Campus Activewear Limited (CAMPUS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Campus Activewear Limited Q1 FY '27 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Hirel Keniya from E&Y LLP. Thank you, and over to you, sir.

Thank you, Nirav. Good evening, everyone. On behalf of Campus Activewear Limited, I welcome you all to the company's Q1 FY'27 conference call to discuss the performance of the company and to answer your questions. We have with us the management team comprising of Mr. Nikhil Aggarwal, Whole-time Director and CEO; Mr. Uplaksh Tewary, COO; and Mr. [ Neeraj ] Gupta, Finance Controller. Before we proceed this call, I would like to draw your attention to the fact that today's discussion may contain forward-looking statements that are subject to various risks, uncertainties, and other factors which would be beyond management's control. We kindly request to bear in mind that there might be uncertainties while interpreting such statements. Please note that this conference is being recorded. We would now like to start the session with opening remarks from the management team, afterwards, we would open the floor for an interactive Q&A session. I would now hand over the conference call to Nikhil sir for his opening remarks. Thank you, and over to you, sir.

Good evening, everyone, and thank you for joining us today for our Q1 FY '27 earnings call. We are extremely pleased to begin FY '27 with a relatively strong quarter, delivering 12.2% revenue growth, 11.7% volume growth, stable EBITDA margins of 15.9%, and 17.7% growth in profit after tax. We believe these results reflect the continued strength of the campus brand, healthy consumer demand across categories and channels, and disciplined execution across the organization. What makes this performance particularly noteworthy is the operating environment in which it was delivered. During the quarter, businesses continued to navigate geopolitical uncertainties, volatility across global supply chains, and inflationary pressures on key raw materials. In addition, we absorb the significant increase in labor costs following statutory minimum wage revisions, as well as approximately INR 2.5 crores of additional depreciation arising from the commissioning and ramp-up of our new manufacturing facilities at Paonta Sahib and Pantnagar. Despite these headwinds, we remained focused on protecting profitability through calibrated pricing actions, disciplined cost management, and operational efficiencies. A key point I would like to highlight is that the impact of our pricing actions is not yet fully reflected in our ASP growth. During the quarter, we implemented MRP increases of approximately 8% across key product categories, resulting in an underlying ASP increase of around 5% in our core stuck-on category. However, this improvement was largely offset by two temporary factors. First, the revised accounting treatment for Walmart, that is Flipkart and Myntra, which came into effect from July 2025, resulted in lower revenue Y-o-Y due to GT charges being netted off from sales this quarter. This suppressed the ASP by approximately 2.5%, which will bounce back quarter 2 onwards. Second, we witnessed an exceptional recovery in our school shoes business, with revenue from this category growing by nearly 50% Y-o-Y. We've moved this entire business from DIP to stuck-on, which has a much better ASP and is a margin-accretive category versus DIP. While strategically very encouraging, the inherently lower ASP of school shoes as a category diluted our blended ASP by another 2%. As these temporary effects normalize, we expect the underlying benefits of our pricing initiatives to become increasingly visible from quarter 2 onwards, supporting both reported ASP growth and a stronger margin profile in the quarters ahead. Beyond financial performance, the quarter once again demonstrated the resilience of the campus brand. Growth was broad-based across channels, categories, and geographies, with particularly encouraging momentum in our women and kids portfolio. Consumer response to our latest product launches remained highly encouraging, reaffirming our ability to anticipate evolving consumer preferences and delivering compelling value across price points. Operationally, we also took several strategic steps to strengthen the business for the future. In anticipation of a stronger festive demand, we recorded our highest-ever quarter 1 production and continued this momentum into July, being the highest-ever production month ever, proactively building inventory to ensure superior availability across key channels and categories. This was a conscious strategic decision that positions us well for the upcoming season. The quarter also marked the launch of Elan by Campus, our entry into the rapidly growing neo-casual footwear segment, further expanding our addressable market and reinforcing our vision of becoming a comprehensive lifestyle footwear company. Alongside this, we continued investing in product innovation, refreshed our brand identity with the unveiling of our new logo, and strengthened our partner ecosystem through one of our largest-ever distributor meets, where we've received record orders giving us a very good visibility of the upcoming festive season. Looking ahead, we remain confident in the structural growth opportunity within India's branded footwear market. Supported by a strong brand, expanding distribution, continuous product innovation, enhanced manufacturing capabilities, and disciplined execution, we believe Campus is very well positioned to continue delivering sustainable, profitable growth and long-term value for our stakeholders. Thank you, and I would like now like to hand over the call to the moderator for the Q&A session.

