The ₹472-crore initial public offering (IPO) of luxury watch retailer Ethos opened today. The IPO, which will close on May 20, has set a price band of ₹836-878 per equity share.
The issue consists of a fresh issue of equity shares worth ₹375 crore and an offer for sale (OFS) of up to 11.08 lakh equity shares by the promoters and shareholders of the company. After the issue, the promoter shareholding will decline 19.36 percent and come down to 61.65 percent from the 81.01 percent stake held by them currently in the company.
The largest luxury and premium watch retailer aims to utilize the net proceeds of the public offer towards repayment or pre-payment of its debt, funding the working capital required for the company and financing the capital expenditure for establishing new stores.
Most brokerages are bullish on the issue due to the strong growth prospects of the company as the Indian watch market is sizeable and pegged at ₹13,500 crore in FY2020.
Let's take a look at what the brokerages have to say:
Nirmal Bang: Subscribe for Long Term
According to the brokerage, the company is expanding its stores (13 new stores over the existing 50 stores in the next three years) and with new categories it believes, Ethos 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 the future, and on current valuations, it looks attractive on EV/EBITDA and EV/Sales basis and therefore, we recommend “Subscribe for Long Term”, it said.
Anand Rathi: Subscribe
“At the high of the issue price-band (Rs878), the stock is valued at 285x FY21 P/E and 55x FY21 EV/EBITDA and we reckon a high and rising market share and unique brand partnerships to be positives,” a report from Anand Rathi Research said while recommending investors to ‘subscribe’ to the issue. It, however, added that the concern of reduction in discretionary spending, Covid-19 or any future pandemic and most of its suppliers being non-exclusive.
The report also noted that the revenue of the company grew 3 percent in FY20 and fell 16 percent in FY21 (impacted by Covid-19). The EBITDA margins ranged from 13 percent to 2 percent while PAT margins ranged from 10 percent to -0.3 percent over FY19-21. For the first nine months of FY22, revenue was ₹420 crore and the EBITDA margin came at 10.9 percent, it informed.
Marwadi Financial Services: Subscribe with caution
The brokerage has a “subscribe with caution” rating for the IPO as it believes the IPO is richly priced and the company will have to continue growing its business at a high growth rate in order to justify its valuation which keeps us cautious for a long term perspective.
Emkay Financial Services: Not Rated
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 luxury categories, it said. The broekrage further added that Ethos’ average selling price (ASP) has increased from ₹73,261 in Fiscal 2019 to ₹1,42,795 for the nine months period ended December 31, 2021, led by an increase in the mix of luxury and high luxury watch categories.
