Ethos Limited: Growth Amidst Challenges, Why the Stock Price Fall?
Key Highlights:
• Exceptional Growth in October 2024: Ethos reported a remarkable 47% year-over-year growth in October 2024, signaling strong performance for the current quarter (Q3 FY25).
• Strong Financials: Revenue for H1 FY25 rose by 22.6% YoY, while EBITDA margins held steady at 16.8%. PAT grew by 19.9% YoY, reflecting healthy profitability.
• Expansion in Stores and Brands: With 12 new stores opened this fiscal and plans for 13 more, Ethos is aggressively expanding its presence. Exclusive brands now contribute 31% of total revenue.
Why the Stock Price Dip?
Despite impressive growth, Ethos’ stock price has declined. Some potential reasons include:
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GST Hike Concerns: Management has assured investors that the impact of a potential GST increase on luxury watches (from 18% to 28%) will not be entirely borne by Ethos, but market sentiment remains cautious.
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Rising Inventory Days: Inventory days increased from 156 to 177 days, signaling higher working capital requirements due to new store openings and brand investments.
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Forex Losses: The company faced INR 4.65 crores in foreign exchange losses in Q2 FY25 due to INR-CHF fluctuations.
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Renovation Disruptions: Around 20% of stores were under renovation in Q2 FY25, potentially impacting near-term sales growth.
Management’s Confidence in Future Growth:
• Ethos aims for a 10x revenue growth over the next decade, with opportunities to open 20+ stores annually.
• New partnerships in the Lifestyle and CPO (Certified Pre-Owned) segments are expected to drive diversification.
• Pre-orders of INR 70 crores for limited-edition watches reflect strong demand in the luxury watch market.
Discussion Point:
While Ethos’ fundamentals and growth trajectory remain robust, why is the market discounting its stock price? Are the concerns around GST hike and rising inventory overblown, or is the market pricing in risks? What are your views?