[Operator Instructions] First question is from Vidisha Seth from Ambit Capital.

My first question was on the MRP increase of 8% undertaken in key products. This seems to be a little higher versus the industry. What gives the comfort that volumes or market share gain momentum won't be impacted given that key products would be in the economy segment, where demand would have an element of elasticity?

Yes. This price increase was done on effective 1st April. Since the input RM pressures started coming into the business effective March itself where the entire geopolitical situation turned. From April onwards, even the minimum wage impact started coming into the system across states that we operate in currently. 8% is a reasonably fair price hike that has gone, and the input costs were under pressure. Pretty much over the last three months, we've been able to pass on these costs by a lot of absorbing some through better negotiations into our ecosystem, as well as passing on the relevant price increase into the market. 8% is a reasonably fair price hike, and the same has been accepted in the market as well. This was done about four months back now. The price hike is effective 1st April. We haven't done any further revisions. The effective price increase happened effective 1st April, we have not seen too much resistance to the price increase so far.

The volume has grown.

Yes.

In spite of the price hikes.

Absolutely.

Got you. Are you all evaluating another round of price hikes considering that RM inflation might not be fully absorbed? Or has it been fully absorbed by this 8% hike?

RM inflation has been fully absorbed. In fact, as the volatility subsides, we will not be obviously taking the MRP increases correction again. We won't go down on the MRPs, right? We expect that as and when the market stabilizes with respect to raw material, we should have that benefit flowing back into the P&L.

Sure. The second question was on volumes. Volumes in the base quarter were disrupted due to, I think, some warehouse transition which was being undertaken, and also lower sales of open footwear. On a relatively weaker base, what drove the lower growth in volumes? Was it impacted because of demand or any channel dynamics? Any thoughts about that, please?

The growth is tapered to a certain extent by two factors, primarily, right? There is a revision of the way we account our Walmart businesses, right? The Flipkart and the Myntra reporting measures are different, and they were effective July last year, July '25. Quarter one is not a like-to-like comparison of these two businesses. Last year, there was no GT charges in our business, and this year it has. It has about a 2.5% direct impact on our revenue. Parallelly, we have also transitioned over the last 3 months our entire franchise business from an outright business-based model to an SOR model, where we control the entire inventory and discounting of these products, right? It's a complete transition of our 158 franchise stores, which is almost now completed. This quarter would bake in about a reasonably strong 25% plus de-growth on our franchise business because of the transition of the model, where we had to basically change the way we account this tranche. Last year, it was a pure outright business model with our franchise network. Now we completely converted into an SOR model. About another 2%-2.5% of revenue growth has been tapered off there. Combined, just these two factors had about a 4.5%-5% impact on our growth, which are temporary factors effective only to this quarter. We see franchise to be a very aggressively growing quarter going ahead, as a channel, as well as GT being normalized because from July effective last year, this is part of the base number itself. The growth is about 4%, not a like-to-like comparison. If you add that 4%, that would be the normalized growth that we would have seen this quarter.

Okay.

Just to give you one data point. Our FOFO stores, we've opened basically a total EBO stores of about 18 stores this quarter, which is the highest in the last 6 quarters, 7 quarters to 8 quarters. The reason for that is, one is the SOR model that Utkarsh just mentioned. That has led to a lot of confidence coming back to our franchisee partners.

Sure. Maybe I'll just clarify it offline again. The last bit was in terms of price segment. Going forward, where are the new launches and marketing investments being focused towards? Is it more towards the north of INR 1,500 price points or on the economy range? What is expected to drive the FY '27 growth?

It's actually all across, right? Like for us, every price point is strategically very important. It plays a specific role in our portfolio. Therefore, the marketing, the plan that we make at the beginning of the year is supposed to cater to every single price point, and that's how we look at it. Of course, the focus is on premiumization, which we've continued to invest behind with respect to the newer categories, premium categories that we've launched.

[Operator Instructions] Next question is from line of [ Avinash ] from Motilal Oswal.

Again, on the same question regarding the price points. If I look at it on a two-year CAGR basis, the price of the products revenue, which is up to 1,500, have actually de-grown by 7% CAGR. Is this because of curtailment of certain ASP of products, or how should we look at it?

We've recognized that we've left some spots, price points behind with respect to economical price points. We're working on it and, within the next couple of months, these price points will be fully covered by the portfolio that we've seen. There is no intentional gap with respect to that. This is something that we're working on and will be covered in the subsequent months before the season begins.

