Campus Activewear

Market Leader in fast-growing Sports and Athleisure segment in footwear category

The Sports & Athleisure footwear segment in India is witnessing remarkable growth, with an
anticipated increase from INR 110 billion (FY20) to INR 220 billion by FY25E. Campus, an Indian
brand, has emerged as a dominant player in this sector, covering over 85% of the Total Addressable
Market (TAM) and surpassing 'Puma' to become the category's largest player, commanding a 17%
market share.

In contrast to competitors, Campus distinguishes itself through its exclusive dedication to the sports
and athleisure segment, where nearly 90% of its total revenue is generated. Among the top three
brands in the Indian Sports & Athleisure footwear category, which includes global giants Adidas and
Puma, Campus stands as the fastest-growing scaled brand from FY19 to FY21, emphasizing its
remarkable growth trajectory in this high-potential market.

Key growth vectors to sustain high growth

Campus has achieved an impressive 26% compound annual revenue growth rate (CAGR) from FY19
to FY23, and it's poised to maintain this high growth trajectory through several strategic vectors:

a) Diversifying Product Offerings: Campus intends to leverage its strong brand and leadership
position by expanding into women's, children's, and kids' footwear categories, tapping into new
customer segments for sustained growth.

b) Geographic Expansion: The company plans to deepen its presence in the western and southern
regions of India, driving growth by expanding into untapped territories while maintaining a strong
foothold in existing markets.

c) International Expansion: Campus aims to selectively enter international markets, including Nepal,
Bangladesh, and GCC countries, within the next two years, opening up new avenues for revenue
generation.

d) Enhanced Customer Experience: The company will focus on improving the omni-channel retail
experience, catering to the evolving preferences of modern consumers.

e) Premiumization and Diversification: Campus will continue to emphasize premium offerings across
product segments while diversifying into allied categories, ensuring a well-rounded product portfolio
to capture evolving market trends and customer demands.

Difficult to replicate Campus vertical manufacturing specialisation and robust supply chain

Campus boasts a unique competitive advantage with its vertically integrated manufacturing
capabilities and a robust supply chain. These internal strengths have been honed over years,
particularly in product design. This specialization is challenging for competitors to replicate, setting
Campus apart as a low-cost producer in the market.

One key benefit of this specialization is a reduced manufacturing lead time, ranging from 60 to 90
days, compared to the industry average of 90 to 120 days. This efficiency not only enhances cost-
effectiveness but also allows Campus to respond swiftly to changing market demands, giving them a
strategic edge in the industry.
India S&A Footwear market has attractive industry prospects

The Indian Sports & Athleisure (S&A) Footwear market holds promising prospects within the broader
retail industry. As of FY21, the footwear sector in India is valued at INR 480 billion and is poised for
rapid growth. Casual footwear dominates the market, accounting for 67.5% of its value, followed by
S&A, formals, and outdoor footwear at 18.8%, 9.6%, and 4.1%, respectively.

However, the S&A footwear segment is expected to be the primary driver of growth, projected to
double in value to INR 220 billion and maintain a remarkable 25% Compound Annual Growth Rate
(CAGR) from FY21 to FY25E. This market expansion highlights the lucrative opportunities within the
Indian S&A footwear sector.

S&A footwear industry to grow ~25% over FY21-25E

High level of under-penetration leaves a huge opportunity for the organised players to grow in
India

India presents a significant growth opportunity for organized players in the footwear industry due to
its high level of under-penetration. Compared to countries like the USA, UK, Japan, Germany, Brazil,
and China, India has much lower per capita footwear consumption.

In recent years, there has been a notable shift in consumer attitudes toward footwear. Shoes, once
considered primarily for utility, are now seen as a lifestyle choice. This shift is driving increased
activity within the Indian footwear industry, particularly in the branded segment.

As the Indian market continues to evolve and embrace branded footwear as a lifestyle statement,
organized players in the industry are well-positioned to capitalize on this growing trend and expand
their presence.

Campus is present across price segments

Campus strategically positions itself across various price segments within the footwear market. While
the entry-level category, priced below INR 1,049, constitutes the majority of its revenue at 48%, the
company employs a price-straddle approach by offering products in entry-level, semi-premium, and
premium price ranges. This allows Campus to cater to the heart of the market, spanning footwear
priced between $10 and $50, which captures approximately 85-87% of the market.

