# 1. Financial Performance ## A. Key Figures * **Operating Revenue:** **₹387 Cr** Q2 FY'26 (+16%) · **12–15% lower** due to channel accounting change * Shoe Units Sold: 5.75 Mn pairs Q2 FY'26 (+7.4% YoY) * Gross Margin: 53.9% Q2 (+110 bps YoY) * **EBITDA:** **₹55 Cr** Q2 · **14% margin** (+140 bps YoY) * **H1 Normalized EBITDA Margin:** **~16%** (vs. reported ~5%) * **Lease Liabilities Repayment:** **₹80 Cr** H1 (up from ₹20 Cr) ## B. Revenue Growth * **Strong Underlying Demand:** Robust **double-digit revenue growth** driven by **strong double-digit expansion in distribution channel** and moderate online channel growth. * **Revenue Recognition Shift:** ~2% growth headwind from structural change with Flipkart/Myntra; **12–15% mechanical revenue reduction** due to direct freight invoicing, offset by lower expenses. ## C. Gross Margin * **Margin Expansion Achieved:** Gross margin improved **100 bps YoY** despite online ASP pressure, supported by **favorable product mix** and **selective price corrections**. ## D. EBITDA Margin * **Significant Margin Leverage:** EBITDA margin expanded **140 bps YoY** to **14%**, reflecting operating discipline and mix benefits. * **Normalized Profitability Strong:** H1 EBITDA margin normalized to **~16%** after adjusting for timing of marketing spend, which is expected to stabilize at **5% of revenue**. * **Margin Aspirations Intact:** Long-term EBITDA margin target of **17–18%** remains, underpinned by scaling **premium product portfolio** with higher-margin potential. ## E. Cash Flow * **Lease Outflow Surge:** Sharp increase in lease repayments driven by **71-year lease commitment** for Pant Nagar facility, reflecting long-term capacity investment. --- # 2. Channel & Distribution ## A. Key Figures * Online Sales Growth: 6% (impacted by timing shift) * **D2C Offline Growth:** **35%** QoQ (driven by LFS expansion) * **Freight & Commission Expense Reduction:** **INR 8 Cr** (due to model realignment) * **Distributor Inventory Level:** **~100 days** (stable, balanced) ## B. Online Performance * **Temporary Revenue Drag:** Online growth moderated due to **shift in Big Billion Days timing** and revised partner model, with **INR 8 Cr lower freight/commission expenses** reflecting direct customer billing. * **Sales Recognition Shift:** A **2–3-day earlier start** to BBD boosted Q2 activity, but **final 5 days of sales deferred to Q3** due to transit, creating a temporary accounting dip. * **Underlying Demand Strength:** Despite weak Q2 reported performance, **strong traction on key platforms** during BBD indicates resilient consumer demand, with **benefits expected in Q3**. ## C. D2C Offline * **Robust Expansion Momentum:** D2C offline delivered **strong double-digit growth**, fueled by **200 new LFS doors** and stable EBO/LFS export contributions. ## D. Channel Inventory * **Healthy Channel Dynamics:** Distributor inventory remains **balanced at ~100 days**, with **no channel stuffing** and **aligned primary-secondary sales**, supporting confidence in sustainable growth. * **Replenishment Confidence:** Campus Activewear’s **secondary replenishment model** and **decent channel inventory levels** signal sustained end-demand, while **October trends remain positive**. --- # 3. Product & Portfolio ## A. Key Figures * **Premium Sneaker Volume Growth:** **>100% YoY** (strategic initiatives) * Women’s Revenue Mix: 16.2% (Q2 FY’26) * **Kids’ Revenue Mix:** **4%–5%** * **Men’s Revenue Mix:** **~78%** * **Accessories Revenue Contribution:** **2%–3%** (FY’25) ## B. Premium Segment * **Strategic Rebalancing:** Premium category strengthened by **>100% growth** in sneaker offerings, driven by undisclosed strategic initiatives and portfolio adjustments. * **Core Strength Maintained:** Company retains leadership in core sports shoes while pivoting toward premium sneakers as a key growth vector. ## C. Women’s & Kids * **Targeted Brand Expansion:** Appointment of **Kriti Sanon** as brand face aims to elevate design, drive innovation, and increase saliency in women’s wear. * **Channel & Product Alignment:** Incentive structures now favor women’s and kids’ products, supporting a **2% improvement in market saliency** from focused NPD. * **Revenue Mix Still Nascent:** Despite progress, women’s and kids’ segments remain small contributors at **2%** and **4%–5%**, respectively. ## D. Apparel Launch * **Pilot Expansion Beyond Footwear:** Apparel launched in Q3, currently in pilot across **~60 EBOs** to gauge consumer response ahead of potential scale-up. * **Premium Positioning:** New line is high-quality and high-set, extending brand reach beyond established accessories business. ## E. Accessories * **Small but Strategic Revenue Stream:** Accessories contribute **close to 3%** of FY’25 revenue, serving as a complementary category to core footwear. --- # 4. Manufacturing & Capacity ## A. Key Figures * **Pant Nagar Transaction Cost:** **₹86 Cr** (incl. facility, registration, levies) · **₹20–25 Cr** building · **₹65 Cr** land * **Total Pant Nagar Spend (est.):** **₹110–115 Cr** (land + building + development) * **CAPEX Plan:** **₹230 Cr** over 3 years (front-loaded) · **₹40–50 Cr/year** maintenance CAPEX * **Capacity Additions:** **+3 Lakh Pairs/Month** (Phase 1 upper line) · **6 Lakh Pairs/Month** (Pant Nagar assembly) ## B. In-House Production * **Cost & IP Advantage:** In-house production offers slight cost benefits and secures **6 to 8-month competitive lead time** through IP protection. * **Premiumization Driver:** Internal capacity expansion enables