Ethos Limited
9,772words
87turns
14analyst exchanges
2executives
Management on call
Yashovardhan Saboo
CHAIRMAN &
Ritesh Agrawal
CHIEF FINANCIAL
Key numbers — 40 extracted
32%
iatives and operating leverage. Here are the financial highlights. For Q2FY23 Revenue was up by 32% from Rs.134 Crores to Rs.178 Crores in Q2 of this year. EBITDA was up by 93% from Rs.15.4 Crores
Rs.134 Crore
nd operating leverage. Here are the financial highlights. For Q2FY23 Revenue was up by 32% from Rs.134 Crores to Rs.178 Crores in Q2 of this year. EBITDA was up by 93% from Rs.15.4 Crores in Q2 FY2022 to Rs
Rs.178 Crore
rage. Here are the financial highlights. For Q2FY23 Revenue was up by 32% from Rs.134 Crores to Rs.178 Crores in Q2 of this year. EBITDA was up by 93% from Rs.15.4 Crores in Q2 FY2022 to Rs.29.7 Crores in Q
93%
Revenue was up by 32% from Rs.134 Crores to Rs.178 Crores in Q2 of this year. EBITDA was up by 93% from Rs.15.4 Crores in Q2 FY2022 to Rs.29.7 Crores in Q2 this year. EBITDA margin for the quarter
Rs.15.4 Crore
e was up by 32% from Rs.134 Crores to Rs.178 Crores in Q2 of this year. EBITDA was up by 93% from Rs.15.4 Crores in Q2 FY2022 to Rs.29.7 Crores in Q2 this year. EBITDA margin for the quarter stood at 16.4%. Pr
Rs.29.7 Crore
res to Rs.178 Crores in Q2 of this year. EBITDA was up by 93% from Rs.15.4 Crores in Q2 FY2022 to Rs.29.7 Crores in Q2 this year. EBITDA margin for the quarter stood at 16.4%. Profit after tax for the quarter
16.4%
5.4 Crores in Q2 FY2022 to Rs.29.7 Crores in Q2 this year. EBITDA margin for the quarter stood at 16.4%. Profit after tax for the quarter stood at Rs.13.6 Crores with a PAT margin of 7.5%. For the H1
Rs.13.6 Crore
s year. EBITDA margin for the quarter stood at 16.4%. Profit after tax for the quarter stood at Rs.13.6 Crores with a PAT margin of 7.5%. For the H1FY23, H1 of FY2023 revenue was up by 57% from Rs.223 Cror
7.5%
ter stood at 16.4%. Profit after tax for the quarter stood at Rs.13.6 Crores with a PAT margin of 7.5%. For the H1FY23, H1 of FY2023 revenue was up by 57% from Rs.223 Crores in H1 last year to Rs.35
57%
d at Rs.13.6 Crores with a PAT margin of 7.5%. For the H1FY23, H1 of FY2023 revenue was up by 57% from Rs.223 Crores in H1 last year to Rs.351 Crores H1 this year. EBITDA was up by 117% from Rs.2
Rs.223 Crore
.13.6 Crores with a PAT margin of 7.5%. For the H1FY23, H1 of FY2023 revenue was up by 57% from Rs.223 Crores in H1 last year to Rs.351 Crores H1 this year. EBITDA was up by 117% from Rs.27 Crores in H1 las
Rs.351 Crore
7.5%. For the H1FY23, H1 of FY2023 revenue was up by 57% from Rs.223 Crores in H1 last year to Rs.351 Crores H1 this year. EBITDA was up by 117% from Rs.27 Crores in H1 last year to Rs.59 Crores in H1 th
Guidance — 20 items
Yashovardhan Saboo
opening
“It is sourced directly from the brands and it will be supported by top class after sales service.”
Yashovardhan Saboo
opening
“We are carefully observing some slowdown in global markets, but we believe that the impact in India will be limited.”
Yashovardhan Saboo
opening
“Therefore we continue to hold our guidance given earlier this year.”
Yashovardhan Saboo
opening
“As a result, we expect a steady increase in ASPs that is average selling price over the next six to eight quarters.”
Yashovardhan Saboo
opening
“We have accelerated our growth plans against the plan to add 13 stores as per our prospectus at the time of IPO.”
Yashovardhan Saboo
opening
“We are in discussion with several new brands for exclusive India rights and hope to be able to confirm and share many of these in the coming two or three quarters.”
Yashovardhan Saboo
opening
“Ladies and gentlemen, Ethos will not only be the leading luxury watch retailer in India, which we will be by far but our goal is also to become one of the top five global luxury watch retailers, but our ambition as you know also extends beyond watches.”
Yashovardhan Saboo
opening
“The addition of Rimowa luxury luggage to our portfolio is another category extension that will expand consistently.”
“We are seeing that the needs coming in from many cities where we are not present continue to grow not only for entry level products but also for middle to high level products andwe see an interest from brands also to enter some new geographies so as a result of these various combinations, we said let us go and up the target for new stores.”
“Some of them are in the process of discussion, but over the next 24 months or so we expect these to come up.”
