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Ethos LTD

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Brief Company Introduction
Ethos Limited (“Ethos”) was incorporated on November 5, 2007 and promoted by KDDL Limited. Ethos is India’s largest luxury and premium watch retail player. thos is India’s largest luxury and premium watch retail player having 13% share of the total retail sales in premium and luxury segment and 20% share when seen in the exclusive luxury segment in FY20.  Ethos has 50 stores spread across 17 cities. Ethos Summit exclusively houses bridge to luxury, Luxury & High Luxury Brands, while Ethos Stores house the premium & fashion range as well. Ethos sell their products through (i) stores categorized as Ethos Summit Stores, multi-brand stores, Ethos Boutiques, Airport Store, CPO luxury watch lounge, and mono-brand boutiques, and (ii) via online channels.

Q4FY23 Updates

Financial Results & Highlights

Detailed Results:

  1. Omni-channel approach and strategic partnerships with Swiss brands will increase market share and improve margins.
  2. Q4 FY ’23 revenue from operations increased by 30.8% to INR 208 crores compared to INR 159 crores in the previous year.
  3. EBITDA for Q4 FY ’23 grew by 33.4% year-on-year (Y-o-Y) to INR 30.6 crores.
  4. Profit after tax for Q4 FY ’23 was INR 13.3 crores, showing a growth of 69.4% Y-o-Y.
  5. Revenue for FY ’23 stood at INR 788.5 crores, with a growth of 36.6% Y-o-Y.
  6. EBITDA for FY ’23 was INR 128.9 crores, showing a growth of 61.7% Y-o-Y.
  7. Profit after tax for FY ’23 was INR 60.3 crores, with a PAT margin of 7.5% compared to 4% last year.

Investor Conference Call Highlights 

  1. Temporary foreign exchange impact resulted in a decrease in gross margins, which is expected to be phased out with price corrections in Q1 FY ’24.
  2. Inventory days on 31st March ’23 stood at 157 days of sales, gross debt was INR 8 crores, and cash and cash equivalents were INR 228.6 crores.
  3. The company stated that India is recognized as one of the markets with the highest growth potential for premium and luxury goods.
  4. The company stated that Retail expansion is happening not only in metro cities but also in Tier 2, Tier 3, and Tier 4 cities. 
  5. There is a sustained rise in the interest of the younger population (25-40 years) in mechanical watches.
  6. Growing interest in the second-hand market and changing habits of buying and selling pre-owned luxury goods. The pre-owned market offers affordability and collectability, gaining popularity among the younger generation.
  7. The Indian watch market is fast-growing, and Ethos Limited is confident in expanding and exploring this market.
  8. Ethos Limited currently has 56 stores in 22 cities and plans to open 40 more locations in the next two years.
  9. Ethos Limited is relatively new in the jewelry market and believes its expertise from the watch industry will help develop an effective strategy for jewelry markets
  10. Revenue from the pre-owned watch segment (second movement) in FY ’23 was INR 50 crores, showing a growth of 61% year-on-year.
  11. Ethos Limited aims to continue store expansions and sales growth while focusing on profit growth and profitability.
  12. Confident in the growth prospects for FY ’24, with a target of achieving revenue growth between 25% and 30% for the year.
  13. The company stated that previously, rapid growth was observed only in the high price segments, but now growth is happening across all segments.
  14. Supply side constraints in the watch industry are easing, but there are still constraints for collectible and high-demand models.
  15. Ethos Limited has exited the fashion watch segment below certain price points and is focused on higher-priced segments.
  16. The brand Messika, which Ethos Limited has started with, is gaining traction, and there are plans to expand points of sale.
  17.  India is gaining importance for international and Swiss luxury brands, and Ethos Limited expects to receive allocations of hard-to-find pieces in the future.
  18. The depreciation of the INR may lead to higher watch prices, which could impact consumer sentiment.
  19. The management is satisfied with the current gross margins, which are ahead of projections and comparable to global luxury watch business margins.
  20. SSG (same-store sales growth) for the previous year was 30%, which was an outlier. The steady target for the next three to four years is SSG growth between 12% and 15%.
  21. The company remains open to exploring other segments in the future, but they are currently focused on their core expertise in the watch industry.
  22. The company is targeting both new cities and new geographies within existing cities for opening new stores. Examples of new cities include Indore, Bhopal, Siliguri, Bhubaneshwar, Raipur, and Surat. They are also focusing on new locations within cities like Bangalore and Ahmedabad.
  23. The company expects a stable gross margin range of 30% to 31% on a yearly basis, which is comparable to other international luxury watch retailers. There is a possibility that gross margins could increase slightly in the coming years, especially with the addition of more exclusive brands.
  24. The company has not observed any similar slowdown in Swiss watch demand in India. They remain confident in the growth potential of the luxury watch segment.
  25. The company’s focus is on achieving profitability within the first year of store operations.
  26. The company stated that Service revenue and the pre-owned business are separate entities. Currently, service revenue is not focused on as a profit center, but the goal is to structure the service business as a profit center in the future. In the previous year, service revenues were estimated to be in the range of INR 6 crores to INR 7 crores.
  27. The company has invested in the revived brand called Haute-Rive, which is created by a talented watchmaker. The brand specializes in highly specialized, collectible watches with high price points. The watches are expected to be available in about 12 to 18 months. This investment provides strategic information about high-end watchmaking, including supplier networks, influencer networks, and market trends.
  28. Certified Pre-Owned- CPO revenue is INR 50.4 crores, showing a growth of over 60% compared to the previous year’s revenue of INR 52.5 crores (billing).
  29. The company stated that approximately 46% of the sales come from repeat customers.

Analyst’s View

Ethos Limited operates a chain of luxury watch boutiques. The Company retails new and used watches for men and women, as well as accessories such as bags, cufflinks, jewellery, wallets, and wolf watch boxes. The company has been in the business for more than 15 years. The company’s performance in Q4 and FY ’23 demonstrates its dominance in India’s premium and luxury watch segments. It remains to be seen how the company deals with steady rise in inflation and changing trends in the watch business specifically. Given the company’s strong positioning, Ethos is a good premium goods stock to look out for.