Ethos ticks well on D-St with rising sales of luxury watches

ET Intelligence Group: The stock of Ethos, a luxury watch retailer, has gained nearly 11% following the third quarter result announcement on February 14, partially offsetting the 23% loss since the beginning of the current calendar year till the result day. The positive momentum in the stock amid the volatile broader market owes to the company’s growing franchise of top-end watches, rising proportion of luxury watches in total sales, improving average selling price per unit, volume-led top-line growth and new store additions.

Established in 2003, Ethos owns and operates the country’s largest chain of luxury watch boutiques. Apart from watches, it has also expanded into top-end luggage, jewellery and certified pre-owned watches. The stock’s valuation multiple has moderated over the past three months amid moderating economic growth, depreciating rupee and pressure on consumption. It now trades at a trailing price-earnings (P/E) multiple of 65 compared with around 82 at the end of 2024. Given the company’s future growth plans, analysts find the current valuation compelling.

Ethos added five new stores in the December quarter and 13 in the first nine months of FY25, taking the total count to 73 stores. The company aims to open six more boutiques by the end of FY25. It has signed six exclusive brand partnerships since April, with more collaborations in the pipeline.

In the December quarter, the company’s revenue grew by 31.5% year-on-year to ₹369.9 crore and net profit by 15.6% to ₹29.5 crore. Operating profit before depreciation and amortisation (EBITDA) increased by 23.6% to ₹62.8 crore, but EBITDA margin declined by 100 basis points (bps) to 16.7%. The margin contraction was attributed to higher manpower costs for newly opened stores and rent expenses for new outlets still in the early stages of generating sales.

Same-store sales growth (SSG) improved by 400 bps to 23.1% in the December quarter. The luxury and high-luxury watch segment accounted for 71% of total sales, compared with 68% a year ago and 48% in FY20. The average selling price rose 11.2% year-on-year to ₹2,07,513, 146% higher than ₹84,240 in FY20.

“The December quarter results were robust with volume-led growth of nearly 25% despite weak consumer sentiment across categories,” said Emkay Global Securities in a report.Axis Securities expects earnings to grow by 38% and revenue by 33% between FY24 and FY27. The brokerage estimates the stock is available at around 32 times FY27 earnings per share. The company does not have direct local peers, which are active in the luxury watches segment.Globally, Watches of Switzerland Group, which is listed on the London Stock Exchange trades at a P/E of around 14 and NYSE-listed Signet Jewellers trades at a P/E of over five. A higher P/E for Ethos reflects the expected faster growth.