Correct me if I'm wrong. Basically, in monthly FY 2025, these two segments, less than 1,000 and less than 1,500, both put together take somewhere around INR 200 crores of revenue. Now they have gone down to INR 180 crores because you have voluntarily left some products. Is that [ core question ]?

There are multiple factors to it, right? The products, when there is an 8% price hike that you do, a lot of products sitting in the INR 1,499 now sit in the INR 1,649 segment now. There is a shift of the way you report these product categories now, because there's a natural 8% hike that you have taken. Over the last three years, I think we have never taken across-the-board price hike the way we have done on 1st April. The entire way you report your number has been shifted a bit. Our growth also disproportionately has come from shoes over the open footwear category, right? There has been a share shift towards slightly higher on the closed shoe, and that has also affected the way you are seeing that number. Right? We are not exiting any price points. Below INR 1,500, INR 999 to INR 1,500 remains a very core part of our shoe segment of our business. Other things which is in price hike have of course, change the way we report our numbers. Plus a small shift in the share of our slipper and sandal business. The growth is slightly higher on the closed shoe business as compared to the open footwear. That has also led to a slight increase in the share of categories.

Okay. Understood. The second question is, can you put some light on how the sneaker portfolio has done in this quarter? After the production started from the Pantnagar facility and Haridwar facility, was there any incremental delta growth that you are seeing in terms of sneaker portfolio?

Sneaker has been an extremely key lever of our entire brand repositioning, being relevant, and the investments in Haridwar too, as well as Pantnagar and Paonta Sahib have been in those directions as well. Since the scale is now getting bigger, this year, we are looking at a close to 30% growth on this category, and we are investing and our product launches as well as the category growths are in sync with that. Our anticipation from a volume growth is to the tune of 30% for this category. Because now the base is significantly higher. We were growing at close to 100% earlier, but since the base is now a bit higher, we are looking at about a 30% growth on this category this year.

Okay. Understood. My last bookkeeping question. If I look at the annual assembly capacity, two years back, it used to be 36 million pairs. Now it is 31 million pairs. Why has this changed?

This is actually the DIP capacity that we let go of. Last year, we called it out. We had basically four to five million capacity of DIP that we sort of shut down because it's a very old archaic technology and very cheaper economical price points, which were not viable for us. Therefore, this is something which I just called out in my remarks, is the sports shoe segment that we moved from DIP completely to stuck-on now. This is a much better, higher ASP segment with more margin accretive than DIP. It is just a recalibration of the DIP. The stuck-on is the main portfolio, which is going very strong with respect to capacity.

[Operator Instructions] Next question is from the line of Umang Mehta from Kotak Securities.

My first question was on volume growth. This 50% growth in school shoes which you've seen, how much would that have contributed to volume growth of this quarter? When you said that the dilutive impact on ASPs would go away in the coming quarters, the positivity in terms of volume growth would also go away, right? Just wanted to get that clarification.

We are targeting mid-double digit growth as we have highlighted before for the year, and we are very much on track with that. That would be a combination of both your volume and ASP. ASP, we are looking to deliver back again 6%-7% at least, which will come back from quarter 2 onwards. The balance would be volume growth. Volume, of course, there has been about 40% approximately share of school shoes in our volume growth this quarter. Which will get normalized from next quarter.

Understood. On similar line, margins, are you still confident that on a full-year basis 17%-19%, which was your kind of aspiration? There's no reason not to be in that band?

Absolutely, Umang. Yes. 100% confident of delivering that. There is no reason not to deliver the margin.

Understood. Just one last question on other expenses ex of A&P. This mid-teen kind of growth, is some part of minimum wage also sitting here through your processing charges? Or is it entirely in your staff cost?

Sorry, can you repeat?

The other expenses, other than A&P, the growth is slightly higher than what we were building. Just wanted to check what is the reason behind that.

Yes. It's Neeraj. In other expenses, basically INR 5 cr is sitting for minimum wage increase, for the quarter.

Understood. Makes sense.

INR 5 crore is on account of minimum wage, INR 2.5 cr on account of advertising and marketing. Like Nikhil said, we have done a great distributor meet plus logo launch. INR 2.5 cr is the indirect cost of the newly commissioned plant, which were not there in the base number last year, like Paonta Sahib and Pantnagar.

Understood. Okay. Thank you so much, and all the best.

[Operator Instructions] Next question is from line of Abhishek Shankar from ICICI Direct.

Yes. You spoke about sneaker, right? Approximately what would have been the sneaker contribution towards volumes?

Quarter 1.

