Ethos Limited

Rating: Buy Price:950 27th July, 2022

We at Stallion have a consistent investment philosophy of buying

companies that fit our Philosophy of 4 M’s:
 Market Opportunity
 Market Leadership
 Management
 Margin Of Safety
Market Cap (Rs. Cr) 2218
EPS (Diluted) 17.1 (TTM)
P/E 55x Thesis:
P/BV 95x
Promoters Holding 65.2% Ethos is India’s largest Luxury and Premium Watch Retailer with a 13%
52 Week High/Low 1075 / 707 Market share of the Total Retail Sales in Premium and Luxury Segment
Shares Outstanding 2.33 crs and a Share of 20% when seen in Exclusive Luxury Segment.
With 50 Stores spread across 17 Cities across India, Ethos plans to
expand its store count by 13 more in the next 2-3 years.
We have seen the trend of premiumization develop across Countries
when such countries started moving from being a Developing Economy
to being a Developed one.
We believe Ethos is going to be one of the many beneficiaries of such
FY19 FY20 FY21 FY22
premiumization effect on the back of:
Revenues 444 458 387 577
EBITDA 36 56 43 67
EBITDA% 8% 12% 11% 12%
1. Market Leadership in Retail Luxury and Premium Watches
PAT 13 -1 6 23
2. Pivot to Second Hand Watch Market (Globally Pre-owned
PAT% 2.9% -0.2% 1.6% 4%
watch market is 35% of the total market size)
3. Accelerated Growth in Ultra-Premium Retail across the Globe,
trend to replicate in India. Ethos making small pivots to newer
categories

Valuations:

We like the Growth Acceleration here for the next 2 Years. We believe
they are quite well poised to deliver 35% Growth in FY23 and should
do around 20-25% in FY24. Such Growth would give us Revenues in the
range of 950-1000 Crores. With a PAT Margin of 7% (Assuming no
operating leverage, More No. of Watch Sales Per Store and Low
Contribution from. New Brands), The Company would still do a PAT of
around 68-70 Crores. The Company hence as of today is trading at 33x
FY24 Earnings.

Please see important disclosures towards the end of this report. Stallion Asset
 Ethos Limited

THE INDIAN RETAIL MARKET

Retail has been the most talked about word for the Market from Participants and Companies point of view
always. Such Retail Companies have built very Strong and Large Businesses valued at Lakhs of Crores with
a significant differentiation to their name. Take the likes of Dmart, Titan, Manyavar, Metro Shoes, Bata etc.
Once such Businesses become large, it really becomes very hard to be able to displace them.
The Retail Industry in India is majorly divided as follows:

Traded Brand Retailers. Dmart, Ethos Watches, Future

(Such Retailers majorly sell Retail, Reliance Retail fall
Products of Other Companies) under this Category

Retailers in India
Own Brand Retailer.
Titan, Manyavar, Bata, Metro
(Such Retailers Own the Store Shoes, Vmart fall under this
and Sell only their Own Goods category.
within the Stores)

The Major Difference between the 2 Models is as follows:

Particulars Traded Brand Retailers Own Brand Retailer

Such Retailers Own the Store
Such Retailers majorly sell
Difference in Business and Sell only their Own Goods
Products of Other Companies
within the Stores
Margins 25-35% Gross Margins 40-60% Gross Margins
Rate of Success of Companies
Very Low High
within the segment
Pricing Advantage No Yes
Barriers to Entry Low Very High
Customers have to Love the
Low Cost/Trust/High Market
Winning Strategy Product/Market
Share/Customer Loyalty
Leadership/High Entry Barriers
Dmart, Ethos Watches, Future Titan, Manyavar, Bata, Metro
Examples
Retail, Reliance Retail, Croma Shoes

Please see important disclosures towards the end of this report. Stallion Asset
 Ethos Limited

While Own Brands Retailers have been more successful in India, if one is able to get the Unit
Economics/Trust/Customer Loyalty in the Traded Brands Retailers right, they have a very big advantage to
go and make it big.
We believe Low Cost in Non-Discretionary Goods and Trust in Discretionary Goods remain the
major driver of Ones success in the Traded Brand Retailers.

Ability to manage Growth,

Margins, Expansion,
Volumes, Customer Loyalty
Low Cost Retailer remains Key
Dmart is a Classic
[Mostly in Non Example of a Low Cost
Discretionary] Retailer. Failure Rate remains
high. Take the Likes of
Big Bazaar, Spencers
Retail Etc.

