Campus Activewear Ltd Management Discussions

Economic overview

GLOBAL ECONOMY

The global economy has demonstrated remarkable resilience in the face of significant challenges over the past two years. Despite predictions of stagflation and recession, economic activity grew steadily as inflation receded from its mid-2022 peak. This resilience has been underpinned by a few factors. Employment and income growth remained stable, supported by stronger-than-expected government spending, household consumption, and a supply-side expansion driven by an unexpected increase in labour force participation. This economic resilience, despite significant central bank interest rate hikes aimed at restoring price stability, was also bolstered by households in major advanced economies drawing on substantial savings accumulated during the pandemic.

Changes in mortgage and housing markets over the pre-pandemic decade of low interest rates mitigated the near-term impact of policy rate hikes. As inflation approaches target levels and central banks in many economies shift towards policy easing, a tightening of fiscal policies – aimed at reducing high government debt through higher taxes and lower government spending – is expected to weigh on growth.

OUTLOOK

Global growth, estimated at 3.2% for 2023, is projected to maintain this pace through 2024 and 2025. This rate of expansion remains low by historical standards, influenced by factors such as persistently high borrowing costs, the withdrawal of fiscal support, long-term impacts from the COVID-19 pandemic and the Russia-Ukraine conflict, weak productivity growth and increasing geo-economic fragmentation. Global headline inflation is expected to decrease from an annual average of 6.8% in 2023 to 5.9% in 2024 and 4.5% in 2025, with advanced economies returning to their inflation targets faster than emerging markets and developing economies. The latest forecast for global growth five years from now, at 3.1%, is the lowest in decades. The pace of convergence toward higher living standards for middle- and lower-income countries has slowed, suggesting persistent global economic disparities.

The relatively weak medium-term outlook is due to lower growth in GDP per person, primarily resulting from ongoing structural frictions that hinder the movement of capital and labour to more productive firms.

The figures given below reflect a modest yet steady growth trajectory across most regions, albeit with varied recovery paces influenced by regional economic dynamics and policy measures.

INDIAN ECONOMY

The Indian economy has made significant strides in recent years, positioning itself to tackle various challenges more effectively. This progress can be attributed to policy initiatives implemented over the past decade. The government has prioritised infrastructure development, substantially increasing public sector capital investment from _ 5.6 Lakh Crores in FY15 to an estimated _ 18.6 Lakh Crores in FY24 – a more than threefold increase. Across various sectors, including highways, freight corridors, airports, metro systems and trans-sea connections, there has been a notable expansion of both physical and digital infrastructure over the last decade. The financial sector is currently in a strong position, with improved balance sheets and increased lending capacity. Non-food credit growth, excluding personal loans, is experiencing robust double-digit growth rates. Efforts towards inclusive development have resulted in improved financial health for Indian households. The Jan Dhan Yojana scheme has led to the opening of 51 Crores bank accounts, with total deposits surpassing _ 2.1 Lakh Crores. More than half of these accounts are held by women. Household financial assets as a percentage of GDP increased from 86.2% in December 2019 to 103.1% by March 2023, while liabilities rose from 33.4% to 37.6% during the same period. Consequently, net financial assets of households grew from 52.8% of GDP to 65.5%.

OUTLOOK

Looking ahead, projections suggest the Indian economy may achieve a growth rate of 7% or higher for FY24, with some analysts predicting similar growth in FY25. If these forecasts prove accurate, it would mark four consecutive years of post-pandemic growth at or above 7%, underscoring the economy?s resilience and potential. This consistent performance indicates a solid economic foundation. It?s worth noting that economic growth should be evaluated in context. Achieving 7% growth in a global environment where overall economic expansion is around 2% is arguably more impressive than 8-9% growth when the world economy is growing at 4%. The current global economic climate faces challenges in maintaining post-COVID recovery, with issues such as supply chain disruptions affecting trade, transportation costs, economic output and inflation worldwide. While India is not immune to these global pressures, its experience in navigating the COVID-19 crisis and the energy and commodity price shocks of 2022 provides a measure of confidence in its ability to manage future economic challenges.

