Both offers open in the midst of rising volatility in the secondary markets and experts advise investing in them only for the long term
The primary market will turn active again after a gap of three weeks, with initial public offerings (IPOs) this week from Campus Activewear and Rainbow Children’s Medicare. Most experts advise subscribing to both issues only for the long term. They said Campus looks fully priced and Rainbow is reasonably priced.
The IPO from sports and athleisure footwear brand Campus Activewear opens on April 26 and closes on April 28. The offer by multi-speciality paediatric and gynaecology hospital chain Rainbow Children’s Medicare is open from April 27 to April 29.
The shares offered in the Campus IPO would be worth about Rs 1,400 crore at the higher end of the price band of Rs 278-292, while for Rainbow they would be worth Rs 1,581 crore at the upper limit of the price band of Rs 516-542.
Campus Activewear IPO
“The Campus Activewear IPO seems to be fully priced. However, we would suggest that only long-term investors subscribe to this IPO,” said Divam Sharma, founder of Green Portfolio.
Campus Activewear enjoys a significant market share in the branded sports and athleisure footwear segments. The company’s expansion plans will ensure it will cross new milestones in the coming years. It posted significant growth in the top line and bottom line until the third quarter of FY22, up from the setback on account of the pandemic in FY21, Sharma said.
The company clocked a five-fold increase in net profit to Rs 84.8 crore from a year earlier on strong revenue growth and operating income and also partially on account of a low base, for the nine months ended December 2021.
Revenue in the same period increased 93 percent YoY to Rs 842 crore and EBITDA climbed 204 percent to Rs 165 crore with margin rising 718 bps YoY to 19.63 percent. EBITDA is earnings before interest, tax, depreciation and amortisation.
However, in FY21, profit declined 57 percent from a year earlier to Rs 26.86 crore on higher tax cost and a drop in revenue due to Covid-19-led lockdowns. Revenue fell 2.8 percent to Rs 711.3 crore and EBITDA decreased 13.4 percent to Rs 119.8 crore.
The company’s average selling price per pair is on the rise. It climbed to Rs 615 in the nine months ended December 2021 from Rs 533 in the year-ago period. In FY21, the average selling price per pair was Rs 546, up from Rs 509 in FY20 and Rs 481 in FY19.
Private equity firm TPG-backed Campus Activewear, India’s largest sports and athleisure footwear brand, enjoys competitive advantages including integrated manufacturing facilities, strong brand recognition, and a robust distribution network.
The company has good growth prospects, good relationships with stockists and suppliers, a focus on in-house designing, and an enviable supply chain network.
However, “all the positives are priced in as the share is priced at a PE of 78.5 (annualised FY 22 earnings) and being an offer for sale, we recommend this issue for long-term investors only,” said Santosh Meena, head of research at Swastika Investmart.
The offering of 47.95 million shares is entirely an offer for sale by the promoters and investors of Campus Activewear. The company will not receive any money from the IPO and all funds will go to the selling shareholders, which is a concern raised by some analysts.
“Campus is uniquely positioned to tap growth comparable to Puma, Nike and Adidas with lower price points and gaining market share. Investors will still see little bit of concern as the entire IPO is an offer for sale by promoters and other investors, which means nothing comes on the table in the company,” said Prashanth Tapse, vice president (research) at Mehta Equities.
Rainbow Children’s Medicare IPO
The IPO of CDC Group-backed Rainbow Children’s Medicare comprises a fresh issue of shares worth Rs 280 crore and an offer-for-sale of up to 24 million shares by the promoters and investors. Funds from the fresh issue will be used to redeem non-convertible debentures of Rs 40 crore and to set up new hospitals and purchase medical equipment (Rs 170 crore).
The company’s profit fell 28.5 percent to Rs 40 crore in FY21 and revenue declined 10 percent to Rs 650 crore from a year earlier. However, profit for the nine months ended December 2021 increased substantially to Rs 126.41 crore from Rs 38.53 crore a year earlier. This spurt in profitability may have been due to the second wave of Covid-19 hospitalisations in Q1 of FY22 as a similar trend was witnessed in other hospitals.
“We believe that this exponential rise in profit might not continue in the future. However, the specialised nature of the business, experienced management team, proven ability to attract, train and retain high-calibre medical professionals, and under-penetration of hospitals in India make this issue good for long-term investors,” said Meena.
Rainbow Children’s Medicare is a multi-specialty paediatric and obstetrics and gynaecology hospital chain in India. It has followed a financially disciplined model, focusing on cost-effective growth. The company is expected to expand its hospital network through the acquisition of brownfield assets or the development of greenfield assets.
“The business is expanding rapidly and is also witnessing momentum in child healthcare services. The valuations basis FY22 annualised earnings seem reasonable. Investors can invest for the long-term time horizon,” said Sharma.
Market volatility
Both IPOs are set to open amid rising volatility in the secondary markets that were under major selling pressure for the second consecutive day on April 25 due to Covid-led lockdown fears in China and hawkish commentary from the US Fed Reserve.
The IPOs carry volatility risk considering the way the markets are behaving in response to global headlines. Risk-seekers can think of parking money in both the IPOs.
“If one is a conservative investor looking for a decent listing-gains kind of opportunity, it’s better to give up and stay away,” said Tapse. “I will wait and watch Campus post-listing in case I get an opportunity to catch Campus at discounted valuation from the IPO offer.”
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