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Initial public offering (IPO) by Ethos Limited, one of the largest watch retailers in the Indian premium and luxury watch industry, is slated to hit the primary market on Wednesday to raise Rs 472 crore from investors. The company has fixed a price band of Rs 836-Rs 878 per share for the public offer, which will close on May 20. The IPO includes a Rs 375 crore fresh issue and an offer for sale (OFS) of 11.08 lakh shares. Following the listing, the market capitalisation of Ethos at the cap price would be around Rs 2,050 crore. Shares of the company are proposed to be listed on leading stock exchanges BSE and NSE both.
Below are other key things you should know before subscribing to the issue.
About the company
Ethos has a sizeable portfolio of premium and luxury watches in India, enabling it to retail 50 premium and luxury watch brands like Rolex, Omega, IWC Schaffhausen, Jaeger LeCoultre, Panerai, Bvlgari, Rado, Longines, Tissot. The company enjoys a market share around 13 per cent in the ‘premium and luxury watch retail’ segment in India. The company is a subsidiary of listed company KDDL Ltd. KDDL, along with its subsidiary Mahen Distribution and the promoter group, has a pre-offer stake of around 81 per cent in Ethos, which shall drop to 62 per cent after a successful IPO.
Strategy
1: What is a stock?
Going ahead, Ethos’ strategy is to improve assortment for existing brands as well as bring new brands to India through exclusive partnerships or otherwise, expand retail presence with 13 new stores and scale-up complimentary channels of CPO/ other luxury categories. According to Emkay Global Financial Services, Ethos’ average selling price (ASP) has increased from Rs 73,261 in fiscal 2019 to Rs 1,42,795 for the nine months ended December 31, 2021, led by an increase in the mix of luxury and high luxury watch categories.
Objective of Ethos IPO
The proceeds from the issue will be used in the following manner:
1. Rs 29.89 crore will be utilised for the repayment of debt,
2. Rs 236.75 crore for funding working capital requirements,
3. Rs 33.27 crore for financing establishment of new stores,
4. Rs 1.98 core for financing upgradation of enterprise resource planning (ERP) and
5. general corporate purpose
What investors should do
Nirmal Bang Securities has given a ‘Subscribe for long term’ rating to the issue. “The company is expanding its stores (13 new stores over 50 existing in the 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,” the brokerage said.
On the other hand, Marwadi Financial Services has given a ‘Subscribe (with caution)’ rating to the issue. “The IPO is richly priced and the company will have to continue growing its business at a high growth rate to justify its valuation which keeps us cautious from a long term perspective,” the brokerage said.
ICICI Securities has given an ‘Avoid’ rating to the issue. It said that over the last five years, revenues have grown at a moderate pace of around 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 cent).
“Despite Ethos following an asset-light business model, higher capital blockage in inventory and lower margins have translated into company reporting single-digit RoE (around 7-8%). At the upper end of the price band, Ethos is valued at 95 times P/E on an annualised FY22E basis. Sustained enhancement in profitable growth and improvement in return ratios would be key monitorables, going ahead,” ICICI Securities said.
Risk Factors
- Ethos does not have definitive agreements for the supply of products or fixed terms of trade with a majority of its suppliers. The failure to successfully leverage supplier relationships and networks could adversely affect the company.
- The company’s business partly depends on the continued success and reputation of third-party brands across the globe. Any negative impact on these brands or the failure to protect intellectual property rights may severely affect Ethos’ operations
- Most of the company’s suppliers work with them on a non-exclusive basis. In the absence of exclusivity with suppliers, Ethos may be subject to stiff competition from entities that have more resources.
- Ethos is dependent on watch brands for the manufacturing of all the products it sells. Any disruptions in third-party manufacturing facilities or the failure to adhere to relevant quality standards could harm the company’s reputation.
- The inability to identify customer demand accurately or maintain an optimal level of inventory in stores may adversely impact its operations.
How to apply for an IPO?
