Ethos - The Timeless Elegance: Axis Securities Initiates Coverage With A 'Buy'

Axis Securities Report

We are initiating coverage on Ethos Ltd. with a 'Buy' recommendation and a price target of Rs 3,050/share, representing an upside of 27% from the current market price.

Our confidence in Ethos's promising future is grounded in the company's robust and consistent performance over the past several quarters. This trend is expected to persist in the coming years, supported by factors such as consistently strong same store sales growth of over 15% and an improving Ebitda margins trend, rising from 11.3% in FY20 to 14.5% in FY23.

This performance is attributed to the company's continued focus on store expansion and an increased emphasis on growing its exclusive brands portfolio, resulting in an overall average selling price increase of 2.2 times from Rs 84,200 in FY20 to Rs 187,500 in H1 FY24.

With a target of reaching 140-150 stores in the next four years, along with an intensified focus on increasing overall ASP, scaling up the certified pre-owned watch segment, and expanding the exclusive brand portfolio, Ethos is expected to achieve healthy revenue/profit after tax growth of 35%/42% compound annual growth rate, respectively, over FY23-26E.

This growth trajectory is anticipated to elevate the company's return on capital employed from 16% in FY23 to 20% in FY26.

Risk and mitigation

• Consumer change requires swift adaption.

• Geographic expansion challenges.

• Supply risk.

• Location and approval risk.

• Currency risk.

• Demand for luxury watches.

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