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.
Objective of the issue
The object of the issue is to repay borrowings (Rs 29.89 crore), fund working capital (Rs 234.96 crore), finance capex for new stores or renovation of certain stores (Rs 33.27 crore), up-gradation of ERP (Rs 1.98 crore) and the rest for general corporate purposes.
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.
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.
According to ICICI Securities, the premium and luxury watch market is expected to grow at a CAGR of 12 per cent in FY20-25E from Rs 6,600 crore to Rs 11,900 crore. The high luxury watch market is expected to grow at 14 per cent CAGR to Rs 1,040 crore in the same period.
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