Ethos Ltd IPO - 7 things to know

Ethos Ltd, a high end retailer of exquisite watches in India, had filed its draft red herring prospectus (DRHP) in late January 2022 and SEBI is yet to give its observations and approval for the IPO.

Normally, the IPOs are approved by SEBI within a period of 2 to 3 months unless there are other queries or clarifications that the regulator has. The approval is expected either by the end of March or the middle of April.

The issue is likely to happen in the next fiscal. The Ethos Ltd IPO will be a combination of a fresh issue and an offer for sale but the next step will be for the company to finalize on its issue date and issue price after it gets the approval from SEBI.
 

7 important things to know about the Ethos Ltd IPO

1) Ethos Ltd has filed for an IPO with SEBI and is currently awaiting SEBI approval to go ahead with the IPO. The IPO comprises of a fresh issue of Rs.400 crore and an offer for sale of 11,08,037 shares.

However, since the price band as well as the granular details like the number of shares offered are not yet known, we have to await the final value of the overall issue size. 

2) Let us talk about the offer for sale (OFS) portion of the IPO first. A total of 11,08,037 shares will be sold by the early investors and the promoters of the company as part of the offer for sale. The OFS component will not result in any fresh fund infusion or dilution of the capital or the EPS.

However, the selling of stake by the promoter will increase the free float of the company and facilitate listing of the stock. The main sellers in the OFS include Yashovardhan Saboo 275,000 shares, KDDL Ltd 500,000 shares, Saboo Ventures 150,000 shares, Anuradha Saboo 60,000 shares and Mahen Distribution Ltd 50,000 shares.

3) The fresh issue portion of Rs.400 crore will issue fresh shares in the quantum based on the total price of the offer as decided. Let us now look at how the funds raised via fresh issue will be utilized by Ethos Ltd.

It will use the Funds as under Rs.236.75 crore will be applied toward working capital requirements, Rs.33.27 crore towards establishment of new stores, Rs.29.89 crore towards repayment of debt and Rs.2 crore for upgradation of the ERP software solution.

4) Ethos has one of the largest portfolio of premium and luxury watches in India and sells over 50 premium and high end brands which include global marquee names like Omega, IWC Schaffhausen, Jaeger LeCoultre, Panerai, Bvlgari, H. Moser & Cie, Rado, Longines, Baume & Mercier, Oris SA, Corum, Tissot, Raymond Weil, Louis Moinet and Balmain.
 

Ethos literately dominates the luxury watch segment in India and it enjoys a healthy market share of 20% in the luxury watch retail segment and 13% in the premium watch retail segment in India. That is the single largest market share.

5) The company is profitable, although the profit margins in this industry are quite small as brands are the normal driving factor in these relationships. For the financial year FY21, Ethos reported total revenues of Rs.386.57 crore and bottom line net profits of Rs.5.78 crore.

With the retail store front restrictions removed, the performance has improved in the first six months of FY22 ended September 2021. The revenues for the 6 months was at Rs.223.31 crore while the net profits stood at Rs.3.75 crore.

6) If you look at the overall watches market in India, it is valued at close to Rs.13,500 crore in FY20, but is expected to scale up rapidly to Rs.22,300 crore by FY25. That is CAGR growth of over 10.6% over the 5 year period projected.

This growth is expected to be driven by factors like increased discretionary spend on watches, greater fashion consciousness, opening of more organized channels of purchase, reliable and real time online marketplace experience as well as vertical specialists.

There is also likely to be an  increased penetration of smartwatches in the middle and the premium category.

7) The IPO of Ethos Ltd will be lead managed by Emkay Global Financial Services Ltd and InCred Capital Wealth Portfolio Managers Private Limited. They will act as the book running lead managers or BRLMs to the issue.

KFIN Technologies Private Limited (formerly known as Karvy Computershare Ltd) will be the registrar to the IPO. The stock is proposed to be listed on the NSE and the BSE.

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