Is Investing in Campus Activewear IPO a Good or Bad Move?
Campus Activewear Limited, India's largest sports and athleisure footwear brand, has recently announced its Initial Public Offering (IPO), an event that has caught the eye of investors worldwide. Understanding whether to invest in this IPO requires a thorough evaluation of the company's financials, market position, and the potential return on investment.
Company Overview
Campus Activewear Limited specializes in the production and distribution of various types of footwear, including running shoes, walking shoes, casual shoes, floaters, slippers, flip-flops, and sandals. Available in an array of colors and styles, these products cater to a wide audience and are sold at affordable prices through both online platforms and offline stores. As of September 30, 2021, the company boasts a pan-India trade distribution network encompassing over 400 distributors across 28 states and 625 cities, supported by a network of 18,200 retailers.
Manufacturing Capabilities and Market Demand
The company's success is bolstered by its five manufacturing facilities in India, with an installed annual capacity for assembling 25.6 million pairs of footwear. This scale ensures a steady supply, meeting the high demand in the market. The current Gross Margin Percentage (GMP) is quite positive, indicating a strong demand for the company's products. This suggests that, as of now, there is a significant market appetite for investing in Campus Activewear's IPO.
Valuation and Mismatch
However, the company's financials do raise some concerns. Post-IPO, the Trailing Twelve Months (TTM) Price to Earnings (P/E) ratio stands at 93.4x, which is high considering the company's Net Annualized Profit After Tax (PAT) Compound Annual Growth Rate (CAGR) of 17% over the periods FY19-21. For reference, competitor companies such as Relaxo Footwear and Bata India trade at P/E ratios of 103x and 357x, respectively. This suggests that investors might be overpaying for the shares compared to these peers.
Investor Sentiment and Risk Considerations
While the company has strong brands, a wide range of products, and a robust distribution network, the valuation concerns should not be overlooked. The IPO is recommended primarily for long-term investors due to the high valuation offered by the current price-earnings ratio.
Conclusion
The investment decision regarding Campus Activewear's IPO hinges on the investor's appetite for risk and their long-term investment strategy. While the company's strong brand, manufacturing capabilities, and distribution network present a solid foundation for future growth, the current valuation might not align with the risk-averse investor's criteria. Therefore, it is crucial to weigh these factors carefully before making a decision.