Traded Goods Retailers Ability to manintain

Winning Formula Authentic Product,
Trust and Customer Service, Price remains
Loyalty remain the Key Key in this Segment
drivers for such Brands.
Places Where a Customer
has to spend more, Trust
Trust Among Customers has to be at its peak. Ethos Brands, Croma,
and Audience Vijay Sales, Nykaa
[Mostly in Discretionary]
Low Gross Margin is the
Primary reason for Failure
in a Traded Brand Retailer,
Therefore a Higher Sales
Per Sqft. solves everything.

We believe Ethos sits in the Second Pie of Building Trust among Consumers. It has taken a long time to
build Trust within Customers about Selling the Right Authentic Product/At the Right Price/Offering the
Right Documents/Offering the Right Service. (Same as Nykaa). Given the Trust has been cemented, It would
take a mishap for such Trust to be displaced. Further given a Customer is paying Lakhs to Buy a Single
Watch, if he Buys once and is satisfied he would never want to change his Retailer.

For now we think Ethos has been able to create such an image within the Indian Consumers, How further
it is able to leverage and use it to its Advantage remains to be seen.

We further divide the Section into 3 Part:

 Ethos: Market Leader in Retail Luxury and Premium Watches
 Pivot to Pre Owned Watch Market
 Accelerated Growth in the Ultra-Premium Market Across the Globe and Ethos’s Venture into newer
Categories.

Please see important disclosures towards the end of this report. Stallion Asset
 Ethos Limited

Market Leader in Retail Luxury and Premium Watches

The Watch Market in India was valued at INR 13,500 Crores in FY20 and is expected to grow at a CAGR of
10.6% to reach INR 22,300 Crores by FY25. The Growth here has been attributed to:
 Increased Discretionary Spends on Watches
 A Shift from Unorganized to Organized Channel of Purchases like MBO’s, Online Marketplaces etc.
 Increased Penetration of Smart Watches in Mid to Premium Segment
 Omni Channel Market Organization.

Within the Watch Market in India, the Market is divided into 5 broad Categories of Watches depending
on the Prices of the Watches. Such Categories have a Market, Niche, Focus Area and Growth which they
would see going forward.

Market Watch Price Segmentation FY 2020 FY 2025

(INR) Share % Size (INR CR) CAGR % Size (INR CR)
High Luxury (1) Above 10L 4% 540 14% 1040
Luxury Watches
2.5-10L 6% 810 13% 1492
(2)
Bridge to Luxury
1-2.5L 14% 1890 12.5% 3406
(3)
Total Market
Bridge and
>INR 1 Lakh 24% 3240 12.9% 5938
Luxury and
Above
Premium (4) 25k-1L 25% 3375 12% 5948
Fashion (5) 5k-25k 21% 2835 12% 4996
Total (4+5) >INR 5000 46% 6210 12% 10944
Mass and Mid
Below 5000 30% 4050 6% 5420
Watches
Overall 100% 13500 10.6% 22300
We can see that the Bridge to Luxury Category and above is slated to grow at a much faster rate
relative to the other lower priced categories.
With the below picture you might be able to related better the Type of Brands available in different
Segments.

Please see important disclosures towards the end of this report. Stallion Asset
 Ethos Limited

As for Ethos it is present in the Fashion and Above Category with 83% of it’s Revenues as of FY22 coming
from the Bridge to Luxury and Above Category indicating a specific Focus that the company carries. This
mix has shifted towards the Bridge and above segment which used to be around 67% as of FY19 to
83% as of FY22. This is further prevalent in the consistent Increase in Average Selling Price (ASP)
that the company has seen over the last 4 years and continues to do so as in Q1 FY23 with ASP at
around 158,000.
Revenue Segmentation Price Range 2019 2020 2021 2022

High Luxury Above 10L 10% 9% 18% 28%

Luxury 2.5-10L 35% 38% 39% 37%
Bridge to Luxury 1-2.5L 21% 21% 18% 18%
Sub-Total >INR 1 Lakh 66% 68% 75% 83%
Premium 25k-1L 22% 22% 17% 13%
Fashion 5k-25k 10% 8% 5% 4%
Sub-Total >INR 5000 32% 30% 23% 17%
Average Selling Price Per 73,261 84,240 109,864 149,318
Watch in Rs.

Share of Revenue Share of Revenue Share of Revenue Share of Revenue

2019 2020 2021 2022

Bridge to Luxury and Above Bridge to Luxury and Above Bridge to Luxury and Above Bridge to Luxury and Above
Premium and Fashion Premium and Fashion Premium and Fashion Premium and Fashion

Such Growth within the Bridge to Luxury and Above Segment has helped Ethos move to a 13% Market
Share in the Total Retail Sales in the Premium and Luxury Category and holds around a 20% Market Share
in the Exclusive Luxury Segment as of FY20. The next Competitor is far at only 50% of Ethos’s Size.

