Ethos Limited
Issue Open
Price Band
Issue Size
Credit of Shares to Demat
Issue Close
Bid Lot
Listing Exchange
Cut off time for UPI Mandate Confirmation
Issue Type
Minimum Order Quantity
Allotment Details
Face Value
Listing On
Refunds
Issue
Details
Dates: May 18,
2022, to May 20, 2022
Price Band: Rs. 836
to Rs. 878 per share
Minimum Lot: 17
shares
Minimum
Application Amount: Rs. 14,212 to Rs. 14,926
Total Issue
Size: Up to Rs. 475 crores (Offer for Sale Rs. 100 crores)
Objects of
the offer
The company will be issuing a
fresh issue of Rs 375 crores while rest 100 crores will be Offer for Sale. The
net proceeds of the fresh Issue will be used to repay or prepay all or a
portion of the company's borrowings, in full or in part. The majority of the
funds will be used to meet the company's working capital needs as well as to
fund the opening of new stores and the remodeling of existing ones.
Pre & Post Shareholding
Corporate Profile & Business
overview
Ethos Limited was incorporated on November 5, 2007,
with KDDL Limited as one of the company's promoter. In the financial year 2020,
Ethos was India's leading luxury and premium watch retailer, with a 13 percent
share of overall retail sales in the premium and luxury category and a 20
percent share in the luxury category.
Ethos has a pan-India presence, with a network of stores
and boutiques in towns and regions across the country. It has 50 locations in
17 different cities. Ethos Summit is home to only bridge to luxury, luxury, and
high luxury brands, whereas Ethos Stores are home to the premium and fashion
selection. The average selling price of their watches increased from Rs 73,261
in Fiscal 2019 to Rs 1,42,795 in 9MFY22.
Ethos also sells merchandise on its website. The fashion
and below ranges are digitally enabled, while the premium and luxury ranges are
voice enabled. Visitors can explore the latest watch debuts, read reviews, and
choose from over 7,000 premium, bridge to luxury, luxury, and high luxury
watches from 50 brands on their website, which had 21,844,216 visitor sessions
as of the calendar year ending December 31, 2021.
Ethos loyalty program, Club Echo, has registered members,
and repeat purchasers account for 35 percent of the company's annual revenue.
Financials
Particular
(Rs. Crs) |
9MFY22 |
FY21 |
FY20 |
FY19 |
Revenue from Ops |
418.59 |
386.57 |
457.85 |
443.53 |
EBITDA |
56.29 |
56.44 |
54.40 |
58.26 |
EBITDA Margin (%) |
13.44% |
14.60% |
11.88% |
13.14% |
Profit After Tax |
15.99 |
5.79 |
-1.33 |
9.89 |
PAT Margin (%) |
3.82% |
1.50% |
-0.29% |
2.23% |
RoE (%) |
8.07% |
3.72% |
-0.89% |
7.58% |
Cash Flow from Ops |
23.39 |
66.18 |
43.08 |
6.24 |
The company had witnessed a decline in revenue from
operations in FY21 owing to setback suffered from Covid-19 but bounced back in
9MFY22. EBITDA Margin has remained stable in the range of 12-15%. PAT margin
has fluctuated between 0-4%, largely on account of the low margin business. ROE
has remained below par throughout the years in the range of -1 to 8%. Debt-equity
ratio trend has improved from 1.08x in Fiscal 2019 to 0.60x in 9MFY22.
Strengths
Access
to a large base of luxury customers: Ethos has
access to about 283,300 HNI customers as of March 31, 2022. The number of
sessions on their digital platform climbed throughout the calendar years, from
15.47 million in 2019 to 21.46 million on December 31, 2021. Each of their
product lines is a discretionary item that is heavily dependent on consumer
spending trends and, as a result, is vulnerable to factors that influence
consumer spending.
Omni
Channel Presence: Ethos was quick to build a solid
digital infrastructure, which has been a crucial strength that has allowed them
to grow their business and customer base. Their digital team is made up of
around 70 people that work in various departments such as performance
marketing, creative, content, social media, product/website, technology, and internet
sales. Their website features over 50 brands, providing a wonderful environment
for visitors to not only buy timepieces online, but also to learn about them
and their histories.
Certified
pre-owned business: Ethos also sells certified
pre-owned luxury watches through its 'Certified Pre-Owned' ("CPO")
luxury watch lounge in New Delhi, in addition to premium and luxury timepieces.
Indian CPO Market is at a very nascent stage with CPO contributing only 0.2% of
Overall Premium & Luxury watch market. In comparison, the global CPO luxury
market was approximately 33% of its Overall premium & luxury watch market. This
market, however, presents an opportunity for ETHOS to grow significantly from
the current base, in line with global trends.
Leadership
position in an attractive luxury watch market: Ethos
is market leader in luxury category with 20% market share. The company’s 64% revenue comes from
retail of luxury & high luxury watches. Premium
watches have a retailer margin of 20% to 25%, whereas bridge to luxury watches
have a margin of 25% to 28%, and luxury and above watches have a margin of 20%
to 35%. Because the luxury and above watch segments demand higher margins, the
selling of high-value luxury and above watches can be more profitable. The
luxury watch market's tendency for customers to become repeat customers, across
age and income levels, benefits the company significantly.
Risks
No exclusive suppliers: In the absence of exclusivity with their suppliers, the
majority of their suppliers operate with them on a nonexclusive basis. Ethos
may face competition from entities with greater financial resources. The
majority of their suppliers do not have exclusive agreements with them. They
may not be able to sell exclusive products that are not available through other
Indian merchants if exclusivity is not granted.
Company's business partly depends on the success of
third-party brands: The
success of the company is directly tied to the performance of the watch brands
it sells, including their reputation, financial condition, marketing tactics,
product development, and general quality and success of their operations in
comparison to competitors. Ethos has no control over such brand management or
operations. As a result, a range of external variables influencing these brands
could have a major negative impact on the company's business.
High Competition: Various domestic and foreign players compete against the
company, which may have an impact on its competitive position and
profitability. Some of their competitors may have a longer track record, more
financial and technical assistance, product development and marketing
resources, and a stronger brand reputation, allowing them to compete more
effectively. The company’s pricing power may be impacted as a result of
increased competition and the lack of exclusive agreements with suppliers.
Contingent Liabilities: As of
December 31, 2021, March 31, 2021, and March 31, 2020, contingent liabilities
stood at Rs 37.08 crore, Rs 36.54 crore and Rs 3.33 crore, respectively. If
these liabilities materialize, it may adversely affect financial condition.
Valuations & Conclusion
Company |
RONW |
NAV per share |
EPS |
Ethos Limited |
8.07% |
105.48 |
11.65 |
Ethos has no listed Indian peer and hence its valuations
are not comparable. Basis the annualized FY22 earnings, the issue is priced at
a P/E of 75.36x. This valuation seems expensive especially considering the fact
that the company has low return ratios, a mediocre financial performance as
well as very small revenue size compared to other retail focused listed
companies. Further, in March, 2022 the company had made a pre-IPO placement of
Rs. 826 and now in less than 2 months the company is commanding a close to 6.5%
higher price at the top band, even when the market sentiment has only worsened
post March.
Fundamentally as well, while the company does command a
leadership position, it doesn’t have any pricing power or exclusive suppliers. Further,
the increasing competition in the sector is also a concern.
So, taking into account these factors and considering that
the company has no moat, we advise investors to ‘Avoid’ this IPO.