Source: The Indian Economy: A Review by Department of Economic Affairs

Industry overview

INDIAN FOOTWEAR RETAIL INDUSTRY OVERVIEW

India?s footwear retail industry is experiencing robust growth and transformation, with promising projections for the future. In FY20, the domestic market was valued at _ 72,000 Crores and it is expected to reach _ 105,000 Crores by FY25, growing at a compound annual growth rate (CAGR) of 8%. This growth trajectory builds upon the sector?s impressive performance between FY15 and FY20, during which it expanded at a CAGR of approximately 9%. The market dynamics are evolving, with interesting shifts in consumer preferences and segment growth rates. Currently, men?s footwear dominates the market with a 48% share. However, women?s footwear is anticipated to grow at a faster pace, potentially achieving near parity in terms of market value by FY25. While casual footwear remains the largest category, the sports and athleisure segments are emerging as the fastest-growing, collectively accounting for over two-thirds of the entire market in FY20. The COVID-19 pandemic significantly impacted the industry, with travel restrictions causing a contraction of nearly 33% in the retail footwear market in FY21. However, the sector is poised for a strong rebound, with forecasts suggesting a remarkable CAGR of approximately 22% between FY21 and FY25. The organised retail segment, which includes Exclusive Brand Outlets (EBOs), large format stores (LFS) and e-commerce platforms, is gaining traction. In FY20, it contributed 30% by value and 13% by volume to the overall footwear retail market. This segment is expected to outpace the overall category growth, with a projected CAGR of 13% over the next five years.

Branding plays a crucial role in the footwear industry and this trend is set to intensify. By FY25, the branded segment is anticipated to achieve parity with the unbranded sector in terms of market share, growing at a value rate of 11% from FY21 to FY25.

India?s position as one of the world?s leading producers and consumers of footwear underscores the industry?s significance to the national economy. The sector employs more than 2 million individuals, highlighting its importance as a job creator. The sports and athleisure (S&A) footwear segment, in particular, is experiencing rapid growth.

KEY DRIVERS FOR THE INDIAN S&A FOOTWEAR SEGMENT

01//

Growing proclivity towards sports and physical activities

02//

The ability of home-grown brands to address the underserved demand

03//

Increased share of branded category

As the Indian footwear industry continues to evolve and expand, it presents significant opportunities for both established players and new entrants. The sector?s resilience, coupled with changing consumer preferences and increasing disposable incomes, suggests a bright future for this dynamic industry.

Source: Technopack Report

GROWTH DRIVERS

RISING DISPOSABLE INCOME

As the average disposable income of the Indian population increases, there is a greater capacity for spending on consumer discretionary items such as footwear.

URBANISATION

Rapid urbanisation has led to a shift in consumer preferences towards branded and fashionable footwear.

INCREASING AWARENESS OF HEALTH AND FITNESS

The growing focus on health and fitness has boosted the demand for athletic and sports footwear. India is witnessing a significant increase in the number of health-conscious individuals.

E COMMERCE BOOM

The surge in e-commerce platforms has made footwear more accessible, providing consumers with a wide range of options.

CHALLENGES

COMPETITION FROM THE UNORGANISED SECTOR

The presence of a large unorganised sector in the footwear industry poses a challenge to organised players, as unbranded and cheaper alternatives are readily available.

INFRASTRUCTURE LIMITATIONS

Inadequate logistics and distribution networks, particularly in rural areas, can impede the reach of footwear brands.

COUNTERFEIT PRODUCTS

Counterfeit and low-quality footwear products flooding the market pose a challenge to the growth of genuine brands.

Overall, the footwear market in India is experiencing robust growth, driven by various factors such as rising income levels, urbanisation and e-commerce. However, challenges persist, including competition from the unorganised sector and counterfeit products. To stay competitive, brands need to adapt to key trends, including sustainability, customisation and omni-channel retail strategies.

Company overview

Campus Activewear is a premier fashion and lifestyle footwear brand offering a comprehensive product range designed to cater to diverse family needs across various occasions. The brand?s portfolio emphasises contemporary and dynamic aesthetics, appealing to a broad demographic.

Campus distinguishes itself through its global design approach, presenting an extensive array of styles, colour options and price points, coupled with a compelling value proposition. In a market segment predominantly led by international brands, Campus has established itself as India?s foremost Sports and Athleisure (S&A) footwear brand. The Company?s public listing in 2022 marked a significant milestone, building upon its market leadership position in the Sports and Athleisure (S&A) category of the Indian footwear industry, maintained since 2005.

With its expansive market presence, Campus Activewear has achieved significant brand recognition within the S&A footwear segment, effectively having the largest market coverage of more than 85% of the total addressable market in India. Notably, the Company has attained the highest product drop rate in the domestic footwear category. Campus Activewear continues to solidify its position as the largest and one of the fastest-growing sports and athleisure footwear brands in terms of both value and volume.

