Campus Activewear targets mid-teens growth as pricing and premiumisation support margin recovery

Investment View and Valuation

Motilal Oswal Financial Services Limited retained its Buy recommendation on Campus Activewear after a slightly weaker first quarter of FY27. The broker sees mid-teens revenue growth, supported by volume growth, price increases, product premiumisation and wider distribution, as the key catalyst for a potential re-rating.

The broker reduced its target price to Rs 310 from Rs 325, valuing the stock at 40 times September 2028 estimated EPS of Rs 7.8. The revised target implied 42 per cent upside from the report CMP of Rs 219.

1Q FY27 Financial Performance

Campus Activewear reported 1Q FY27 revenue of Rs 3,852 million, up 12 per cent year-on-year but 4 per cent below Motilal Oswal's estimate of Rs 4,011 million. Volume increased approximately 12 per cent to 5.7 million pairs, while reported average selling price remained flat at Rs 674.

Management said reported revenue growth was reduced by around 4.5 per cent because of temporary online-platform accounting changes, including Flipkart, and the transition of franchise stores to the sale-or-return model. D2C online and offline revenue grew 16 per cent and 18 per cent respectively, while trade distribution grew around 9 per cent.

Gross margin expanded around 35 basis points to 55.0 per cent and exceeded expectations despite raw-material inflation. However, EBITDA margin declined around 15 basis points year-on-year to 14.2 per cent and was 155 basis points below the broker's expectation. Employee costs rose 15 per cent following minimum-wage revisions, while other expenses increased 13 per cent because of costs associated with recently commissioned facilities.

Pricing, Distribution and Store Expansion

Management implemented an approximately 8 per cent blended price increase across the portfolio from April 2026. It said the increase has been absorbed without meaningful disruption to demand, supported by resilient secondary demand and record dealer orders. The company does not intend to reverse the pricing if input costs ease.

Campus Activewear reiterated its guidance for mid-teens revenue growth, split broadly equally between volume and average selling price growth. It also retained its medium-term EBITDA-margin aspiration of 17-19 per cent.

The company opened 18 stores during the quarter, its highest addition in seven to eight quarters, and plans to add around 90-100 stores in FY27. Expansion is focused on underpenetrated Kerala, Tamil Nadu and the North-East. Rajasthan, Maharashtra, Madhya Pradesh and Chhattisgarh continue to show strong traction.

Growth and Margin Outlook

Motilal Oswal believes that Campus Activewear's expansion beyond sports shoes into sneakers, women's and kids' categories, together with its affordability-led positioning, sharper segmentation and stronger execution relative to peers, can improve product mix and pricing.

The broker forecasts the following FY26-29 compound annual growth rates:

• Volume: 6 per cent
• Average selling price: 7 per cent
• Revenue: 13 per cent
• Reported EBITDA: 16 per cent
• PAT: 20 per cent

EBITDA margin is expected to rise by about 155 basis points to 18.0 per cent by FY29, including approximately 65 basis points of gross-margin expansion from premiumisation and mix improvement.

Estimate Changes and Key Risks

Motilal Oswal marginally raised its FY27 and FY28 revenue estimates by 0.9 per cent each. FY27 EBITDA estimates changed by 0.6 per cent, while FY28 EBITDA estimates declined by 0.2 per cent.

The key pressures identified in the report are:

• Raw-material inflation.
• Minimum-wage increases.
• Higher costs from newly commissioned facilities.
• The risk that slower volume or price-led growth could delay margin improvement.