Buy Ethos Ltd for Target Rs.3,320 by Axis Direct
Growth Momentum Continues; Maintain BUY
Est. Vs. Actual for Q2FY27: Revenue – BEAT; EBITDA – MISS; PAT – INLINE Changes in Estimates post Q2FY27
FY27E/FY28E: Revenue: -2%/-2%; EBITDA: -13%/-11%; PAT: -20%/-16%
Recommendation Rationale
* Strong Revenue Momentum: Ethos delivered robust revenue growth of 30% YoY in Q2FY27, driven by healthy SSSG of 15%, continued store expansion and a favourable premium product mix, reflected in an ASP of Rs 2.22 Lc. The company added two boutiques during the quarter and another in Q3FY27 till date, taking its network to 106 boutiques across 35 cities. Additionally, the onboarding of 27 new watch brands and 12 boutique additions further strengthened its portfolio and leadership position in the luxury watch retail segment.
* Margin Performance: Gross margin improved 23 bps YoY to 29%; however, EBITDA margin contracted 63 bps YoY, primarily due to higher operating expenses associated with aggressive store expansion, including a 46% YoY increase in employee costs. Additionally, the quarter included a one-off expense of Rs 5 Cr towards the GPHG Exhibition 2026 in Mumbai, which showcased 78 of the 84 nominated timepieces across 14 categories.
* Expanding Reach Through New Retail Formats: The company has introduced Hour Studio, an online retail format targeting the Rs 10,000-2 Lc watch segment to broaden its customer reach. Building on its online presence, the company plans to launch its first physical boutique this year, marking the next phase of expansion through differentiated retail formats.
* Positive Growth Outlook: Ethos remains well-positioned to sustain growth, supported by continued expansion of its luxury watch and lifestyle portfolio. The company plans to enter five new markets - Agra, Faridabad, Amritsar, Visakhapatnam, and Calicut - while deepening its presence in existing markets. Through Ethos Lifestyle, it is also selectively onboarding global brands and developing new retail concepts and proprietary IP to strengthen its luxury retail positioning. Going ahead, the focus on exclusive brand partnerships, enhanced customer experience, operational efficiencies, and disciplined store expansion is expected to support profitable growth and long-term value creation.
Sector Outlook: Positive
Company Outlook & Guidance: Despite near-term earnings sensitivity to currency movements, the company’s structural growth drivers remain intact. Accordingly, we maintain our BUY recommendation on the stock, with estimates cut for FY27/FY28.
Current Valuation: 38xSep’28E EPS (Earlier Valuation: 38xJun’28E EPS )
Current TP: Rs 3,320/share (Earlier TP: Rs 3,360/share).
Recommendation: We maintain our BUY rating on the stock.
Financial Performance:
Ethos delivered strong top-line performance despite a challenging environment, with revenue growth of 30% YoY, and SSSG stood at 15.3% in Q2FY27. EBITDA grew by 23.7% YoY to Rs 61 Cr, while EBITDA margin contracted by 63bps at 12.1% due to higher manpower cost and other expenses. The company’s PAT grew by 23.4% to Rs 29 Cr YoY
Valuation & Outlook
Ethos remains well-positioned to sustain its growth trajectory, supported by strong demand in the premium and luxury watch segment, expansion into high-growth markets, and an increasing contribution from high-margin exclusive brands. Its diversification into adjacent categories, including Certified Pre-Owned (CPO) watches, lower-ticket watches through Hour Studio, and luxury lifestyle brands such as RIMOWA and Messika through Ethos Lifestyle, provides additional growth avenues while catering to a wider customer base. Further, an expanding retail footprint, portfolio premiumisation and potential improvements in margins and ROCE strengthen the long-term growth outlook. We expect Ethos to deliver a revenue CAGR of 28% and PAT CAGR of 17% over FY25-28E. Given strong earnings growth visibility and an improving return profile, we maintain our BUY rating, valuing the stock at 38x Sep’28E EPS to arrive at a TP of Rs 3,320/share, implying an upside of 16% from the CMP
Key Risks to Our Estimates and TP
* Higher volatility in the currency exchange rate (CHF/INR)
* Slowdown in the luxury and premium segments.
* Slowdown in store expansion
* Increase in competitive intensity.
* Increase in GST on luxury goods.
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