Financial highlights

PARTICULARS	FY24	FY23	Y O Y
			CHANGE
REVENUE	14,482.9	14,842.5	(2.4%)
EBITDA	2,153.4	2,563.3	(16.0%)
PAT	894.4	1,171.2	(23.6%)
NET WORTH	6,516.6	5,521.2	18.0%

Key financial ratios

PARTICULARS	FY24	FY23	CHANGE	REASON
CURRENT RATIO	2.40	1.64	(46.01%)	Due to the repayment of current borrowings
DEBT EQUITY RATIO	0.04	0.33	(88.61%)	Due to the repayment of current borrowings
DEBT SERVICE COVERAGE RATIO	3.36	2.49	(34.93%)	Due to the repayment of principal and interest as compared to the previous year
RETURN ON EQUITY	14.86	23.91	(37.85%)	Due to a decrease in profit
INVENTORY TURNOVER RATIO	3.40	3.66	(7.18%)	-
TRADE RECEIVABLES	8.39	8.45	(0.74%)	-
TURNOVER RATIO
TRADE PAYABLES TURNOVER RATIO	3.15	4.16	(24.33%)	-
NET CAPITAL TURNOVER RATIO	3.71	5.01	(25.99%)	Due to an increase in working capital as compared to the previous year
NET PROFIT RATIO	0.06	0.08	(21.82%)	-
RETURN ON CAPITAL EMPLOYED	0.19	0.23	(17.27%)	-

OPPORTUNITIES

The Company anticipates a favourable growth environment fuelled by both external factors like the Indian market landscape and government policies, as well as inherent strengths such as brand power, omni-channel presence and retail refurbishment. As we continue to push boundaries, explore new markets in Western and Southern Regions of India, and cater to evolving consumer needs, we are poised to achieve new heights. The following key growth strategies and factors contribute to our optimistic outlook:

THREATS

Campus Activewear?s performance, along with the footwear industry, can be directly influenced by the dynamic economic environment. Supply chain disruptions, such as those caused by the pandemic and geopolitical conflicts, can drive up raw material prices and overhead costs, thereby impacting our performance.

We may also face certain challenges that could impact our overall performance, including workforce attrition, counterfeit products, the need for continuous innovation and new product development, rapidly changing consumer preferences and the risk of data breaches.

Additional potential threats include:

Risk and concerns

The Board has formed a Risk Management Committee dedicated to thoroughly assessing and mitigating potential risks that could impact the Company?s operations. Detailed responsibilities and the scope of this committee are outlined in the Corporate Governance Report, included in this Annual Report. The Company has identified comprehensive risk factors, both internal and external, to analyse potential risks that may affect its business. These risk factors are detailed extensively in the Red Herring Prospectus (RHP).

Material developments in the human resources/ industrial relations front, including the number of people employed

Human capital is a crucial asset, vital for business sustainability and growth. Campus actively engages, trains and develops the workforce through various programmes and initiatives. These efforts include structured job evaluations and career development opportunities for high-potential managers, training programmes on effective communication, tax literacy and planning sessions, and a special initiative called ‘Be Your Own Laxmi?, which empowers female employees with financial awareness.

Regular training initiatives also encompass Microsoft Excel, Effective Managerial Skills, Fire Safety Training, and Prevention of Sexual Harassment (PoSH) training.

Additionally, we have introduced ESOP Plans – Special Grant 2021 and Vision Pool 2021. These plans are designed to engage, retain and incentivise employees, enabling them to contribute to both current and future objectives. The options offered through these plans not only make employees co-owners but also provide opportunities for future wealth creation.

951

No. of Individuals employed (As of March 31, 2024)

Internal control systems and their adequacy

The Company has established a robust system of internal financial controls that aligns with its size, scale of operations, procedures and policies. This system ensures the orderly and efficient conduct of business, including adherence to Company policies, protection of assets, prevention and detection of fraud and errors, accuracy and completeness of accounting records and timely preparation of reliable financial information.

The Audit Committee meetings involve discussions on the Internal Audit Reports to assess the adequacy and effectiveness of the Company?s internal control environment. Necessary actions are taken to strengthen controls in areas where required for business operations. Additionally, a monitoring process is in place to track the implementation of audit recommendations, including those related to enhancing the Company?s risk management systems.

Following an assessment conducted by the Management and evaluation of the assessment results, the Board of Directors affirm that the Company has sufficient and effective Internal Controls in operation. There have been no instances of fraud that necessitate the reporting of material misstatements in the Company?s operations.

Disclaimer

The MDA section includes statements regarding future prospects that may be forward-looking in nature. These statements involve a variety of identified and unidentified risks and uncertainties that could potentially lead to material differences in actual results. In addition to the changes occurring in the macro-environment, there may be unforeseen and constantly evolving risks to the Company and its operating environment. The assumptions made in the report, which are based on available internal and external information, serve as the foundation for determining certain facts and figures. However, as the factors underlying these assumptions can change over time, the estimates upon which they are based may also change accordingly.

It?s important to note that these forward-looking statements reflect the Company?s current intentions, beliefs or expectations, and they are valid only as of the date on which they were made. The Company does not assume any obligation to revise or update these forward-looking statements, whether due to new information, future events or any other reason.