose by 29% YoY, reaching Rs 3.3 billion in 2QFY25, outperforming estimates by 8%. This growth is attributed to a 36% increase in volumes, despite a 5% YoY decline in the average selling price (ASP) to Rs 622 due to discounting and inventory liquidation.
Volume Growth: Campus sold 5.4 million units in the quarter, a 36% YoY rise, supported by increased demand in the sports and athleisure segments. This was achieved even as ASPs dipped, underscoring the brand's growing market penetration.

Margins and Profitability

- Gross Margin and EBITDA: The gross profit margin contracted by 200 basis points YoY to 52.4%, slightly missing the 53.3% estimate. EBITDA also fell short, recording Rs 382 million (11.5% margin) due to increased discounting, higher ad spending, and inventory clearance costs.
PAT Decline: Profit after tax (PAT) came in at Rs 143 million, 23% below estimates, yielding a 4.3% net margin. The management attributes this to temporary pressures from non-BIS inventory liquidation, which affected ASPs, and festive season promotional activities.

Management Insights and Strategic Direction

- Inventory and ASP Strategy: Management noted that ASPs were diluted by around Rs 8-12 per pair due to non-BIS inventory clearance and retailer discounts. They anticipate ASP recovery in the coming quarters as promotional impacts subside.
Margin Outlook: The company expects margin improvements in 2HFY25, driven by operating leverage and the phased elimination of discounted inventory. Management forecasts FY25 EBITDA margins to surpass FY24 levels, aiming for gradual stabilization in the range of 15% to 16%.

Capex and Capacity Expansion: Campus is allocating Rs 350 million in capex for plant upgrades in Haridwar and Ganaur, aiming to increase backward integration by 10-12%. The new capacity, focused on sneakers, is slated to come online by 4QFY25.

Market Position and Growth Prospects

- Product and Brand Expansion: Campus is enhancing its product portfolio with new sneaker ranges, capitalizing on its established market presence in the sports and athleisure category. The brand recently onboarded actors Vicky Kaushal and Vikrant Massey as ambassadors to strengthen its market appeal.
Retail Expansion: The company expanded its retail network by 800 touchpoints in 2QFY25, reaching 23,000 outlets. Management has identified 40,000 closed shoe outlets as an addressable market, with plans to open 70-80 new stores annually.

Financial Projections and Valuation

- Growth Forecasts: Motilal Oswal projects a compound annual growth rate (CAGR) of 13% in revenue, 21% in EBITDA, and 34% in PAT over FY24-27. Revenue is expected to reach Rs 18 billion by FY26, supported by increased consumer demand, online sales, and retail expansion.
Valuation Metrics: Campus is currently trading at 78.2x FY25E EPS and 58.1x FY26E EPS, with a target PE multiple of 55x for Dec’26 estimates. This valuation reflects expectations of sustained demand in sports and athleisure.

Investment Call: Given Campus’s strong brand, innovative designs, and growth potential in the sportswear market, Motilal Oswal reaffirms its ‘Buy’ recommendation with a target price of Rs 360, suggesting a 17% upside.

Target Price and Investor Strategy

- Target Price: The target price of Rs 360 is based on strong market positioning, expansion in retail outlets, and expected improvements in operating margins as one-off inventory costs decrease.
Investor Takeaway: Campus Activewear represents a promising investment for exposure to the growing sportswear market in India. The combination of innovative product lines, brand expansion, and operational efficiency positions the company well for future growth.