Ethos raises Rs 142-cr from anchor investors including Nomura Singapore; IPO opens, should you subscribe?

Ethos’ Rs 472-crore IPO opened for subscription on Wednesday, and will close on 20 May

Ethos IPO
Nirmal Bang has advised investors to subscribe to Ethos IPO for long-term, while ICICI direct has suggested to avoid this issue.

Ethos’ Rs 472-crore IPO opened for subscription on Wednesday, and will close on 20 May. Chandigarh-based Ethos has garnered Rs 141.69 crore from 9 anchor investors ahead of its initial share sale. The company informed the exchanges that it has allocated 16.13 lakh shares at Rs 878 per share on Tuesday, May 17, 2022 to anchor investors. The anchor investors in Ethos’ IPO includes marquee names such as ICICI Prudential FlexiCap Fund, Jupiter India fund, Saint Capital Fund, Cohesion MK Best Ideas Sub-Trust, Jupiter South Asia Investment Company Ltd- South Asia Access Fund, Coeus Global Opportunities Fund, Alchemy Leaders of Tomorrow- Closed ended fund Series 2, UPS Group Trust, and Nomura Singapore Limited ODI.

Out of the total allocation of 16,13,725 equity shares to the anchor investors, 5,29,601 equity shares (i.e 32.82% of the total allocation to anchor investors) were allocated to one domestic mutual fund through a total of one scheme. There are no listed companies in India that engage in a business similar to that of Ethos.

Ethos has a sizeable portfolio of premium and luxury watches in India, enabling it to retail 50 premium and luxury watch brands like Rolex, Omega, IWC Schaffhausen, Jaeger LeCoultre, Panerai, Bvlgari, Rado, Longines, Tissot. The company enjoys a market share of 13% in the ‘premium and luxury watch retail’ segment in India.

Should you subscribe to Ethos IPO?

Nirmal Bang has advised investors to subscribe to Ethos IPO for long-term, while ICICI direct has suggested to avoid this issue. Nirmal Bang said that he company is expanding its stores (13 new stores over 50 existing in next three years). “With new categories we believe 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,” it said.

Despite Ethos following an asset light business model, higher capital blockage in inventory (Inventory days: 170+) and lower margins have translated into company reporting single digit RoE (~7-8%), ICICI Direct said. At the upper end of the price band, Ethos is valued at 95x P/E on an annualised FY22E basis. “Sustained enhancement in profitable growth and improvement in return ratios would be key, monitorable, going ahead,” the research firm added.

Analysts at Marwadi Financial Services have recommended subscribing to this issue but with caution.While Angel One has given ‘neutral’ rating to it. Analysts at Angel One said that in terms of valuations, the post-issue TTM P/E works out to 96.2x (at the upper end of the issue price band), which is high considering company’s historical top-line & bottom-line negative CAGR of ~7% and ~24% respectively over FY19-21. “However, Ethos has a healthy market share in total retail sales in the premium and luxury segment. Further Ethos has strong brands and a wide range of products but we believe that these positives are captured in the valuations commanded by the company,” it added.

Marwadi Financial Services has assigned subscribe (with caution) rating to the IPO as the company is a leading luxury watch omnichannel retail player in India. “However, 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 from a long term perspective,” it added.

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