Up 160% from 52-week low! Here's why Axis Securities sees 30% upside in Ethos stock

Shares of luxury watch retailer Ethos Limited have recovered around 160 per cent from its 52-week low of Rs 918, hit on March 16, 2023. The small-cap stock is up around 45 per cent in the last 6 months. It made its all-time high at Rs 2,669.95 on February 08, 2024.

About the company

Ethos is the largest luxury and premium watch retailer in India, which delivers luxury watches through websites, social media platforms and physical stores. It operates on an omnichannel model and allows customers to order products either offline or online.

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. The company has over 50 physical retail stores in 17 cities in India.

Part of Mukul Agrawal, Sunil Singhania portfolio

For the quarter ended on December 31, 2023, Mukul Mahavir Agrawal owned 6,40,000 equity shares in the company, the same number of equity shares as on September 30, 2023. Similarly, Singhania's Abakkus Growth Fund-II continued to hold 3,02,663 equity shares of the company during the December 2023 quarter.

Ethos on D-Street

Ethos was listed on May 30, 2022, when the company raised a total of Rs 472.29 crore via its IPO, by selling its shares for Rs 878 apiece. The scrip got listed at Rs 825 on the National Stock Exchange, down 6 per cent from its offer price of Rs 878.

Axis Securities on Ethos Limited

According to Axis Securities, Ethos’ future is underpinned by the company's robust and consistent performance over the last several quarters, driven by continued strong demand in the premium and luxury watch space, foraying into the fast-growing CPO segment, increasing share of high-margin exclusive brands, diversification into the fast-growing luxury segment – luggage and jewellery and strong room for margin and ROCE expansion.

It noted that Ethos incorporated a wholly-owned subsidiary in Feb 2024 to tie up with retailers to sell watches under Rs 80,000. Previously, the company had shifted focus away from this segment to concentrate on watches above Rs 1 lakh.

However, due to strong demand from global watch brands, Ethos will now sell these watches through other retailers. Additionally, these watches will be assembled in India under an exclusive contract agreement, enabling Ethos to earn higher margins through RF.

"We anticipate robust CAGR growth for the company in terms of revenue and profit over FY23-26. This positive trajectory is expected to enhance the overall ROCE profile for the company from 16 per cent in FY23 to 21 per cent in FY26," the brokerage firm said.

"Currently, at the current share price, the company is trading at 45x/31x its FY25/26 earning per share (EPS). With improved visibility in earnings growth and a stronger return profile, the stock appears attractive within the Small-cap space. We maintain a 'Buy' rating and value the company at 40x FY26 EPS to arrive at a target price of Rs 3,100 per share," it further added.

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