Market Share
25.00%
20.00%
20.00%

15.00% 13%
10.00%
10.00%
7.00% 7.00%
6%
5%
4.00% 4%
5.00% 3%
2% 2% 2%
1%
0.00%
Share in Luxury Watch Market Share in Premium and Luxury Watch Market

Ethos Kapoor Watch Johnson Watch Zimson Kamal Watch Khimani Watch Helvetica Boutique

Please see important disclosures towards the end of this report. Stallion Asset
 Ethos Limited

In order to cement and drive such market leadership, The Company has a presence in 17 Cities across
India with 50 Stores divided as:

Stores
16
14 14
14
12
10 10
10
8
6
4
2 1 1
0
Ethos Summit Stores Airport Store MBO's Ethos Boutiques Luxury Brand Mono- CPO Luxury Watch
Brand Boutiques Lounge for Pre Owned

Stores

The Company further plans to add 13 new Stores in India including Renovation of 6 existing stores with
further opening 1 CPO Outlet in Mumbai in the next 3 years. (The proceeds from the IPO including the
Cash Flows would be used as Capex for such Stores)

This stacks up quite well as against its competitors who either have Focused Market Presence (Kapoor
Watches, Johnson Watches) or are not focused in the Luxury Segment Specifically (Titan, Helios)

Brand Market Presence Focused Segment No. of Stores

Ethos Pan India Premium and Luxury 50
Zimson South India Premium and Luxury 30
Johnson Watch Co. North India Premium and Luxury 10
Kapoor Watch North India Premium and Luxury 11
Helios Pan India Fashion an Premium 112
Art of Time West India Fashion and Premium 544

Regional Presence and Revenues for the Premium and Luxury Category

Brand Revenues Regional Presence

Only considered (In Crore)
Brands in the (FY20) for
North South East West Central
Premium and Luxury comparative
Category) purpose.
Ethos 457.8 41% 29% 4% 27% 0%
Zimson 150.5 0% 100% 0% 0% 0%
Johnson Watch Co. 161.6 100% 0% 0% 0% 0%
Kapoor Watch Co. 242.4 100% 0% 0% 0% 0%

Please see important disclosures towards the end of this report. Stallion Asset
 Ethos Limited

For the last few years the Company was all but focused on increasing Awareness and Trust among
Consumers. Now that it has been able to reach a certain inflection point where people know enough
about it, the focus from hereon would be to Drive Much More Sales from the Same Stores than going on
a Store Opening Spree.
The Company further in its Q1 FY23 Concall iterated that the Store Opening Growth would be much
lesser going forward. The Company would be focused on driving Sales from the Existing Stores itself. If
the Company is able to do the same, we believe there would be a significant Operating leverage which
would kick in including a Significant Change in ROCE which will have a direct bearing on the Valuations
and Re-Rating for the Company.
We see 2 major levers which could have a significant bearing on the Business Dynamics for the
Company, Increase in the No. of Watches Sold per Store per Day and Increase in Average Selling
Price. We ran some numbers on the same and saw How the Numbers could evolve if such things change
in the right direction. We have analysed 3 different situations: Only No. of Watches Increasing, Only ASP
Increasing and Both happening simultaneously.

Scenario-1- Increase in No. of Watches Sold Per Store per Day

2022 Assuming
Assuming
(Watches Watches
Particulars Watches
Sold per Sold Per
(All Sums in Crores) Sold Per Day
day at Day goes
goes to 2.5
2.1) to 3
No. of Stores 50.0 50.0 50.0 Insights from the Table:
Total Sales
577.0 681.3 817.5
(Total Watches Sold*ASP)  The Company sells around 2.11 Watches per
Average Selling Price (ASP) (Rs.) 149318.0 149318.0 149318.0 Store/Per Day. We took 2 Assumptions on the
Total Watches Sold Fact that Watches Sold per Store per Day go to
38642.0 45625.0 54750.0
(Total Sales/ASP) (No.)
2.5 and then to 3. (Just to figure as to How would
Watches Sold Per Store/Per
Year the Dynamics Change)
772.8 912.5 1095.0
(Total Watches Sold / No. of Stores)  The Sales in both the Cases would increase from
(No.)
Watches Sold Per Day Per Store the current Sales of 577 Crores to 681 and 817
(Watches Sold Per Store Per Year / 365) 2.1 2.5 3.0 Crores respectively.
(No.)
 Given the Fixed Cost would remain the same
Variable Cost 408.4 482.3 578.8
since there are more No. of Watches being sold
Variable Cost %
70.8% 70.8% 70.8% from the same store, PBT would go from 32
(Variable Cost/Sales)
Contribution Profit Crores to 107 Crores a Jump of more than 3x.
168.6 198.9 238.7
(Sales – Variable Cost)  Accordingly PAT would move from 23.4 Crores
Contribution Margin 29.2% 29.2% 29.2% to 80.6 Crores again a Jump of more than 3x.
Fixed Cost
150 150 150  Given the Capital Employed would also remain
(Rent+Employee+Other Expenses)
the same (Worst case might see some Inventory
Other Income 13.5 13.5 13.5
Build-up but nothing Large, ROCE’s would
PBT
expand from 8.2% to 27.4%.)
(Contribution Profit-Fixed 32.1 62.4 102.2
Income+Other Income)

