Ethos Ltd IPO

Published by Sharekhan Education | May 18, 2022

Ehos Ltd IPO

Amit Pathak | Sharekhan Education

Ethos Ltd IPO details:  

Issue size: ₹ 472 Cr
Price Band: ₹836 – ₹878
The issue opens on: Tuesday, 18th May’2022
The issue closes on: Thursday, 20th May’2022

Company Overview:

Ethos is one of India’s largest luxury and premium watch retail players. It has a portfolio of around 50 luxury brands like Omega, Rado, and Tissot with a 13% share of total retail sales in the premium and luxury segment. Ethos has a chain of 50 physical retail stores in 17 cities in India and offers an omni channel experience to its customers through its website and social media platforms. It has also forayed into retailing certified pre-owned luxury watches.

Objectives of Issue:

The IPO is a combination of an offer for sale (OFS) and a fresh issue. The company will use the proceeds from the fresh issue  for funding working capital requirements, the establishment of new stores, and the repayment of debt. Investors have to  apply for minimum 17 shares and in multiples thereon. Post allotment, the company will list shares on BSE and NSE. Listing of the equity shares will result in the enhancement of the brand name.

Industry Overview:

The Premium & Luxury Watch Market comprises the segments: High Luxury (₹ 10 lakhs and above), Luxury (₹2.5 to ₹10 lakhs), Bridge to Luxury (₹1 to ₹2.5 lakhs), and Premium Watches (₹25,000 to ₹1 lakhs). This segment is primarily dominated by traditional watches, which are bought by consumers for their quality, legacy, and brand value. It is expected to grow at a CAGR of 12% in FY20-25E on the back of factors like increased discretionary spending on the watches category, the opening of more organized channels of purchase like Multi Brand Outlets (MBOs) and online marketplaces & vertical specialists, and increased penetration of smart watches in mid to premium category.

Competitive Strengths:

Ethos has long-standing relationships with luxury watch brands, developed over the years. Relationships with owners of luxury watch brands is crucial for success. The company’s understanding of luxury customers has enabled them to evolve its customer base. Over 283,300 registered members have subscribed to their loyalty program, Club Echo, granting the company unique insights into customer buying patterns and rewarding loyalty. By giving their consumers both physical and digital shopping experiences they remain relevant at all the touch-points of a consumer’s journey.

The company has an early mover advantage in certified pre-owned business which was largely dominated by the unorganized sector contributing almost 80% of the market.

The company’s performance depends on the continued success and reputation of its third-party brands globally, and any negative impact on these brands may adversely affect its business. The growth of online retailers may create pricing pressure & increase competition. They also face foreign exchange risks. In the past, Ethos experienced a downgrade in its credit rating. Any future downgrading in the credit rating can make it difficult to raise finance for its requirements.

Financials:

Over the last five years, revenues have grown at a moderate pace of ~11% CAGR. There is a higher capital blockage in inventory (Inventory days: 170+). The company has reported single-digit RoE (~7-8%). At the upper end of the price band, Ethos is valued at ~95x P/E on annualized FY22E basis.  We maintain a negative view of the company.

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