Ethos Ltd IPO: Pricey Valuation

Ethos Limited is tapping the capital markets with its fresh issue of Rs375 crore and an offer for sale of 11.08 lakh shares in a price band of Rs836-878. The issue opens on Wednesday (May 18) and closes on Friday (May20). The anchor book would be finalised on Tuesday. Incidentally, the company had done a pre-IPO of Rs25 crore at an issue price of Rs826 on March 28, 2022.

Ethos is a luxury and premium luxury watch retailer in India. The company is India's largest retailer of luxury and premium watches and currently has 50 stores through which it sells its products. These stores are in premium malls, luxury malls, high street and it also runs the Delhi Airport duty free store. It has a market share of 20 per cent in the luxury watch market and 13 per cent in the premium and luxury watch markets. Ethos dominates the space in terms of scale, profitability and offerings.

The luxury watch market is highly organised and is cashing in on urbanization and the rapid increase in disposable income. Readers would be surprised to note that there is a MRP from each of the watch manufacturers which retail in India. The difference in this MRP and the price from a duty-free store is less than double digit. This implies that buying watches from luxury stores are not over-exorbitant in any manner. There is also a possibility that one could bargain on the watch price and also get benefits from the loyalty program that Ethos runs for its customers. It is the only brand outlet that has a loyalty program and has over 2.83 lakhs HNI's as customers.

In terms of expansion of the range and products sold through outlets, Ethos has tied up with an international jewellery brand Messika and an international luggage brand, Rimowa to further grow its business. The benefits of these tie-ups will be visible in the coming quarters as the outlets roll by. The company runs an omni-channel distribution model. The online model is a mix of online, shop and chatting which helps in selection of the products.

Revenues for the company were in a range over the last two years during Covid-19 and were badly affected with malls remaining shut. They remained in the range of Rs 440-450 crores. In the first nine months ended December 2021, revenues were Rs 418 crs. In the luxury business brand, the third quarter is a good quarter with festivals being a part of it. The fourth quarter is also a good quarter with marriages forming a large part of spends. EBITDA margins have hovered around 13-14 per cent with the nine-month period reporting 13.11 per cent against the 14 per cent for the full year FY21. PAT margins have improved significantly in the nine-month period to 3.75 per cent against the FY21 figure of 1.43 per cent.

The promoters of Ethos Limited is listed entity KDDL which is into the manufacture of dials and some other parts used by watch makers. This has enabled them to have long term relationships with watch makers around the world. As Ethos says 'Timeless investment in the largest luxury retailer' from their advertisements for the launch of this IPO.

There are no listed peers in this segment for Ethos Limited and therefore a peer comparison is not in place. The company reported an EPS of Rs 8.74 for the nine-month period ending December 2021. The PE band at the above 9-month non-annualised EPS would be 95.65-100.45. Valuations are not cheap and investment is meant only for the classy investor.

(The author is the founder of

Kejriwal Research and Investment Services, an advisory firm)