Tax 25% 25% 25%

PAT 23.4 46.8 76.7

PAT % 4.0% 6.7% 9.2%

Capital Employed 393 393 393

ROCE 8.2% 15.9% 26%

Please see important disclosures towards the end of this report. Stallion Asset
 Ethos Limited

Scenario-2- Increase in ASP (Average Selling Price)

Assuming
Assuming
ASP
Particulars ASP
2022 Increases
(All Sums in Crores) increases
to
to 175000
200,000
No. of Stores 50 50 50
Insights from the Table:
Total Sales
577 677.1 773.8
(Total Watches Sold*ASP)
 The Company did an ASP of around 149,318 in
Average Selling Price (ASP) (Rs.) 149318 175000 200000
FY22. We took 2 Assumptions where ASP would
Total Watches Sold
(Total Sales/ASP) (No.)
38642 38642 38642 increase to 175,000 in Case 1 and 200,000 in the
other scenario.
Watches Sold Per Store/Per Year
(Total Watches Sold / No. of Stores) (No.)
772.8 772.8 772.8  The Sales in both the Cases would increase from
the current Sales of 577 Crores to 677 and 773
Watches Sold Per Day Per Store
(Watches Sold Per Store Per Year / 365) (No.)
2.1 2.1 2.1 Crores respectively, not very different from the
Variable Cost 408.4 479.4 547.9
case above.
 The Cost Structure here would remain the same,
Variable Cost %
(Variable Cost/Sales)
70.80% 70.80% 70.80% given there is only an increase in the ASP which
directly impacts the Revenues.
Contribution Profit
168.6 197.7 225.9  Accordingly PAT would move from 23.4 Crores
(Sales – Variable Cost)

Contribution Margin 29.20% 29.20% 29.20% to 45.9 in Case 1 and 67.1 in case 2 a jump of
almost 3x.
Fixed Cost
(Rent+Employee+Other Expenses)
150 150 150  Given the Capital Employed would also remain
Other Income 13.5 13.5 13.5 the same (Worst case might see some Inventory
Build-up but nothing Large, ROCE’s would
PBT
32.1 61.2 89.4 expand from 8.2% to 23%.)
(Contribution Profit-Fixed Income+Other Income)

Tax 25% 25% 25%

PAT 23.4 45.9 67.1
PAT % 4.00% 6.60% 8.50%
Capital Employed 393 393 393
ROCE 8.20% 15.60% 23%

Please see important disclosures towards the end of this report. Stallion Asset
 Ethos Limited

Scenario-3- Increase in ASP (Average Selling Price) and No. of Watches Sold Per Store per Day (The
Most Optimistic Scenario)

