Detailed Rationale CRISIL Ratings’ ratings on the bank facilities of Campus Activewear Limited (CAL) continue to reflect the healthy market position of the Campus group in the footwear industry backed by strong brand, geographically diversified presence and wide product portfolio, along with comfortable financial risk profile. These strengths are partially offset by stretched working capital cycle and exposure to intense competition.
CRISIL Ratings has upgraded its rating on the long-term bank facilities of CAL to 'CRISIL A+/Stable' from ‘CRISIL A/Positive’ and reaffirmed the ‘CRISIL A1’ rating on the short-term facility on July 29, 2022
The rating upgrade reflects the improved performance of the Campus group in fiscal 2022 and the expectation that the improvement will sustain over the medium term. Capacity enhancement, increasing revenue contribution of online channels, strong brand equity and 100% own assembly line will drive sustenance of the improved business risk profile over the medium term. In fiscal 2022, the revenue of the group grew 67% to Rs 1,195.5 crore from Rs 712.6 crore in the previous fiscal, with sales volume rising to 1.93 crore pairs from 1.30 crore and average selling price increasing to Rs 620 per pair from Rs 547. The revenue is expected to grow in the range of 25%-30% in fiscal 2023 supported by expected ramp-up of operations following capacity enhancement, healthy demand from 2500+ new designs launched in the three years through fiscal 2022 and strong brand recall in the mid-premium segment.
Earnings before interest, tax, depreciation and amortisation (Ebitda) margin improved to 20.51% in fiscal 2022 from 16.72% in fiscal 2021, supported by the inhouse sole manufacturing unit in Ganaur and sustained price pass-through to end consumers in a regulated manner. The margin is expected to remain healthy around 20% over the medium term. Focus on exclusive brand outlets, diversification through online channels and franchisee model should continue to support the business risk profile and healthy return on capital employed (RoCE) over the medium term. Sustenance of working capital cycle, primarily inventory management, remains a key monitorable.
The ratings also factor in the strong financial risk profile of the Campus group, driven by healthy networth of Rs 600 crore backed by continuous accretion to reserve. Gearing was less than 1 time over the three fiscals ended March 31, 2022, driven by healthy cash accrual leading to strong networth. Debt protection metrics remained healthy as indicated by interest coverage and net cash accrual to adjusted debt ratio of 13.28 times and 1.02 times, respectively, in fiscal 2022. |
Analytical approach CRISIL Ratings has combined the business and financial risk profiles of CAL and its wholly owned subsidiary Campus AI Pvt Ltd (CAIPL). This is because both the entities, together referred to as the Campus group, are in the same business and have strong business linkages.
Please refer Annexure - List of entities consolidated, which captures the list of entities considered and their analytical treatment of consolidation |
Key rating drivers and detailed description Strengths: Established market position with strong brand visibility: The four-decade-long experience of the promoters, their strong understanding of market trends and healthy client relationships will continue to support the business risk profile of the Campus group. Moreover, robust brand visibility and diversified product range have helped maintain scale of operations. The revenue surged 67% on-year in fiscal 2022, driven by continuous enhancement in capacity and introduction of innovative designs and products over the years.
Comfortable financial risk profile: Strong networth of Rs 600 crore and healthy total outside liabilities to adjusted networth ratio of 0.82 time as on March 31, 2022, indicate the robust capital structure. Gearing remained below 0.50 time over the past four fiscals, despite debt-funded capital expenditure (capex) in the past three years, driven by healthy networth. Debt protection matrices have improved as reflected in net cash accrual to total debt ratio of 1.02 times and interest coverage of 13.28 times in fiscal 2022. Stable profitability and continuous accretion of reserve should improve the debt protection metrics.
Geographically diversified presence and wide product profile: The group has strong brand presence across India through multi-brand outlets and stores. It has a dominant market position owing to its strong focus on, and stocking of, various designs. The group markets products to retailers across India through 425+ distributors and more than 20,000 retail touch points. Also, CAL has 107 exclusive brand outlets. While it has a strong presence across India, more than half its revenue comes from the north and steps to increase presence in the south and west are bearing fruit as is visible from the increasing revenue contribution of these regions. This will help insulate revenue and profitability from change in preferences of customers in any region.
Weaknesses: Exposure to intense competition: The Campus group has positioned itself in the affordable to mid-luxury footwear segment, where it has to compete with established brands, such as Bata, Liberty, Lancer and Relaxo, and several unorganised players. Furthermore, the business risk profile is constrained by price sensitivity of the target segment, which limits the ability to pass on any sharp increase in raw material prices to customers. The group remains exposed to the risk of competitive designs, changes in customer preferences and growing presence of international brands. This forces the group to continuously develop new designs to stay ahead of competition.
Working capital-intensive operations: Gross current assets (GCAs) stood at 184 days as on March 31, 2022, driven by inventory of 136 days and receivables of 41 days. The receivables days are continuously improving over the past three years and will continue to do so over the medium term as the revised policy by the management now allows credit of 60-70 days. The working capital requirement is partially supported by payables of 119 days as on March 31, 2022. The group maintains large inventory to manage the inflationary challenges and supply chain disruptions and also due to increase in online sales the inventory levels have gone up. While the GCAs are expected to moderate in fiscal 2023, operations are likely to remain working capital intensive over the medium term and its prudent management with increase in scale of operations remains a rating sensitivity factor. |
Liquidity: Strong Cash accrual is expected to remain healthy at Rs 200-230 crore per annum, against yearly debt obligation of Rs 40-50 crore over the medium term. Bank limit was utilised 60-65% over the 12 months through March 2022. Current ratio was moderate at 1.6 times as on March 31, 2022. The group had unencumbered cash balance of Rs 30 lakh as on March 31, 2022. |
Outlook: Stable The Campus group will continue to benefit from its healthy market position, aided by strong brand visibility and diverse product range. |
Rating Sensitivity Factors Upward Factors
Downward Factors
|
About the Group In 1983, Mr H K Agarwal founded the Action brand, which became a household name in the casual and sports footwear segments in India. Mr Agarwal and his brothers subsequently entered other sectors, such as healthcare, power and coal mining. In 1997, the Action group launched its premium Campus brand.
CAL, incorporated in 2008, and CAIPL established in August 2015 as a partnership firm and reconstituted in 2020 as a private limited company, are part of the Hari Krishan Aggarwal group, which has been in the footwear business for over three decades. CAL did not have any significant operations before March 2017. In May 2022 the company got listed on the Bombay Stock Exchange and the National Stock Exchange. |
Key financial indicators
|
Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of instrument(s)
|
Annexure - List of Entities Consolidated
|
| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | |||
| Facility | Amount (Rs.Crore) | Name of Lender | Rating |
| Cash Credit | 30 | Axis Bank Limited | CRISIL A+/Stable |
| Cash Credit | 40 | CTBC Bank Co Limited | CRISIL A+/Stable |
| Cash Credit | 160 | HDFC Bank Limited | CRISIL A+/Stable |
| Letter of credit & Bank Guarantee | 1 | Axis Bank Limited | CRISIL A1 |
| Letter of credit & Bank Guarantee | 11 | HDFC Bank Limited | CRISIL A1 |
| Proposed Long Term Bank Loan Facility | 25.6 | Not Applicable | CRISIL A+/Stable |
| Term Loan | 15.25 | Axis Bank Limited | CRISIL A+/Stable |
| Term Loan | 10.15 | HDFC Bank Limited | CRISIL A+/Stable |
This Annexure has been updated on 28-Nov-22 in line with the lender-wise facility details as on 16-Nov-22 received from the rated entity.
Criteria Details
|