control over high-end manufacturing, where external vendors lack capability and technology adoption. ## C. Pant Nagar Facility * **Strategic Scalability:** New facility to augment premium upper capacity and serve as a self-sufficient unit with full assembly, enhancing operational scalability. * **Global-Grade Technology:** Equipped with **China and Vietnam-level manufacturing tech** used by MNCs, enabling production of **MNC-standard sneakers**. * **Asset Recognition:** Building capitalized under CWIP, transitioning to fixed assets; land recorded under ROU assets and lease liabilities. ## D. CAPEX Plan * **Front-Loaded Roadmap:** 3-year **₹230 Cr** CAPEX plan prioritizes land and building in Phase 1, with sequential replication and assembly expansion in later phases. * **Capacity Ramp:** Phase 1 adds **3 lakh pairs/month** via new upper line; Phase 3 to focus on assembly to de-bottleneck long-term growth. ## E. Technology Edge * **Automation for Quality:** Incremental upper capacity features **automatic stitching plants with minimal human intervention**, ensuring superior finish. * **Tech Leadership:** State-of-the-art sole technology already deployed last year, reinforcing vertical integration edge in premium segments. --- # 5. Pricing & Demand ## A. Key Figures * **ASP:** **₹672** per pair (+8%) · **₹622** per pair prior year * **Volume Growth:** **+7.5%** in Q2 FY ## B. ASP Trend * **Premiumization Drives ASP:** ASP rose 8% YoY, supported by strategic exit from margin-dilutive low-price products and stabilization at **₹672** over three quarters. * **Limited Premium Segment Penetration:** Despite focus, premium segment (₹1,500+) maintained **2% saliency** YoY, indicating early-stage contribution to mix. ## C. GST Impact * **Leveling the Playing Field:** Reduced GST rates eroded unorganized players’ price advantage, with BIS import restrictions amplifying demand tailwinds for organized brands. * **Demand Recovery Expected:** Management anticipates rebound in consumer spending post-GST clarity, particularly from deferred purchases. ## D. City Tier Demand * **Balanced Premium Demand:** Strong traction in premium sneakers across all city tiers, with no disproportionate concentration in Tier 1 or lower tiers. * **Execution Gains:** Revenue momentum fueled by in-house design, expanded distribution, and higher repeat billing from retail partners carrying broader assortments. ## E. Festive Sales * **Resilient Volume Performance:** Achieved **5% volume growth** despite 15-day disruption from delayed festive sales and GST announcement timing. --- # 6. Input Cost & Execution Risks ## A. Key Figures * A&P Expense Ratio: 10.5% Q2 (phasing effect) · 8.5% full-year projected * **Land Lease Cost:** **INR 5 lakh/month** (charged to P&L) * **Employee Cost Impact:** **0.4%** material margin headwind (temporary, to neutralize by year-end) ## B. Cost Structure & Margin Dynamics * **Stable Full-Year Spend:** A&P expenses tracking to prior-year levels despite phasing; no upward revision to guidance. * **Temporary Margin Pressure:** Material margin impact from elevated employee costs during Haridwar 2 ramp-up expected to **fully reverse by year-end**. * **Lease Costs Transparent:** New land lease expense of INR 5 lakh/month now reflected in P&L, with no hidden liabilities. ## C. Working Capital Management * **Receivables Trend Structural:** H1 reduction driven by favorable channel mix, strong distribution performance, and effective cash discount schemes—not a one-off. * **Working Capital Inflation:** Shorter vendor payment terms under revised MSME laws (90 to 45 days) increasing outflow pressure this year. * **Inventory & Seasonality:** FG build-up linked to Diwali phasing and Q3 demand seasonality, creating predictable working capital cycles. * **Borrowings as Arbitrage Tool:** Current debt is tactical; company to reduce borrowings and working capital by March, leveraging **fixed deposit yields above borrowing costs**. ## D. Procurement Stability * **Procurement Rate Consistency:** Stable input costs over 5 years minimize valuation method impact; FIFO and weighted average effectively equivalent. * **Industry-Aligned Accounting:** Shift to weighted average method enhances comparability and operational simplicity, with **no material financial impact**. * **Immaterial Procurement Gains:** Any onetime variances deemed negligible and not quantified by management. --- # 7. Guidance & Outlook ## A. Revenue Target * **Headline:** Full-year guidance maintained at **double-digit growth** despite Q1 warehouse shifting headwinds, with recovery largely complete by Q2. ## B. Store Expansion * **Headline:** EBO store expansion paused this year to prioritize **profitability** and **store-level optimization**, particularly amid new category launches like apparel. * **Headline:** Expansion set to resume at **70–75 new stores annually** over the next 2–3 years, targeting near **500 total stores** by end of period. ## C. Export Vision * **Headline:** Exports remain a **small, early-stage business**, but positioned for long-term scale under a structured **own-brand GTM strategy** with global rollout in key markets. * **Headline:** **India’s cost advantage over China** provides strong foundation for export competitiveness, with potential for **higher-margin contribution** as operations scale. * **Headline:** Market entries executed in **Sri Lanka, Morocco, and other countries** via high-quality partners across full distribution networks; detailed 2–3 year export roadmap expected by **April**.