Campus excels in delivering value to customers, offering comparable footwear at prices 30-40%
lower than multinational brands. The economy mid-price segment (below MRP of INR 1,500)
accounts for 57% of the company's FY23 revenue. However, Campus is strategically expanding its
premium offerings, with the premium category (INR 1,500 - 3,000) contributing 31% of revenue. This
shift in product mix has led to an improved blended realization of Rs 631 per pair in FY23, up from Rs
481 per pair in FY19.

With a growing focus on premium offerings, Campus aims to further enhance its average selling price
(ASP), indicating a positive outlook for the company's revenue growth.

Composition of S&A footwear market across segments

Premium mix rising

Product transformations in the recent years by focusing on quality upgradation and adoption of
latest technologies

In recent years, Campus has undergone a significant transformation in its product offerings, focusing
on enhancing quality and embracing cutting-edge technologies. This transformation aims to provide
consumers with footwear boasting premium aesthetics and international appeal, all while
maintaining competitive pricing.

The company's commitment to quality improvement includes innovations like knitted mesh uppers
and rubber outsoles. Additionally, the adoption of advanced technologies such as "reflect
technology," "Air-capsule technology," and "Memory foam technology" elevates comfort and
enhances the overall consumer experience.
Campus's dedicated in-house design team, consisting of 50 designers, works in tandem with its R&D
team to create over 2,500 active footwear styles. These styles are inspired by global trends and
tailored to local preferences. Remarkably, Campus products offer a level of quality and style
comparable to multinational brands but at significantly lower prices, making them appealing to mid-
income Indian consumers seeking international brand quality without breaking the bank. An example
of this innovation is the 'REE-FLECT' technology, featuring unique glow-in-the-dark upper mesh
material, available at an affordable price point.

Leverage brand and leadership position with enhanced focus on women, children & kids segment

In India's footwear category, men have traditionally held the majority share at 52% in FY21. However,
there is a significant shift happening as the women's and kids' segments are growing faster and are
expected to reach 44% and 11% of the market, respectively, by FY25E.

To capitalize on this evolving dynamic, Campus is strategically expanding its presence in the women's
and kids' footwear categories, recognizing their substantial growth potential and lower competition.
The company is taking a comprehensive approach, from product conceptualization to channel
development, with a strong focus on the women's category. Campus aims to leverage its brand
reputation, commitment to quality, and competitive pricing strategy to gain market share in these
categories, exemplified by the introduction of over 2,800 new designs between FY19 and FY23.

This shift is reflected in Campus's portfolio mix, where historically, the contribution from men's
footwear outweighed women's and kids' at 85:15. However, this ratio has evolved to 80:20, with an
equal split between kids and women's footwear at 10:10.

Volume sold by Campus

Innovation across portfolio

Campus has embarked on a journey of innovation across its product portfolio, expanding beyond its
traditional presence in Sports & Athleisure (S&A) and school shoes. The company has diversified into
Sneakers and Casual footwear, encompassing various styles such as flat sole, canvas, and joggers,
contributing 3% to its overall portfolio mix.
While S&A continues to be the primary contributor at around 90%, school shoes contribute
approximately 8%. Campus is experiencing a positive response to its Casual footwear offerings and
has plans for further expansion in this category. To bolster its presence, the company intends to
collaborate with new celebrities for endorsement and aims to offer products in an affordable price
range of INR 1,299-2,699.

Campus is committed to gaining a foothold in these evolving footwear categories by consistently

launching new styles each year, reflecting its dedication to innovation and market growth.

Aggressive A&P spends to support new launches, build and enhance brand image

Campus is making significant investments in advertising and promotion (A&P) to bolster its brand
presence. The company has transitioned from trade-led marketing to a direct-to-consumer approach,
allocating substantial resources to marketing initiatives. In comparison to its competitors, Campus
stands out with one of the highest A&P spends across various channels.

Over the past two years, Campus has reinvested a portion of its gross margin and operating leverage
into brand-building activities. This has led to a 200 basis points (bps) increase in A&P spending, rising
from pre-Covid levels of 4-4.5% of sales to 6-6.5% of sales. The core strategy behind this investment
is to enhance the brand's image and consumer appeal, ultimately driving premiumization.
Additionally, the company's intensified brand support efforts provide greater confidence to its
channel partners.

Ad Spends

Tapping unexplored markets/exports

Campus is actively diversifying its geographic footprint to tap into previously unexplored markets.
Domestically, the company is expanding its presence in West and South India, with plans to open
120-150 stores in FY24, focusing primarily on emerging markets.

