The company and its shareholders plan to raise Rs 472 crore from the primary market. The issue consists of issuance of fresh equity shares of Rs 375 crore and offer for sale (OFS) of up to 11.08 lakh equity shares by existing shareholders and promoter aggregating to Rs 97.3 crore.
According to the data from BSE, the investors made bids for 11,78,185 equity shares or 30 per cent compared to the 39,79,957 equity shares offered for the subscription by 11.25 am on Thursday, May 19.
The quota for retail bidders was subscribed 57 per cent, whereas the allocation for non-institutional bidders was subscribed merely seven per cent. The portion for qualified institutional buyers was not even off the mark.
Analysts are mixed on the issue. Some believe it is a long-term investment while others believe you should avoid subscribing to the IPO given rich valuation demanded by the company. Low growth track record of the company also works against it.
Over the last five years, revenues have grown at a moderate pace of 11% CAGR in FY17-22 (annualising 9MFY22 sales). The company has clocked in average PAT margins of 2-2.5% (except for 9MFY22 wherein the company reported higher PAT margins of 3.8%), noted analysts.
“Despite Ethos following an asset light business model, higher capital blockage in inventory (Inventory days: 170+) and lower margins have translated into companies reporting single digit RoE (7-8%). At the upper end of the price band, Ethos is valued at 95x P/E on an annualised FY22 basis,” said Bharat Chhoda of .
He has assigned ‘AVOID’ rating and awaits consistency in improvement in profit metrics that the company has exhibited in recent quarters. Sustained enhancement in profitable growth and improvement in return ratios would be key monitorables, going ahead, he added.
Though not everyone has such bearish expectations from the firm. Some believe there is a story here that requires attention. Runjhun Jain of Nirmal Bang said going forward, the company is expanding its stores (13 new stores over 50 existing in next three years) and with new categories it 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 future. On current valuations, it looks attractive on EV/EBITDA and EV/Sales basis and therefore, we recommend ‘subscribe for long term’”, said Jain.
Ethos is the largest luxury and premium watch retailer in India, operating on an omnichannel model. Its watch portfolio has 50 premium brands including Omega, IWC Schaffhausen, Jaeger LeCoultre, Panerai, Bvlgari, Rado, H Moser & Cie, Longines, Baume & Mercier, Oris SA, Carl F Bucherer, Tissot,
Weil, Louis Moinet and Balmain.
Saurabh Joshi of Marwadi Financial Services also assigned ‘subscribe with caution’ rating to the IPO but said the IPO is richly priced and company will have to continue growing its business at high growth rate in order to justify its valuation. This keeps them cautious from a long term perspective.
Amarjeet Maurya of Angel One said most of the positives of the issue are already priced in the price band. He assigned a ‘neutral’ rating on the offer.
Key positives and negatives for the issue that brokerages outline:
Positives:
- Market leader in Luxury watch segment in India
- Strategically located and well invested store network
- Strong and long-standing relationships with luxury watch brands
- Founder-led company supported by a professional management team
Negatives:
- Increase in competition
- Slowdown in the economy could impact the overall revenue of the company
- Absence of definitive agreements with brands/suppliers
- High revenue concentration from top three stores
- Inability to renew lease of stores and warehouses
