Ethos Watches - What's making it Tick
A Well managed Luxury Retail growth story
Ethos is the undisputed market leader in the luxury watch industry in India, boasting a commanding 13% share of total retail sales in premium and luxury watches & 20% in exclusive luxury watches. The company manages a portfolio of over 60 watch brands, with more than 40 available exclusively through its stores.
At present, they operate around 60 stores in India and plan to grow revenues at 25-30% by opening 8-12 stores annually with 12-15% Same-store sales growth. Moreover, the company aims to tap into emerging luxury markets such as Bangladesh, Sri Lanka, Nepal, and the Maldives.
Ethos has successfully diversified its product range into the fast-growing Certified Pre-Owned (CPO) watch segment, currently enjoying little competition, and is eyeing further expansion into luxury jewelry and travel luggage through strategic partnerships with Rimova and Messika to deepen its luxury brand status.
The turning point for the company’s fortunes can be attributed to its strategic shift from the fashion segment to the luxury/high-luxury segment, resulting in a remarkable increase in the average realization by ~22% p.a. from ~Rs. 62k in FY18 to ~Rs. 160k in FY23.
The company has cultivated substantial relationships with major global watch brands, a significant moat in its competitive landscape. Furthermore, Ethos has amassed a valuable database of High Net Worth Individuals (HNIs) with ~300k loyalty program members, and 45% repeat purchases, positioning it as an ideal partner for global brands seeking entry into the Indian market.
Ethos has demonstrated robust performance, with a 4-year sales CAGR of 15%, even in the face of the challenging COVID-19 years of 2020 & 2021. The margin profile is stable & gradually improving, with gross margins of 31% and EBITDA margins of 14.5% as of FY23.
While Ethos' valuations may not be cheap, trading at a 3-year forward P/E of 28x, its position in an emerging market with untapped demand and dominance in the secondary watch market, which is poised for substantial growth, suggests considerable long-term upside potential for the stock.
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