- Login to your 5paisa account and select the issue in the
current IPO section - Enter the number of lots and price at which you wish to
apply for - Enter your UPI ID and click on submit. With this, your
bid will be placed with the exchange - You will receive a mandate notification to block funds in
your UPI app - Approve the mandate request on your UPI and funds
will be blocked
10 key things to know before subscribing to the issue
1 IPO dates
The offer will open for subscription on May 18 and will close on May 20.
2 Price Band
Of the IPO, 50 percent of the offer is reserved for qualified institutional buyers (QIBs), 35 percent for retail investors and the remaining 15 percent for non-institutional investors.
4 Objectives of the Issue
The company intends to utilise the net proceeds from the fresh issue to pre-pay or repay in part or full the existing loans availed by the company to an extent of Rs 29.89 crore. A sum of Rs 234.96 crore will be used towards funding the working capital requirements, Rs 33.27 crore for opening new stores and renovating existing ones and Rs 1.98 crore will be for the upgrade of ERP system. The remaining funds will be used for general corporate purposes, the company has said.
The company will not get any proceeds from the OFS portion.
5 Lot size
Investors can bid for a minimum lot size of 17 shares and in multiples thereof. The minimum investment for a retail investor works out to be Rs 14,926 at the upper end of the price band for 17 shares. A retail investor can apply for up to 13 lots, or 221 shares, for Rs 1,94,038.
6 Company profile & industry
The company was incorporated as “Kamla Retail Limited” on November 5, 2007. It was India’s largest luxury and premium watch retail player with a 13 percent share of the total sales in premium and luxury segment and a 20 percent share when seen in the exclusive luxury segment in the financial year 2020.
Ethos Limited delivers premium and luxury watches through websites, social media platforms and physical stores. It operates on an omni-channel model and allows customers to order products either offline or online. It also allows them to browse product catalogues and place orders online with doorstep delivery.
The company’s watch portfolio has 50 premium brands, including 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.
Its network includes 50 physical retail stores in 17 cities and has 7,000 different premium watches and 30,000 watches in stock at any given time.
In addition to their premium and luxury watch retail, Ethos also undertakes retail of certified pre-owned luxury watches under ‘Certified Pre-Owned’ luxury watch lounge in New Delhi.
The luxury and high luxury watch sales constituted 46.06 percent of the total sales in FY19, 48.09 percent during FY20, 58.00 percent in FY21 and 64.41 percent during the 9-month period ended December 31, 2021.
7 Financials
For FY21, Ethos reported revenue of Rs 386.57 crore as against Rs 457.85 crore a year ago, registering a YoY decline of 15.6 percent. Net profit for the period stood at Rs 5.79 crore versus a loss of Rs 1.33 crore last year. For the nine months ended December 2021, the company generated more revenue than it achieved in whole of FY21. The company recorded revenue of Rs 418.59 crore during the first nine months of FY22 and the net profit for the period jumped to Rs 15.99 crore.
Its net margins for 9MFY22 stood at 3.82 percent as against 1.50 percent in FY21.
8 Strengths and business strategy
The company’s strength lies in its access to a large base of luxury customers and the leadership position it enjoys in the attractive luxury-watch market. Its deep understanding of digital and omnichannel commerce coupled with a strategically located and well-invested store network with an attractive in-store experience provides Ethos a strategic edge over its competitors.
Ethos has strong and long-standing relationships with the world’s leading luxury watchmakers, through which it is able to offer its customers the respected luxury watches brands in the world, the company said in it is documents.
9 Promoters & key management personnel
Mahen Distribution Ltd and Yashovardhan Saboo are the promoters of the company. They hold 14,790,121 equity shares, representing 77.52 percent of the issued, subscribed and paid-up equity share capital.
Saboo is the managing director of the company since incorporation and Pranav Shankar Saboo is the CEO.
Ritesh Kumar Agrawal is the chief financial officer and Anil Kumar the company secretary and compliance officer.
10 Grey market, allotment and listing dates
The company’s shares are not commanding premium in the grey market, according to IPO Watch and IPO Central, both of which track the grey market movements.