Assuming
Assuming
ASP
Particulars ASP
2022 Increases
(All Sums in Crores) increases
to
to 175000
200,000 Insights from the Table:
No. of Stores 50 50 50
Total Sales  In this assumption we have assumed both the
577 798.4 1095
(Total Watches Sold*ASP) cases come into play, with No. of Watches per
Average Selling Price (ASP) (Rs.) 149318 175000 200000 day per store going from 2.1 to 2.5 and 3 and
Total Watches Sold ASP increasing from 149,318 to 175,000 and
38642 45625 54750
(Total Sales/ASP) (No.) 200,000.
Watches Sold Per Store/Per Year  In this case Revenues would move from 577
772.8 912.5 1095
(Total Watches Sold / No. of Stores) (No.) Crores to 800 and 1095 Crores respectively.
Watches Sold Per Day Per Store  PAT would move to around 72.5 and 137 Crores
(Watches Sold Per Store Per Year / 365) (No.)
2.1 2.5 3
respectively, giving us an ROCE of around 24.6%
Variable Cost 408.4 565.3 775.3 and 46.6% in both the scenarios.
Variable Cost %  Now while this remains the most optimistic
(Variable Cost/Sales)
70.80% 70.80% 70.80%
scenario for us, from the Trend and Opportunity
Contribution Profit
168.6 233.1 319.7
that we have noticed, such cases are not a moon-
(Sales – Variable Cost)
shot to deliver. It can very well happen in the next
Contribution Margin 29.20% 29.20% 29.20% few years.
Fixed Cost
150 150 150
 Our base case ROCE hence sits at around 23% an
(Rent+Employee+Other Expenses)
increase of almost 3x from the current 8.2%.
Other Income 13.5 13.5 13.5  If the company can pull off even 60-70% of what
PBT
32.1 96.6 183.2 we are expecting them to do, they should be
(Contribution Profit-Fixed Income+Other Income)
good for the next 2-3 years.
Tax 25% 25% 25%
PAT 23.4 72.5 137.4
PAT % 4.00% 8.9% 12.4%
Capital Employed 393 393 393
ROCE 8.20% 24.6% 46.6%

The tables end up giving us an idea regarding the Potential Operating leverage that could play out in the
Company. They have been on a Trajectory of increasing their ASP’s which has moved from around
70,000’s in 2019 to 158,000 as of Q1 FY23. Our base case ROCE’s of 23% hence does not look very far off.

Please see important disclosures towards the end of this report. Stallion Asset
 Ethos Limited

Pivot to Pre Owned Watch Market

Luxury Pre Owned Watches market globally was a $18 Billion Market as of CY2020. This market is
expected to grow at a CAGR of 9% to reach a Size of $27 Billion as of CY2025.
The Global Premium and Luxury Market is a $49 Billion Market as of CY2019 which is expected to grow at
3% CAGR to reach $59 Billion as of FY2025.
The Pre Owned Segment is expected to be 46% of the entire Market as of CY2025.

1.2

$49 Bn $59 Bn
1

36.7% ($18 Bn)

0.8
45.8% ($27 Bn)

0.6

0.4
66.3% ($31 Bn)
54.2% ($ 32 Bn)
0.2

0
2019 2025 E

Global Premiuim and Luxury Watch Market (New Watches) Global Pre Owned Luxury Watch (Certified)

Indian Premium and Luxury Watch Market is expected to go from a Size of 6610 Crores to around 11890
Crores as of 2025, A Growth of 12.5%. Within the same, Indian Pre Owned Watches Market is only a 50
Crore Market as of FY2020. Such Market is expected to move to a 900 Crore Market going into FY2025,
80% of Such Market is expected to be organised in Nature.

2020 2025
0.80%

7.50%

99.20% 92.50%

India Premium and Luxury Watch (New) CPO India Premium and Luxury Watch (New) CPO

Please see important disclosures towards the end of this report. Stallion Asset
 Ethos Limited

Given the Focus of such Pre Owned Market is almost purely High end Luxury Watches, Authenticity, Trust,
Understanding of Original And Fake, Right Pricing, Restoration, Service remain the Major Questionable
Points in anyone’s head. Think about the kind of research one would put in to just figure whether
something is Original, Rightly priced, In the correct Condition or not and for all we know, We Indians
would still not be satisfied to pay Lakhs of Rupees for the same.

Therefore, there are Certain Advantages that Ethos can build into this Certified Pre Owned Market and
capture a large share of the same:

 Ethos Understands the OWM (Original Watch Manufacturer) Market, Hence his understanding of the
Watches has to be on point thereby delivering all the above Questionable Points.
 The Customer coming to sell the watch knows it is going into the Right hands and towards the right target
market.
 The Buyer is Satisfied of the Price, Authenticity, Service among other things.
 The Seller has the Option either to sell the Watch directly to Ethos or If they cannot agree to a certain price,
He / She can directly list the Watch on Ethos at their Desired Price and Whenever the Product is Sold, Ethos
would just take a Commission out of the same. (Hallmark Model- The Hallmark of Ethos will be the major
Driver of Trust on the CPO Watches)

What are the Advantages hence for Ethos to venture into the same?

 Ethos Expands into a Very Fast Growing Second Hand watch market. (Size of the Market is expected to go
18x in 5 years
 Margins here are relatively lower, but ROCE’s here would be way higher given lower requirements of
Capital.