Internationally, Campus is eyeing entry into select markets, including GCC countries, Nepal, and
Bangladesh. For the GCC countries, the company will partner with local distributors while
maintaining supply chain and manufacturing in Vietnam, India, or China. Initially, they will test the
waters through e-commerce channels before expanding into full-scale distribution and establishing
their own stores. The premiumization factor is expected to be a key driver of growth, potentially
yielding a 30-40% premium on existing merchandise in the GCC market.

In Nepal and Bangladesh, Campus aims to create a market for its B Grade inventory, currently at
around 1%. These items will be sold in these markets at salvage value plus additional benefits once
the market is established. This strategic expansion signifies Campus's commitment to exploring new
avenues for growth.

Integrated manufacturing and design capabilities supported by a robust supply chain

Campus possesses a robust and integrated manufacturing system supported by a well-structured

supply chain. The company owns five manufacturing facilities in India, with an annual capacity to
assemble 34.8 million pairs of shoes. Campus has also established an extensive network of
fabricators and sole ancillary suppliers in India.

Notably, Campus follows a unique hybrid production model. It outsources labour-intensive, high-
volume production for the economy segment while maintaining in-house manufacturing for
premium products, safeguarding its design intellectual property. This approach ensures a faster
turnaround from raw materials to the final product.

Campus places a strong emphasis on quality control, with 100% of assembly work conducted in-
house. The company centrally procures 100% of raw materials for shoe uppers and sources
approximately 85% of these materials locally in India, with the rest coming from countries like China,
South Korea, and other Southeast Asian nations.

Backward integration and centralized sourcing enable Campus to exercise greater control over
manufacturing processes, product quality, cost management, and speed to market for new product
launches. Leveraging digital sales processes, Campus has further improved efficiency in design,
manufacturing, and sales. This streamlined approach enables Campus to manage the entire product
cycle, from concept to launch, within 120 to 180 days, keeping them ahead of competitors. As a
result, Campus has reduced its manufacturing lead time to 60-90 days, outperforming the industry
average of 90-120 days.

Differentiated distribution strategy

Campus has adopted a differentiated distribution strategy that has evolved from traditional methods
to an omni-channel approach, significantly expanding its reach. As of FY23, the company boasts a
network of over 425 distributors, effectively serving more than 20,000 geographically-mapped
retailers across India.

These distributors operate under credit terms of 30 to 60 days, with the top 15 distributors
contributing to 21% of goods sales in FY21. Unlike many multinational players who focus on metro
and tier-1 markets, Campus initially concentrated on tier 2 and 3 markets, which were underserved
in the Sports & Athleisure (S&A) segment. The company aggressively expanded its presence in these
core markets through a trade distribution network, specifically multi-brand outlets.

Campus also established partnerships with major e-commerce platforms such as Flipkart, Amazon,
Myntra, Udaan, and Fynd, solidifying its position as the leading Indian footwear brand in this
channel. Additionally, the company operates its Exclusive Brand Outlets (EBOs) under two models:
company-owned, company-operated stores (COCOs) and franchisees. These EBOs, totalling 107
locations as of FY22, facilitate Campus's premiumization efforts and offer retail accessories like
backpacks, caps, and socks under its brand 'CAMPUS'. This differentiated distribution approach has
significantly expanded Campus's market presence and accessibility.
Fashion forward approach

Campus employs a fashion-forward approach to its product design and launches. With an in-house
design team of 49 designers in India and a design consultancy arrangement in China, the company
stays on top of global fashion trends. This approach ensures that Campus products align with the
latest international styles while also catering to the preferences of Indian consumers.

The company's design process emphasizes speed, aiming for swift design conceptualization to
product commercialization. Campus typically releases two collections annually within 120 to 180
days from the date of product conceptualization: a spring-summer collection around February/March
and an autumn-winter collection around August/September.

Campus also adopts various strategies to stay agile and responsive:

In-Season Replenishment: This allows the company to swiftly produce additional units of high-selling
items in response to strong demand.

Design Fast Track: This approach accelerates the design, development, and production of new
products, enabling innovative concepts like special drops, exclusive collaborations, and channel
partner-specific merchandise.

Never Out Of Stock (NOOS): Campus maintains a portfolio of products that are in continuous demand
throughout the year, ensuring their availability and replenishment.
These strategies, combined with a keen eye on fashion trends, help Campus remain dynamic and
responsive to customer preferences and market demands.

Procurement and raw materials

Campus's procurement and raw materials strategy centres on several key components, including sole
materials, fabric, chemicals, adhesives, laminated fabric, ethylene-vinyl acetate (EVA), insoles, and
others like PVC compound, PVC leather cloth, PU leather cloth, and outer cartons.

