Campus Activewear shares zoom 14% on strong Q4 results; should you still buy?

Shares of Campus Activewear surged almost 14 percent in intra-day deals on Wednesday after the company reported strong earnings for the quarter ended March 2024 (Q4FY24).

In the March quarter, the company posted a 42.6 percent year-on-year (YoY) jump in its net profit at ₹32.7 crore as against ₹23 crore in the same period last year. Meanwhile, its revenue rose 4.6 percent YoY to ₹364 crore versus ₹345 crore in the year-ago period.

Sequentially, the company's net profit grew 31.5 percent from ₹24.9 crore in the December 2023 quarter (Q3FY24) whereas revenue fell 23 percent QoQ from ₹471 crore in Q3FY24 due to seasonality effect.

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On the operating front, EBITDA rose 16 percent YoY to ₹66.4 crore in Q4FY24 as compared to ₹57.1 crore in Q4FY23. It was up 15.3 percent sequentially. EBITDA margin also increased to 18.3 percent in the quarter under review from 16.4 percent in the year-ago period and 12.2 percent in the December quarter.

The stock rose as much as 13.7 percent to its day's high of ₹284.45. Post today's rally, the stock has now advanced 33.6 percent from its 52-week low of ₹212.80, hit on March 28, 2024. Meanwhile, its is still over 17 percent away from its 52-week high of ₹344, hit on May 30, 2023.

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The stock has shed 30 percent in the last 1 year and is up 1.6 percent in 2024 YTD. It has risen over 14 percent in May so far, extending gains after an over 15 percent jump in April. However, it was in the red in the first 3 months of the year, down 12 percent in March and February each; and 1.5 percent in January 2024.

For the full financial year 2023-24 (FY24), the company's net profit declined 23.7 percent to ₹89.4 crore versus ₹117 crore in FY23. Meanwhile, its revenue also fell 2.4 percent to ₹1,448.3 crore from ₹1,484.2 crore in FY23.

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"We would like to perceive FY24 as a transitionary year. Campus Activewear made a strong comeback in H2FY24 with a vigoured focus on trade distribution and new launches. The Company was successful in grabbing customers’ mindshare and wallet shares from its prudent investment in the brand for its R&D-enabled products. 

Campus Activewear continued to expand its geographical footprint in FY24. The Company added 66 stores in Western, Southern, and Eastern states of India taking the total EBOs to 250+ during the year. Despite of the challenging business environment, we remained committed to strengthening our balance sheet. The Company repaid its borrowing of INR 156 Crore in FY24, thereby achieving net-debt-free status during FY24. Additionally, we have made significant improvement in our working capital days from 108 days in FY23 to 79 days in FY24 led by lower inventory and conscious trimming of receivable days," said Campus Activewear’s CEO Nikhil Agarwal.

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Post the earnings release, brokerage house Motilal Oswal has retained its ‘buy’ call on the stock with a target price of ₹295, implying an upside of 17 percent.

" Our channel checks depict: 1) prolonged macro headwinds, particularly in the value segment, in the northern belt, as evident from the performances of all players, and 2) increased competitive intensity as other players are offering low-ASP products and high channel commissions, which have led to distributor churn. Campus’s premiumization strategy, focusing on the INR1,000-2,000 ASP segment, could see headwinds in the current weak environment, where we see down-trading across discretionary categories. The ongoing weak environment, coupled with the churn in distributors and decline in O2O business partners, has hurt revenue growth. However, soft growth in the TD channel offset the O2O/B2B business declines. Elevated SG&A expense will be a headwind for EBITDA margin improvement," it said.

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The brokerage broadly maintained its estimates, factoring in 14%/35% revenue/PAT CAGR over FY24-26. The stock has corrected sharply; however, Campus’s strong market position and a long runway for growth should result in market recovery in 2HFY25E.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.