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Ethos Watches: Time is Money

Did you know that just 3% of Indians hold all credit cards? And that only 8% of Indian households own a car. Surprising, right?

But there’s something more staggering beneath these numbers. Picture this - there are 85 crore internet users in India. But just 5% of those people drive 50% of the money spent online. And that divide appears everywhere:

  • Just 1% of the people in India take 45% of all flights

  • 5% of Zomato’s users place 33% of all orders

  • 6.5% of UPI users drive 44% of transactions

Despite all the hype around the great Indian consumption story, it's clear that just a few consumers drive most of that narrative. And we’ve got a stock that plays on just India’s luxury market - Ethos Watches!

Watches are a commonly owned item, but premium and luxury watches account for around half the Rs. 13,500 crore market. In the luxury watch segment, Ethos has a 20% market share, selling a wide range of brands - from Tissot to Omega.

It has established itself as synonymous with the elite, and within just 10 months of being on the Indian bourses, this stock is up around 40%!

Why is this stock interesting to us, when there is a literal “ethos” of other stocks to consider?

1. People Are Getting Richer

Over the past decade, the number of ultra-rich in India has grown 11x - thanks to a booming entrepreneurial spirit, a strong middle class, and greater access to e-commerce in tier 2 and tier 3 cities.

India's wealthy elite continue to expand at an impressive rate, with an estimated 80% increase in High Net Worth Individuals expected by 2031. This makes India one of the world's fastest-growing wealth markets.

As the demand for luxury products continues to skyrocket in India, the market is projected to balloon to 3.5x its current size, becoming a massive US$ 200 billion market by 2030.

Consumers are seeking more personalised experiences and exceptional service levels with this rise in income - almost equivalent to the feeling of calling the manager at a restaurant when they don’t put that lemon in your Pepsi!

Ethos deals in the business of luxury, and with the luxury watch market expected to grow at almost 13% from FY20 to FY25, this is a strong macro driver for the company.

⌚ Another not-so-fun fact is that the average selling price of a luxury watch on Ethos is currently around Rs. 1.5 lakh in India, up 2x since FY20. This is a clear indicator of two things - the luxury watch market grew despite COVID, and we definitely need to make more money!

2. Partners with Leading Luxury Brands

To set up a brand like Ethos, the need for long-standing relations with luxury brands is a must - something that takes time, patience and loyalty that stands the test of time.

While bagging one brand might be a feat, Ethos has maintained brilliant relations with over 60 premium and luxury watch brands, including Rolex, Omega, IWC Schaffhausen, Jaeger LeCoultre, Panerai, and of course, Bvlgari. Of those names, 35 brands have exclusivity with Ethos, and it makes up for 26% of its revenues (risen from 13% in FY18)!

What’s more interesting is that Ethos is now starting a diversification plan to depend on this brand arsenal, in the fields of jewellery and premium luggage! It has signed franchisee agreements with Messika Paris and RIMOWA, world-renowned brands that will soon be available exclusively with Ethos!

3. Customer Loyalty

Did you know that Ethos Watches has a massive fan following? With a plethora of popular brands on board, Ethos has created a loyal customer base. In fact, as of March 31, 2022, over 2,83,300 HNI customers have enrolled in the exclusive loyalty program, Club Echo.

What's so special about Club Echo, you ask? Well, it's a unique program that rewards customers based on their cumulative purchases over time. With every purchase, customers receive dynamic incentives that keep them coming back for more like invitations to watch collector events, wine-tasting sessions, gifts, rewards & more!

Ethos also harnesses the power of Club Echo data to create highly accurate social media and digital campaigns, specifically targeting known watch customers. This targeted approach helps the company reach the right people with the right message, ultimately leading to increased sales and a stronger brand presence.

The result? They have a follower base of 1,88,000 followers - that’s more than your friendly neighbourhood influencer, and rank second globally among major watch retailers!

What really sets Ethos apart from international players in the market is its focus on customer experience. Educating customers on the benefits of purchasing domestically, such as better warranty, after-sales service, and insurance is a practice the company imbibes to ensure continued loyalty and trust.

4. Distribution Unmatched

With its strategic retail locations, they're able to offer a vast array of luxury and high-end watches that cater to a diverse customer base. Plus, its flagship stores are conveniently located on high streets and airports, providing the premium feel that it stands for.

Ethos makes it easy for their customers to shop online or in person, with the added convenience of being able to touch and feel their desired watches in the comfort of their own homes by sending home shortlisted watches or in one of their 54 stores.

What's more? Its offline and online channels are fully integrated, so customers can order products either way and even have the option of buying products at one store and returning them to another!

But Ethos doesn't just stop at premium and luxury watch retail! They also offer certified pre-owned (CPO) luxury watches through its vertical known as The Second Movement, with its first CPO luxury watch lounge in New Delhi. Being the only player in this segment in India, this is a smart move on their part, as the global CPO market, also known as “pre-loved”, makes up a third of the luxury market!

While it's still a nascent market in India, it is said to grow at a 13% CAGR between FY23 and FY28, with Ethos leading the way in The Second Movement!

5. Strong Financials

The company has utilised the proceeds from its IPO to repay a debt of Rs. 20 crore, bringing its debt/equity ratio down to a commendable 0.2x, mainly consisting of lease liabilities. Moreover, Ethos Watches is currently sitting on a cash reserve of Rs. 265 crore, as of September 2022, further bolstering its financial position.

Over the past 4 years, Ethos Watches has showcased a consistent revenue growth rate of 13%, with an impressive 32% increase in earnings per share (EPS) during the same period. The period of 9MFY23 has seen remarkable growth, with both revenue and net income increased by 40% YoY.

The future looks exciting for Ethos Watches, given the rising trend of conspicuous consumption and brand-led tailwinds for the luxury market in India. This translates into a projected 30% revenue Compound Annual Growth Rate (CAGR) for Ethos Watches between FY22-FY25, with an expected 40% growth in earnings over the same period, as profit after tax (PAT) margins improve.

Ethos is one of the few luxury stocks listed in India. It also has a market leadership position and specialisation in the luxury watch segment. Based on this, we value the company at Rs. 1,332, which is 35x FY25 earnings. This estimate implies a 28% increase in the stock from current levels.

As much as your NRI friends wouldn't like to admit it, Indias are getting richer and the future of luxury retail is promising. Might as well keep a close “watch” on Ethos!

Disclaimer: Investment in securities market are subject to market risks. Read all the related documents carefully before investing. The securities quoted are for illustration only and are not recommendatory. Registration granted by SEBI, membership of BASL (in case of IAs) and certification from NISM in no way guarantee performance of the intermediary or provide any assurance of returns to investors.

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