ETHOSLTD - ETHOS LIMITED Share Price

Management Outlook and Key Points:

Outlook:

• Optimism for Q3 FY25: Anticipate strong performance driven by festive demand (Diwali, weddings) and early signs of robust consumer spending (October revenue up 47% YoY).
• Expansion Plans: Targeting 13 new stores by FY25-end (total 25 new stores in FY25) to enhance market presence.
• Luxury Growth: Focus on high-value segments (luxury/high-luxury watches, jewelry) with ASP rising to Rs.2.16 lakh (vs. Rs.1.87 lakh in H1 FY24).
• Pre-Owned Segment: Certified pre-owned business (Second Movement) growing at 25% YoY; targeting higher consignment-based acquisitions.

Major Points:

1. Financial Performance:

   • Q2 FY25: Revenue up 26.3% YoY to Rs.297.1 Cr; PAT up 14% to Rs.21.2 Cr. Margins impacted by forex loss (Rs.4.65 Cr in Q2), new store costs, and rentals. Excluding forex, EBITDA/PAT growth would be 27.4%/32.7%.
   • H1 FY25: Revenue up 22.6% to Rs.570.4 Cr; PAT up 19.9% to Rs.44 Cr.

2. Challenges in H1: Heatwaves, elections, monsoon disruptions, and delayed wedding season affected sales.

3. Strategic Initiatives:

   • New Brands: Signed exclusives with ID Geneve, Singer Reimagined, and Hautlence; launching Favre Leuba in Jan 2025.
   • Jewelry Expansion: Messika boutique (Delhi) to open by Q4 FY25; Rimowa luggage performing well.
   • Operational Efficiency: Inventory days at 177 (Sept 2024); cash reserves at Rs.271.4 Cr.

4. Regulatory & Market Dynamics: Monitoring potential GST hike impact; confident in mitigating through pricing adjustments and EFTA benefits (customs duty reduction from 2025).

Focus Areas: Store expansion, premiumization, and leveraging India's luxury market growth.

Question 1:
Pranav, there has been a recommendation of this potential increase in GST by a group of ministers. The decision though seemingly hard to understand for several reasons. But my first set of questions is to better understand few things here. So currently my checks are suggesting that India pricing is currently 5% to 7% cheaper versus global destinations, partly because the Swiss franc has appreciated versus the INR and the corresponding MRP increases are yet to be revised. So, what is the extent of price increase that we are expecting at the start of next calendar year basis the revision to say 99 or whatever the current conversion rate is there? I understand it is a difficult projection as of now. But typically, what is the elasticity of demand to such price increases, in case there is a historical precedent to this? And thirdly brands also have significant benefits from this free trade agreement that India has sort of signed. So, is there any willingness to sort of partially allocate some of those savings to keep the India pricing comparable in case this GST increase sort of actually fructify?

Answer:
Pranav Saboo clarified that India's pricing is competitive due to forex dynamics. If GST increases, prices could adjust by ~8% to offset taxes, but brands might absorb part of the hike via reduced discounts. EFTA benefits (effective next year) will likely lower costs, aiding pricing strategies. Demand elasticity is manageable due to luxury goods' inelasticity. Brands remain committed to India's growth, balancing forex adjustments and tax impacts.

Question 2:
So just on the initial commentary I wanted to confirm that you see in October month you saw 47% growth Y-on-Y? It seems that you have a good momentum already and how do you feel November and December will go through? Are you seeing more demand? And so just again on the GST, the tax hike that we've had. What are the comments from the brand owner's perspective? I just wanted to check. You said something about up to 8% price hike. I wanted to get some clarification on that.

Answer:
Saboo confirmed 47% YoY growth in October but refrained from specific guidance for November/December. He noted optimism for Q3 due to festivals and weddings. On GST, he reiterated potential price adjustments (e.g., 5% price hike + 3.5% discount reduction) but stressed discussions are hypothetical. Brands remain bullish on India's market despite regulatory uncertainties.

Question 3:
Firstly, I want to understand a bit about this FOREX impact. So can you explain this Rs 4.65 Cr that we have booked in Q2, where it's sitting exactly? Is it in other expenses or mostly in the cost of goods? The other expense bit has increased Q-on-Q from say about Rs 31.5 Cr to Rs 39 Cr. So, what explains this sharp jump? I mean some bit of it is obviously rent but other than that was there something else during this quarter? The next question I want to ask Pranav is, do you think that the benefit of EFTA and custom duty cut would flow into higher margins in H2 or do you think a more realistic outcome would be that we would see benefit of the same flowing into gross margins from next year onwards?

