Buy Ethos; target of Rs 1400: Emkay Global Financial

Emkay Global Financial's research report on Ethos

Ethos reported its best-ever quarter, with Revenue/EBITDA/PAT beating our estimates by 4%/8%/24%. Revenue grew 18% YoY in a challenging quarter, led by a strong 16% SSG. Encouragingly, healthy growth trends have continued in Jan-23 as well. Store adds were modest, with 2 additions in Q3; but the momentum is expected to pick-up, as Ethos maintained its target to open 40 stores over the next 24 months (vs. 50 stores at end-9MFY23). Higher number of new adds is led by healthy online leads and improving focus of brands for Tier-1 cities (non-metro). While the Q3 beat warrants an earnings upgrade for FY24/25, we remain conservative on both, the margin and working-capital fronts, to account for Ethos’ strong expansion plans. We forecast a strong EBITDA CAGR of 27% along with a stable RoIC of ~15%, led by topline growth and stable EBITDA margins.

Outlook

We maintain BUY, with an unchanged Target Price of Rs1,400/share (based on an unmodified multiple of 22x FY25 EBITDA pre-IndAS).