Further Ethos Claims that such Watches have a Inventory Days of 2-2.5 months (4-6 weeks to Restore the
watch, 1 month to Sell). The Initial Weeks is about Agreement, Understanding, Restoration to the best
possible condition and then it just takes a Month for the Watch to sell. The Market is Fast, Highly
Profitable and Growing.
The Company expects CPO Revenues to grow at High Double Digits to Triple Digits for the next Few
years. (Q1 FY23 Concall)

CPO Revenues
35 31.4
30
25
20
15 11.3 10.5
10
4.3
5
0
2020 2021 2022 Q1 FY23

CPO Revenues

Please see important disclosures towards the end of this report. Stallion Asset
 Ethos Limited

Accelerated Growth in Ultra-Premium Retail across the Globe

We have across the World seen a Trend of Accelerated Growth in the Ultra-Premium Retail, and such
trend kicks off only after a Country crosses a certain threshold in terms of Per Capita. The general golden
number attributed to such J-Curve in Discretionary Spending is $2000 in Per Capita, Which is to say That
Whenever a Country Crosses such Threshold of $2000 Per Capita, the acceleration of growth is just
immense directly impacting all the Sections of the Society including the Premium Segment.

Given we as a Country have always been pegged to China, Their Discretionary spending expanded quite
significantly once it crossed the $2000 Mark which it did around 2002. The below chart gives you an idea
about the acceleration of the same:

This acceleration of growth in Luxury Market was directly correlated to expansion in Discretionary
spending after per Capita crossed USD 2000 since the year 2000.

Please see important disclosures towards the end of this report. Stallion Asset
 Ethos Limited

China’s Spend in the Global Luxury Market went from a mere 1% in 2000 to 19% in 10 years. (Remember
they crossed the $2000 Per Capita in 2002). It further stands at around 33% according to the Bain
Research as of 2018.

Such Growth was much faster than the GDP Growth atleast in the Initial Stages. It is now expected to
accelerate at around 13% again between FY2020-2025.

Growth (CAGR) 2000-2010 2010-2015 2015-18

Luxury Market (China) 33% 19% 2%
GDP Growth (China) 15% 11% 10%

There are some Statistics that you would want know about China’s Luxury Market:
 Chinese Luxury Industry is expected to grow at 13% between 2021-2025 and is slated on becoming the
World’s Largest Personal Luxury Market by 2025.
 Chinese Consumer Spending accounted for 21% of the Global Luxury Market as of 2021, slightly above the
20% share in 2020
 Chinese Luxury Market is 8x the Size of India and is still expected to grow at 13% for the next 5 years.

2010 2015 2020

Luxury Market India 2.7 4.4 6.3
(US Bn $) China 9.2 20.5 49.9
GNI Per Capita India 1220 1600 1900
(USD $) China 4340 7940 10610

India as a Country has just in 2022 broken through on the $2000 Per Capita again (We first did it in 2018-
19) just to fall back to the 1900’s range because of COVID. The Chinese Per Capita in 15 years post
crossing the $2000 Mark went almost 3.5x which is almost a 9% CAGR. (It’s Huge given it is for the
Population across the Country and not just an Individual or a Company.

The Indian Luxury Market is on the Cusp of seeing some immense Growth. There are reports that claim
the Growth here could be anywhere between 9-12%. (Similar to What China Did)

We further studied some International Companies such as LVMH (Louis Vuitton), Hermes, Ferrari.
Christian Dior to get a hang of how such Companies behave during Market Stress and Upturns and How
has their Behaviour been over the last 15 years. These are few of the Trends we noticed:

The Share Prices for Such Stocks have been in a Secular Uptrend.

No Matters the Stress, Macro Environment, COVID, Recession among other things, Such Company falls
less and are able to cover the lost ground faster than the general average. (The Rich Actually gets Richer
and Buys Good from Such Companies). Rs.100 invested in such Companies back in 2008 have turned in
anywhere between 374 and 1996 in 15 years. (Ferrari was however listed in 2015 so the compounding
here has been relatively lower)

Please see important disclosures towards the end of this report. Stallion Asset
 Ethos Limited

Company Invested Amount in 2007-08 (Base) Current Amount as of Today CAGR

Ferrari (Listed 2015) 100 374.65 20.8%
Dior 100 635.72 13.1%
LVMH 100 799.43 14.9%
Hermes 100 1996.87 22.1%

The Performance in the Share price concurs to the Strong Performance in the Financials.
The Financials for such companies are not too far away from the Share price performance. They have
been able to scale up their Businesses quite well and consistently.