Answer:
CFO Munish Gupta explained the Rs 4.65 Cr forex loss: Rs 2.34 Cr in other expenses (exchange fluctuations) and the rest in COGS. The QoQ expense rise (Rs 31.5 Cr to Rs 39 Cr) was due to new store rentals and manpower costs. Saboo noted EFTA benefits will start in FY26, not H2 FY25, improving margins via reduced customs duties.

Question 4:
You have guided for 13 more stores to be opened before the end of the year. Looking to FY26 and beyond, now that we have stores in most of the large cities, multiple stores in some cities. Are we still seeing the same type of 20-25 store openings as we expect to see in FY25? And how are we insulating ourselves from new or unorganized luxury watch sellers?

Answer:
Saboo affirmed plans for 20+ stores annually over 5 years, targeting Tier-II/III cities and multi-brand expansions. COO Mukul Khanna highlighted differentiation: authorized partnerships, pan-India customer service, curated brand portfolios, marketing scale (e.g., 250k Instagram followers), and concierge services to counter unorganized players.

Question 5:
I guess it's partly answered but just to get some color on this. So essentially the duties that the government is talking about from 18% to 28% which is a 10% kind of an impact. So just on two points. One is from a demand elasticity perspective, which refers to the people who buy luxury watches, etc. Does it really impact you if you cannot straight-up pass through these hikes from a demand elasticity perspective? And the second thing is that there was potential margin expansion from this Swiss duty cuts right over the medium term. But seems like at least a part of that margin expansion could be reversed because of this GST hike. So, what are your thoughts on these two?

Answer:
Saboo avoided speculation on GST's demand impact but emphasized luxury goods' inelasticity. He expressed confidence in offsetting challenges via operational resilience. EFTA's duty cuts (FY26) will boost margins, countering potential GST headwinds. The long-term vision remains unchanged, focusing on growth despite regulatory shifts.

Question 6:
So Pranav just wanted to know the progress on Rimowa and where do we see probably this vertical growing in let's say over the next 3 to 5 years there? Also, in this space of this luxury lifestyle detailing we have Rimowa and Messika and if you could talk about the progress or the steps you are taking to kind of ensure or to get more brands. So as in what is the process and how long is the gestation period or the negotiations with the brand and what kind of segments are we focusing on going ahead let's say 3 to 5 years?

Answer:
Rimowa's first year saw strong performance, with plans to scale 8"“10x in 5 years. Messika's Delhi boutique (opening Feb 2025) will drive jewelry expansion (8"“10 stores in 5 years). Saboo mentioned ongoing talks with luxury brands (12"“15 months gestation) across fashion/accessories. Ethos aims to diversify into high-end lifestyle categories, leveraging its luxury market expertise.

Question 7:
So, Pranav just wanted to understand the progress for Favre Leuba and just what is the go-to market plan now with this? Are there certain benchmarks or let's say timelines one should think X number of stores by the end of this year? Just in terms of going to market, how is the initial acceptance or reactions? And have you started keeping jewelry in the Ethos store also?

Answer:
Favre Leuba's India launch is set for January 2025 (40 boutiques), with pre-orders exceeding CHF 100k. Saboo highlighted positive global retailer response. Jewelry pop-ups (Messika/Bvlgari) received strong feedback, but focus remains on dedicated boutiques. Messika's standalone store will precede broader jewelry expansion.

Question 8:
My question is on second hand segment. So, what is the growth in this quarter and if you brief about sharing the revenue of the second-hand segment in the revenue. So, my next question is the median selling price close to average selling price or it is lower? And another one if you give some color on the management expected SSG for next 2-3 years.

Answer:
Pre-owned segment (Second Movement) grew 33% YoY in H1 (Rs 43 Cr billing). ASP rose to Rs 2.16 lakhs (vs. Rs 1.87 lakhs), with median likely lower. SSG was 15.5% in H1; long-term growth targets include 10x revenue in 10 years via new stores and SSG.

Question 9:
Just irrespective of the fact that we get the tax hike or not, we will be able to maintain our gross margins at 30%.

Answer:
Saboo expressed confidence in maintaining gross margins (~30%) long-term, leveraging pricing strategies and operational adjustments, though short-term fluctuations may occur due to GST/forex. Management's focus remains on sustainable growth aligned with its 10-year vision.