The company relies on a network of over 80 job workers for the manufacturing of finished footwear
uppers as of FY23. Approximately 85% of the raw materials are locally sourced in India, with the
remaining materials coming from countries such as China, South Korea, and other South-East Asian
nations.

Campus follows a purchase order-based procurement model, negotiating rates for materials. To
maintain flexibility and efficiency, the company maintains a raw material inventory at its facilities,
typically covering a span of two to four months. This strategy ensures a steady and responsive supply
chain to support its manufacturing needs.

China’s growth story – Setting standards for India

China's homegrown athleisure brands, such as Anta and Li Ning, experienced remarkable growth in
the athleisure market during the 10-year period from 2005 to 2015, thanks to increased consumer
spending power. These domestic brands successfully upgraded their products and gained strong
consumer support. Leading brands like Anta and Li-Ning captured substantial market share during
this period.
It is anticipated that the Indian market will follow a similar growth trajectory in the coming years.
Factors contributing to this growth include rising incomes and increased spending power among
Indian consumers, favourable trends in athleisure fashion, and a shift in consumer preferences.
These factors, along with others, are expected to drive substantial growth in the Indian athleisure
market, mirroring the success of Chinese brands in their home market.

Peer comparison
Valuation

Campus, a market leader in the niche Sports & Athleisure (S&A) footwear market, has consistently
outperformed the industry by offering a diverse product portfolio at various price points. This
strategy has allowed Campus to cater to both mass-market and premium customers, covering over
85% of the Total Addressable Market (TAM) in S&A footwear.

Although the stock price experienced a significant decline, roughly 50% from its peak, due to
concerns related to volume and margins amid reduced discretionary spending, we anticipate a
revival in business momentum in the long term. This optimism is based on the early stage of
development in the S&A industry and the significant growth potential it offers.

As a result, we initiate a Buy recommendation with a target price (TP) of 387, representing a 22%
upside potential. This valuation is based on a multiple of 53 times the estimated earnings for FY25E,
reflecting our confidence in Campus's growth prospects and differentiated strategy.

Risk

• Sustained high level of inflation might weigh on discretionary spending of consumers.

• Competitive pressure from existing peer/Entry of new peer.
• Demand slowdown
• Sustenance of working capital cycle, primarily inventory management

Financial Assumptions

Volume Trend

Revenue to grow 21% over FY23-25E

Gross Margin trend

EDITDA Trend

ROE
ROCE

Peer Comparisons

About Campus Activewear

Campus Activewear, established in 2005, is a prominent player in the sports and athleisure footwear
market in India. It has achieved the status of being the largest brand in terms of both value and
volume. The company specializes in athleisure and sports footwear with a lifestyle-oriented focus,
offering a diverse portfolio suitable for the entire family.

Campus covers over 85% of the total addressable market for sports and athleisure footwear in India
and holds a significant market share of 17%. The brand places a strong emphasis on design and
product innovation, with a dedicated in-house design team of 50 designers offering a wide range of
footwear styles. They have launched thousands of new designs in recent years, following a fashion-
forward approach to ensure a swift transition from concept to production, managing the entire
product cycle within 120 to 180 days.

Campus owns and operates five manufacturing facilities across India, with a substantial annual
capacity for assembling 34.8 million pairs of shoes. The company has established an extensive
network of fabricators and sole ancillary suppliers in India, and it is also backward integrated,
producing a significant portion of its soles and uppers in-house. This vertical integration allows for a
quicker turnaround from raw materials to the final product compared to industry standards.

Environmental and Social initiatives

Workplace Safety: The company has a robust policy in place to prevent, prohibit, and address
complaints related to sexual harassment in the workplace.

Environmental Sustainability: Campus actively monitors Environmental Key Performance Indicators

(KPIs) on a monthly basis to drive continuous improvements. They have adopted eco-friendly
measures such as replacing conventional lights with LED lights, installing Variable Frequency Drives
(VFDs) for compressors, and implementing water conservation initiatives, including Sewage
Treatment Plants (STPs) and rainwater harvesting tanks. These efforts aim to reduce electricity
consumption, water usage, and waste.

Energy Conservation: The company has a dedicated Maintenance Team that observes and addresses
unnecessary power consumption. Additionally, Campus has installed a 1MW Solar PV Panel at its
Ganaur plant, which has been operational since January 2022. They have also reduced energy
consumption in retail outlets through the use of inverter air conditioners and provide regular training
to retail staff on energy-saving practices.

CAMPUS ACTIVEWEAR