Choice Equity Broking IPO report on Ethos
Ethos Ltd. (Ethos), a luxury & premium watch retailer is coming up with an IPO to raise Rs. 375cr, which opens on 18th May and closes on 20th May 2022. The price band is Rs. 836 - 878 per share. The company on 28th Mar. 2022, executed a pre-IPO placement of 0.03cr shares at Rs. 826 per share. Amount raised from pre-IPO placement was Rs. 25cr. Consequently, it reduced the size of fresh issue from Rs. 400cr (as mentioned in the DRHP) to Rs. 375cr. The IPO is a combination of fresh issue and OFS portion. It will not receive any proceeds from the OFS part. Of the fresh issue net proceeds (from the pre-IPO placement and the fresh issue), Rs. 235cr will be used to fund the working capital requirement; Rs. 33.3cr will be utilized to finance the establishment of new stores & renovation of existing stores; Rs. 29.9cr to be used for the repayment/pre-payment of the debt and another Rs. 2cr will be utilized for upgrading the ERP system of the company. In the last one year, Ethos has executed couple of ESOPs allotments (of 0.01cr shares at Rs. 120 per shares) and right issue (of 0.046cr shares at Rs. 550 per share), both at significant discount to the IPO price band.
Valuation and Outlook
There are no listed peers having business model similar to Ethos. Despite having dominant position in the retailing of luxury & premium watches, the company performance over FY19-21 is not encouraging. Sales volume and profitability are in declining trend. Performance over the 9M FY22, doesn’t seems to be sustainable in the medium term. At higher price band of Rs. 878, the company is demanding an FY21 EV/Sales multiple of 4.5x, which seems to be on a higher side. Thus we assign an “AVOID” rating for the issue.
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