IGI Logo

Salient features of the IPO:

* Ethos Ltd. (Ethos), a luxury & premium watch retailer is coming up with an IPO to raise Rs. 375cr, which opens on 18th May and closes on 20th May 2022. The price band is Rs. 836 - 878 per share.

* The company on 28th Mar. 2022, executed a pre-IPO placement of 0.03cr shares at Rs. 826 per share. Amount raised from pre-IPO placement was Rs. 25cr. Consequently, it reduced the size of fresh issue from Rs. 400cr (as mentioned in the DRHP) to Rs. 375cr.

* The IPO is a combination of fresh issue and OFS portion. It will not receive any proceeds from the OFS part. Of the fresh issue net proceeds (from the pre-IPO placement and the fresh issue), Rs. 235cr will be used to fund the working capital requirement; Rs. 33.3cr will be utilized to finance the establishment of new stores & renovation of existing stores; Rs. 29.9cr to be used for the repayment/pre-payment of the debt and another Rs. 2cr will be utilized for upgrading the ERP system of the company.

* In the last one year, Ethos has executed couple of ESOPs allotments (of 0.01cr shares at Rs. 120 per shares) and right issue (of 0.046cr shares at Rs. 550 per share), both at significant discount to the IPO price band.

Key competitive strengths:

* Access to large luxury customer base • Leading luxury watch omnichannel retail player of India

* Strategically located and well invested store network with attractive in-store experience

* Strong and long-standing relationships with luxury watch brands

* Leadership position in an attractive luxury watch market

* Early mover advantage in certified pre-owned business

* Founder-led company supported by a professional management team

Risk and concerns:

* Unfavorable government policies and regulations

* Supplier concentration risk

* Store based revenue concentration risk

* Difficulty in anticipating consumer demand and trends

* Difficulty in expanding the store network • Difficulty in sustaining current profitability margins

* Competition

Below are the key highlights of the company:

* In FY20, the domestic watch market was valued at Rs. 13,500cr and is further expected to grow at 10.6% CAGR to reach a size of Rs. 22,300cr by FY25. With 65% share in the overall market, the domestic watch market is dominated by the organized players with an estimated market size of Rs. 8,700cr. The organized market contributed 92% to the premium & luxury watches segment.

* Ethos is the leading vertical specialist of luxury watches & accessories in India. It is a subsidiary of KDDL Ltd., a dials & watch hands making company. Ethos is the largest retailer of premium & luxury watches in India. It has a 13% retail market share in the premium & luxury watch segment, while a 20% retail market share in the exclusively luxury segment.

* Currently, Ethos has 50 physical retail stores in the multi store format spanned across 17 cities in India. Through these stores, it represented +50 premium & luxury watch brands in India and offered over 7,000 varied premium & luxury watches to the retail customers.

Key highlights of the company (Contd…)

• Besides having physical retail stores, the company has omnichannel presence through its website and social media platforms. Ethos is the market leader in the luxury omnichannel watch market in India. Its website, “www.ethoswatches.com” is India’s largest website for premium & luxury watches (in terms in number of brands and watches offered). As of 31st Mar. 2022, the company had about 0.25cr website users, around 0.28cr active email subscriptions, 0.17cr Instagram followers, 0.16cr Facebook followers and 0.12lakh You Tube subscriptions.

• The company either has exclusive or non-exclusive agreements with the global watch brands. Prominent brands represented by Ethos include names like Omega, IWC Schaffhausen, Jaeger LeCoultre, Balmain, Panerai, Bvlgari, H. Moser & Cie, Rado, Longines, Baume & Mercier, Oris SA, Corum, Carl F. Bucherer, Tissot, Raymond Weil and Louis Moinet. Among the above brands, the company has exclusive marketing rights for Carl F. Bucherer, Raymond Weil, Oris SA, Corum, Parmigiani etc.

• In addition to the retailing of premium & luxury watches, Ethos is also into the retailing of certified pre-owned luxury watches in India. Started in 2019, its only ‘Certified Pre-Owned’ (CPO) luxury watch lounge is located at National Capital Territory of New Delhi. In FY20, the domestic pre-owned luxury watch market was valued at Rs. 40-50cr, i.e. around 0.2% of the domestic luxury & premium watch market. Globally, the CPO luxury watch market is estimated at USD 18bn i.e. 33% of the global luxury & premium watch market. Thus the domestic market represents huge opportunity for the pre-owned luxury watch segment. Ethos with its first mover’s advantage in the CPO segment is well placed to benefit from the same.

• Leveraging its vertical specialty in retailing, Ethos is planning to expand into adjacent luxury offerings in various product categories like eyewear, jewellery, luggage, cosmetics, writing instruments etc. The company has recently entered into an agreement with Rimowa, for retailing their range of luxury luggage and Messika, for retailing their range of luxury jewellery in India. Going forward, Ethos intends to expand its product offerings in the existing as well as in other new product categories.

• Operating and financial performance over FY19-21 was mainly impacted by the general economic slowdown in the initial period and Covid-19 pandemic in the later part. During the period, its consolidated top-line declined by 6.6% CAGR to Rs. 386.6cr in FY21. As per the RHP, average realization for the company increased by 22.5% CAGR, implying a 23.7% CAGR fall in the sales volume. Cost of revenue, as a percent of top-line increased from 71.1% in FY19 to 72.9% in FY21, thereby leading to a 250bps contraction in the EBITDA margin during the period. Consolidated EBITDA declined by 16.3% CAGR to Rs. 39.7cr in FY21. Reported PAT declined 23.5% CAGR to Rs. 5.8cr in FY21. PAT margin contracted by 73bps during FY19-21.

• Except FY19, the company reported positive cash flow from operation during FY19-21. Financial liabilities declined by 2.6% CAGR with debt-to-equity ratio improving from 1.2x in FY19 to 1x in FY21. Average RoIC and RoE during the period stood at 1.4% and 3.5%, respectively.

To Read Complete Report & Disclaimer Click Here

Please refer disclaimer at https://choicebroking.in/disclaimer

Above views are of the author and not of the website kindly read disclaimer