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Ethos IPO: All You Need To Know

Ethos IPO will open on May 18 and close on May 20.

<div class="paragraphs"><p>Representative image of a man wearing a watch. (Photo: Unsplash)</p></div>
Representative image of a man wearing a watch. (Photo: Unsplash)

Ethos Ltd., a premium and luxury watches retailer, will launch its three-day initial public offering on Wednesday.

The company will issue new stock worth Rs 375 crore, according to its red herring prospectus. The IPO will also see an offer for sale by promoters, comprising 11.08 lakh shares worth Rs 97.30 crore at the upper end of the price band Rs 836-878 apiece. This gives the company a market value of Rs 2,050.10 crore at the upper end.

The company undertook a pre-IPO placement with Abakkus for Rs 25 crore, with shares priced at Rs 826 apiece.

The IPO comes amid global volatility on account of the Russia-Ukraine crisis, resurgence of Covid-19 in China, and tightening of interest rates globally to stem inflation.

Ethos will offer 23.04% of the post-issue equity in the IPO. Promoters, including KDDL Ltd., will own a 61.50% stake in the company after the share sale.

Issue Details

  • Issue opens on: May 18.

  • Issue closes on: May 20.

  • Price band: Rs 836-878 apiece.

  • Issue size: Rs 472.3 crore, including fresh issue of Rs 375 crore.

  • Face value: Rs 10 apiece.

  • Lot size: 17 equity shares and multiples.

  • Listing on: BSE and NSE.

  • Lead managers: Emkay, InCred Capital.

Use Of Proceeds

The company plans to use the proceeds from the fresh issue for:

  • Repayment/prepayment of borrowings: Rs 29.89 crore.

  • Working capital requirement: Rs 234.96 crore.

  • Financing new stores: Rs 33.27 crore.

  • Financing upgradation of ERP (enterprise resource planning): Rs 1.98 crore.

Business

Ethos had a 13% share of the total retail sales in premium and luxury watch segment and a 20% share exclusively in the luxury watch segment as of FY20.

It has a chain of 50 physical retail stores in 17 Indian cities in a multi-store format, along with omnichannel format through its website and social media platforms. For the nine months ended December, nearly 33% of its revenue came from the digital platforms.

It retails 50 watch 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.

Its 50 stores are categorised into 14 Ethos Summit stores and one airport store (that houses bridge-to-luxury, luxury, and high luxury brands), 14 multi-brand outlets and 10 Ethos boutiques (housing bridge-to-luxury and premium brands), 10 luxury segment mono-brand boutiques offering a single luxury watch brand, and one certified pre-owned or CPO luxury watch lounge.

At the end of March 31, it had access to an HNI customer base of over 2,83,300.

The company plans to increase its store count by 13 over the next couple of years. Its business requires access to high working capital to stock up inventory. A large part of the fundraise will be used for working capital requirement.

Revenue for the nine months ended December showed its sales were concentrated in certain tier-I cities in India in a relatively small number of stores. Its top three stores are located in the National Capital Territory of Delhi and Bengaluru, Karnataka, accounting for one-third of its revenue.

Financials

Ethos had a nine-month revenue of Rs 418.60 crore and Ebitda margin of 10.9%.

Peers

Ethos has no listed peer retailers for premium and luxury watches.

Riskss

  • A pandemic like Covid-19 or any future pandemic, or any widespread health or other emergency could adversely affect its business as it would lead to a lockdown of public places where its stores are located.

  • It does not have definitive agreements for supply of products or fixed terms of trade with a majority of its suppliers. Failure to successfully leverage supplier relationships and network could adversely affect the company.

  • Its business partly depends on the continued success and reputation of third-party brands globally, and any negative impact on these brands or a failure by the company or owners of these brands to protect them as well as other intellectual property rights and proprietary information, may adversely affect business, results of operations, financial condition and cash flows.

  • Most of its suppliers work with the company on a non-exclusive basis. In the absence of exclusivity with suppliers, it may be subject to competition from the entities which may have more resources than the company.

  • It is dependent on watch brands for the manufacturing of all the products it sells.

  • Inability to identify customer demand accurately and maintain an optimal level of inventory in stores may impact operations adversely.

  • Its business and sales are significantly concentrated among certain stores.