Yes, in quarter 1.

Give us a second.

Abhishek, can I request you to mute your line?

About 12% to 13%. Hello?

Okay. Yes.

[Operator Instructions] Next question is from the line of Shraddha Kapadia from SMIFS Ltd. Shraddha, can I request you to unmute your line and proceed with your question?

Hello, am I audible?

Yes.

Yes. I just wanted to understand that following a healthy start to FY '27, are you comfortable of sustaining the double-digit volume growth for the full year? What are the key assumptions underpinning your outlook?

Yes, we will be close to double-digit. We cannot promise a double-digit volume growth, but it will be high single digits for sure. It will be a combination of both ASP and volume growth that will lead us to mid double-digit overall growth for the year. Of course, we are focused on the same growth vectors that we called out earlier as well. Those are the key priorities for us. Like the women and kids segment is doing exceptionally well, great response there, and same with sneakers as a portfolio. School shoes, like we just called out, is back on track. That should give additional leverage with respect to additional volumes over and above our budgeted plans. These are basically the product categories that we are focused on at this point, which will lead us to incremental growth over our budgeted numbers.

Sure. That was quite helpful. I just wanted to understand that how has the Elan been received so far, and what role do you expect it to play in driving premiumization and ASP growth over medium-term?

Elan is almost a 2-month-old launch now, and it is doing extremely well. It is selling currently in about 100 or 110 of our own stores, as well as actively selling on Amazon, Myntra, and our own brand.com. These are the core points of sale as of now. We are seeing extremely positive response. It is a very new category that we have entered. From a product position, we have never done products of this sort. It of course, has a rub-off effect on the brand perception and the value, as well as the ASP acquisition. This product normally from a selling price sells between INR 1,899-INR 2,599 price bucket today. It is on the higher end of our entire portfolio. Whatever incremental sale we see in this category, it is too early to call out what kind of volume that we will reach in this category because it is just a 60-day-old category, but the initial signs are extremely positive. We would expand with the further launch of a new set of products in the same category during festive again. That is our level of conviction on this category that we already launched our first set of products and we have already locked in our next set of orders for the same category. We believe that this category is here to stay, and we see very high potential on this category because it is completely new and we are able to cater to a newer set of consumers through this category who were earlier not considering Campus because the product profile is very different than what we are initially…

The value proposition.

Yes. The value proposition of the product as well as the brand equity is extremely high on this.

Sure. Okay. Just one last question from my side. You have built the inventory ahead of the festival season. What is your current reading on the demand visibility, and are the secondary sales tracking in line with the expectations?

Normally we as an organization like to build inventory prior to festive, primarily because the demand that comes during festive is significantly higher than our capacity to produce in that quarter. Plus the challenges of lower production volume during Chhath Puja and Diwali because the factories do not operate at full capacity during those 10 days. By default, it's a strategy that we have believed in, and we believe the inventories are completely under control. There has been a bit of tapering of demand in the last quarter across the board. There were factors of geopolitical as well as certain factors like Maharashtra and Gujarat suffering due to the flood situations there. Of course, there were factors that affected a certain amount of demand. Our demand reading is still very positive. We believe that we will have very strong, we do not want inventory to be the reason why we are not able to fulfill our potential as an organization. Hence, we have been able to build the right set of products. We already had the indication of the distributor meet, which gave a very strong visibility on what we need to produce ahead of the curve, we have invested directly in those products, believing that being ready with those products will give us a first right to win during when the demand fully reaches its potential.

Next question is from the line of Devanshu Bansal from Emkay Global.

I just wanted to build upon the previous question. Your commentary for upcoming festive season seems to be very positive. You also indicated that manufacturing levels are at an all-time high. Can you highlight what is your growth expectation for the upcoming season based on whatever manufacturing you are doing? Secondly, there is some shift in the festive season, right? This time around, Diwali is in November. So do you expect growth volatility in Q2 because of this?

Correct. Normally the big festive events would be specific closer to November because Diwali is in November this year. Big events like BBD will be starting in October vis-a-vis September last year. There would be a bit of shift of revenue between September and October. The buildup to these festivals from an outright buy for Flipkart or any other buy from an outright channel point of view happens significantly earlier. We do not see much of a difference. Of course, the marketplace operations, because the date of the event shift from 22nd, say September last year to maybe 5th or 6th October this year, there will be some marketplace operations or revenue shifting from quarter-to-quarter, we don t see a very significant movement in the split of the quarter.

On the first part, sir, again, you must be having some planning from that perspective from what you're targeting for the upcoming season.