Ethos debuts on a weak note; stock lists at 6% discount to issue price

Ethos, luxury and premium watch retail player, made a weak debut on the bourses with its shares listed at Rs 825, a 6 per cent discount when compared to its issue price of Rs 878 per share on the National Stock Exchange (NSE) on Monday. Post listing, the stock hit a high of Rs 839.95 and a low of Rs 800, the exchange data shows.

On the BSE, the stock opened at Rs 830, 5 per cent lower as against the issue price. It had hit a high of Rs 839.65 and a low of Rs 796.80 in intra-day trade post listing.

At 10:05 am; Ethos traded at Rs 812.75, a 7 per cent discount to its issue price, as compared to 1.8 per cent rise in the S&P BSE Sensex. A combined around 920,000 equity shares had changed hands on the NSE and BSE.

Ethos had raised Rs 472 crore through initial public offer (IPO). The proceeds from the fresh issuance will be utilised for repayment of debt, funding working capital requirements, opening new stores and general corporate purposes.

The IPO had managed to scrape through with just 1.04 times subscription. The retail investor portion of the issue was subscribed 84 per cent, high networth individual portion was covered 1.48 times and institutional investor category received 1.06 times subscription.

Ethos has the largest portfolio of premium and luxury watches in India and retails 50 premium and luxury watch brands like Omega, IWC Schaffhausen, Jaeger LeCoultre, Panerai, Bvlgari, H. Moser & Cie, Rado, Longines, Baume & Mercier, Oris SA, Corum, Carl F Bucherer, Tissot, Raymond Weil, Louis Moinet and Balmain. It enjoys a healthy market share in the luxury and premium watch retail segments in India.

Over the last five years, Ethos’s revenues have grown at a moderate pace of 11 per cent CAGR in FY17-22 (annualising 9MFY22 sales). The company has clocked in average PAT margins of 2-2.5 per cent (except for 9MFY22 wherein the company reported higher PAT margins of 3.8 per ent).

Despite Ethos following an asset light business model, higher capital blockage in inventory (Inventory days: 170+) and lower margins have translated into company reporting single digit RoE (~7-8 per cent). At the upper end of the price band, Ethos is valued at ~95x P/E on annualised FY22E basis. Sustained enhancement in profitable growth and improvement in return ratios would be key monitorables, going ahead, analysts at ICICI Securities said in IPO note.

Going forward, Ethos is expanding its stores (13 new stores over 50 existing in next three years) and with new categories we believe it can grow strongly. “We understand that the company is very small as compared to other listed retail players and focused on one category (currently), we believe that there is scope for growth in future. On current valuations, it looks attractive on EV/EBITDA and EV/Sales basis,“ Nirmal Bang Securities had said in IPO note.

Ethos does not have definitive agreements for supply of products or fixed terms of trade with majority of its suppliers. Failure to successfully leverage its supplier relationships and network could adversely affect the Company. Business partly depends on the continued success and reputation of its third-party brands globally, and any negative impact on these brands, or a failure by it or owners of these brands to protect them, as well as other intellectual property rights and proprietary information, may adversely affect its business, results of operations, financial condition and cash flows, are among key concerns according to HDFC Securities.

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