(All Table numbers are Growth in Revenues and PAT)

LVMH ($Bn) 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 CAGR
Revenues 20.0% 8.4% -7.2% 4.4% 2.2% 29.3% 4.9% 12.2% -9.4% 34.0% 9.00%
PAT 13.6% 4.6% 44.6% -43.3% 10.3% 50.5% 13.0% 10.4% -28.6% 138.7% 13.20%
Hermes
Revenues 22.5% 7.8% 9.9% 17.5% 7.4% 6.7% 7.6% 15.2% -7.1% 40.5% 12.20%
PAT 23.3% 8.1% 7.5% 14.0% 12.2% 11.8% 14.6% 9.2% -9.7% 76.3% 15.10%
Dior
Revenues -63.5% -47.2% 549.9% 13.6% 8.2% 15.0% 7.2% 14.6% -16.8% 43.8% 10.10%
PAT -69.5% -43.6% 550.0% 66.4% -34.0% 43.9% 13.7% 14.4% -34.4% 156.5% 14.50%
Ferrari
Revenues 5.0% 18.3% 2.6% 11.5% 10.0% 0.0% 10.2% -8.2% 23.4% 7.70%
PAT 8.7% 8.0% 7.4% 37.9% 35.0% 46.3% -11.4% -12.9% 36.1% 15.30%

Please see important disclosures towards the end of this report. Stallion Asset
 Ethos Limited

Look at the Acceleration between 2020 to 2021. All the Companies within the Sample Space went onto
hitting new highs with accelerated Profits. It’s as of COVID has just accelerated a person’s want to own
more expensive product. We expect such trend to be replicated across the world. It’s as of COVID just
increased the Discretionary spends of the Normal Individual Multifold.

In fact, Hermes Just released its Results for H1 FY22 and you will actually be amazed to see that they have
reported a Growth of 30% on the base of FY21 which was already a All time High year. A 30% Growth for
the First Half of CY2022, A Time Where we have seen Interest Rate Hikes, Inflation, Economic Activity
Slowdown, Pressures on Income this Guy has had no impact.

We believe Such Trend has all the Reasons to be replicated in India. All the Luxury Segments such as
Jewellery, Accessories, Cars, Fashion, Lifestyle and other are expected to grow at a CAGR of 11-12% for
the next 5 years between FY20 to FY25. Even the existing Brands such as Apple, Mercedes have seen Very
Strong Growth in India:
 Iphones saw a 48% Growth in Shipments to India in the Calendar Year 2021
 Mercedes Reported a 42.5% Growth in Car Sales in CY21

We believe as India continues to grow on from here, Premium and Luxury Brands should continue to
grow consistently faster than the Income growth in India. Ethos should ideally be the direct beneficiary of
the same.

Please see important disclosures towards the end of this report. Stallion Asset
 Ethos Limited

Ethos making Small Pivots into newer categories.

In order to diversify away from Watches only, The Company has further tied up with 2 Luxury Brands in
the Jewellery and Luggage Segment.

Messika- The Luxury Jewellery Segment- French Jewellery Tradition. Recognised for its Diamond Expertise
and Designs. The Company has just partnered and is still to get a Store Up and running here. However
the Company believes they can pull of 0.8-1 Crore of Revenue/Month for the entire Franchise taking the
total to 12 Crores of Revenues for the month.

Rimova- A premium Luggage Company. Their First Store is slated to open in Mumbai in the current year.
The Company believes it should be able to do Revenues of 12-15 Crores/Year for the entire Franchise to
start with.

We will have to see How such Segments scale up as we move forward but there is no doubt that the
Market for such products is there and its large.

Please see important disclosures towards the end of this report. Stallion Asset
 Ethos Limited

Risks

1. Competition from OWM’s and Other Retail Chains- Ethos does not have exclusivity with any of the
Brands. They are free to partner with other Franchise/Retail Partners to sell their watches. Entry of
Competition from Original Watch Manufacturer’s or Other Retail Chains remains a Risk
2. High Working Capital and Capex Requirement- High Working Capital and Capex Requirement
might impede Company’s Ability to deliver high ROCE’s. The Company however in their recent
Concall did iterate towards Significant Operational Leverage playing out thereby impacting
margins positively.
3. India’s Ability to Buy Expensive Products- While India has crossed that $2000 Mark in Per Capita,
We have to build on from hereon. We have to be able to take the China path to take advantage of
such Luxury Market. If we are not able to do so, The Industry might not grow as we expect them to
do so.
4. Outside India Sales- The trend of Buying Luxury Watches from Foreign Market continues to remain
High. If such trend does not see a shift towards Indian Home Brand Consumption it might take
away some sheen from Ethos.

Conclusion

With the Acceleration in Spending that we have seen across the Globe, This might be the best placed
retailer to play the Rich of India, Who have continued to spend and are likely to do so going forward as
well.

We like the Growth Acceleration here for the next 2 Years. We believe they are quite well poised to deliver
35% Growth in FY23 and should do around 20-25% in FY24. Such Growth would give us Revenues in the
range of 950-1000 Crores. With a PAT Margin of 7% (Assuming no operating leverage), The Company
would still do a PAT of around 68-70 Crores. The Company hence as of today is trading at 33x FY24
Earnings.

Our assumptions don’t include the possible upside risk coming from:
1. Any Operating Leverage coming into play
2. Increase in the Number of Watches Sold Per Store Per Day including increase in ASP
3. High Contribution from Messika and Rimova including the Traction seen by the Brands

We have seen in the calculation above that these things could be major drivers of Profits going ahead. If
it were to happen, we could see some decent rerating in here. Further Successful Retail Brands in India do
not trade below 50 P/E (Take the likes of Dmart, Titan in the larger basket and Manyavar, Campus, Metro
in the smaller one). We believe Ethos should be able to get advantage of some of the Optionalities and
should trade at Higher Multiples. Given it has been early days for the Company, Where would the market
peg it still remains to be seen. We however remain Optimistic.

Please see important disclosures towards the end of this report. Stallion Asset
 Ethos Limited

Explanation of Stallion Assets Investment Ratings:

Buy(B): Describes securities that we expect to provide a total return (price appreciation plus dividend yield)
in excess of CNX Midcap 100 over the next 12-Month period.

Hold(H): Describes securities that we expect to provide a total return (price appreciation plus dividend
yield) equal to CNX Midcap 100 over the next 12-Month period.

Exit(E): Describes securities that we expect to provide a total return (price appreciation plus dividend yield)
which is less than CNX Midcap 100 over the next 12-Month period and also implies that we have suspended
coverage on the security.

Ethos Historical Price Chart

Buy

Please see important disclosures towards the end of this report. Stallion Asset
 Ethos Limited

Disclosures and Disclaimer for Research Report

Stallion Asset Private Limited is a Research Analyst, registered under SEBI (Research Analyst) Regulations 2014, Registration No. INH000007270 and a
Portfolio Manager, registered under SEBI (Portfolio Managers) Regulations, 1993, Registration No. INP000006129. Both the services are rendered under
two separate divisions and operate independently of each other. Stallion Asset Private Limited’s both business divisions have independent research
teams separated by Chinese walls, and therefore may, at times, have different or contrary views on stocks and markets.

Research Analyst Details:

Name: Vinayak Mohta
Email Id: vinayakmohta@stallionasset.com
Contact No: 022-68680250 Analyst Ownership of Stock: No
Analyst Certification:
The Analyst certify (ies) that he complies with Qualification and Certification requirements of Regulation 7 of SEBI (Research Analyst) Regulations 2014;
that are required to be complied with by the individuals employed as Research Analysts by an Entity (Stallion Asset Private Limited; Registration No.
INH000007270) registered as Research Analyst under SEBI (Research Analysts) Regulations 2014.

Further, The Analyst certify (ies) that the views expressed herein accurately reflect his (their) personal view(s) about the subject security (ies) and issuer(s)
and that no part of his (their) compensation was, is or will be directly or indirectly related to the specific recommendation(s) or views contained in this
research report.

Disclosure under SEBI (Research Analyst) Regulations 2014:

Whether the research analyst or research entity or its associates or his relative has any financial interest in the subject company and the nature of such
financial interest- No
Whether the research analyst or research entity or its associates or relatives, have actual/beneficial ownership of one per cent or more securities of the
subject company, at the end of the month immediately preceding the date of publication of the research report or date of the public appearance - No
Whether the research analyst or research entity or his Associate or his relative, has any other material conflict of interest at the time of publication of the
research report or at the time of public appearance - No
Whether it or its associates have received any compensation from the subject company in the past twelve months- No
Whether it or its associates have managed or co-managed public offering of securities for the subject company in the past twelve months- No
Whether it or its associates have received any compensation for investment banking or merchant banking or brokerage services from the subject company
in the past twelve months- No
Whether it or its associates have received any compensation for products or services other than investment banking or merchant banking or brokerage
services from the subject company in the past twelve months- No
Whether it or its associates have received any compensation or other benefits from the Subject Company or third party in connection with the research
report. - No
Whether the research analyst has served as an officer, director or employee of the subject company - No
Whether the research analyst or research entity has been engaged in market making activity for the subject company - No
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Please see important disclosures towards the end of this report. Stallion Asset