Risks & concerns — 4 flagged
We are carefully observing some slowdown in global markets, but we believe that the impact in India will be limited.
— Yashovardhan Saboo
I will go one by one so on locations we always wanted to grow fast with locations, but frankly, until last year when the effect of COVID was still sort of uncertain as to when it would subside, we were a little bit conservative however, over the last five or six months we are seeing a confirmation of our belief that the market is growing steadily.
— Rahul Agarwal
Demand is far more than supply therefore it is very difficult to hold on to inventory.
— Yashovardhan Saboo
I know it is difficult to kind of say but let us say in the next three to four years how big can these businesses become in relation to what we have on the watches side?
— Hiren Ved
Q&A — 14 exchanges
Q
Good morning and thanks for the opportunity. Season’s greetings to everybody at Ethos and congratulations Sir for the company to host the Grand Prix 2022 last month. I hope the event went well. Sir I have four questions? Should I go across all four together or take it one by one?
Yashovardhan Saboo
Please Rahul go through all four. Thank you very much for joining. Good morning. Okay sure Sir. Sir, firstly on the new store expansion plans just wanted to know what has led to the change because that number looks like 40 stores in the next two years? It is quite a big number to achieve, could you help us with more detail in terms of location, capex, anything outside India we are doing, and the store mix we are seeing? Are we trying to do something with jewellery alltogether that is the first question? Secondly on the CPO business how did the segment do basically in the first half and how it
Q
Thanks for taking my question. Firstly Sir what I wanted to understand is like typically as an analyst and an investor like what we have been accustomed to is general retailing in the market wherein a large part of growth is largely dependent on how many stores you keep adding whereas ours is a luxury retailing business wherein I believe the number of store addition is not directly linked like we will not obviously have a lot of new store additions so what I wanted to understand firstly is if you can highlight some of the dynamics around our stores like what is the capex, opex, like breakeven
Yashovardhan Saboo
Thank you Ankush. So the journey of stores you mentioned that there is a lot of churn. Actually there is not too much churn barring some changes that happen. We have kept most of the stores we have started for a very long time. The journey of our stores it depends on what format we are talking about. As you know we have several formats. We have mono brand formats. Now these are expressions of brand identity and places where someone whose brand decided can go and pickup a watch. Now there the journey is pretty sort of clear. It starts and it grows as the brand grows. In terms of financials over
Q
Thanks for the opportunity. Congratulations on a very strong set of numbers. I have two questions. The first one is the strong results we have witnessed in Q2 is that on back of secular industry growth or the result of market share gain for us? The second one is EBITDA margin performance has been quite impressive for us so wanted to check on the sustainability of these margins going ahead? Also if you can speak on how has been the accounting trends because last time you indicated that it has been lower so how is it Q2 and how do you foresee going ahead? In terms of working capital again it has
Yashovardhan Saboo
Thank you Devanshu. I will answer them as best as possible. The Q2 globe I think it is a combination of both. I think the market remains strong but not only the remaining strong. I think the Ethos name and what it stands for are getting stronger and therefore there is of course gain in market share. It takes some time to estimate market share because there is not too much published information in the watch business but I am pretty sure that it is a combination of a continuing strength in the market in India and of course a phenomenal strength that the Ethos brand is now gathering. Margin susta
Q
Congratulations on a great set of numbers. Sir, my question was more or less regarding the ROCE and ROE so given that we have up’s on the expansion front I see that we will be flowing in broadly around Rs.250 Crores including the inventory into the new stores, which would kind of keep the ROCE depressed for a little while more so just wanted to understand we are right now at around 13% to 14% ROCE with ROE of 8% to 9% assuming Rs.50 Crores to Rs.55 Crores for the year? How do you see this going forward? Do you think this can go up to the 20% mark and what would be the drivers of the same like
Vinayak Mohta
Understood, and just two more on that front? Do you think you will need more capital to raise I think that you have decent cash at hand? Yashovardhan Saboo: No we do not have any plans. We do not have any plans for raising more capital Vinayak. Understood and one last question. The payback for a successful store is three years as you mentioned but if we include the churn is there a chance that it goes higher to four to five years or that includes… Yashovardhan Saboo: On an average no. On an average it will never go. There could be a few stores which it could be higher. Similar there are stores
Q
Good afternoon Sir and congratulations on a strong performance. I just wanted to know about your incremental investment in Kamala International what is the thought process and road map ahead and also if you can give us numbers for HTMIG so in terms of revenue, EBITA and PAT that is the first question and the second thing about would you like to share more on this new plant what we are setting up for manufacturing the steel bracelet in terms of opportunity and scalability in that business? Yashovardhan Saboo: Vikram I have to remind you this is an Ethos earnings call. We are not answering KDDL
Vikram Suryavanshi
But our HTMIG investment in Kamala International? Those are all KDDL. Again it is not an Ethos investment but very glad to connect offline and we will answer your questions of course. Sure Sir I will do. Thank you. Yashovardhan Saboo: By the way the KDDL numbers are also released today.
Q
Thanks for the opportunity. So I have three questions. First if you can help me understand the unit economics on store profitability that is what kind of capex is needed to open a store? What is the inventory typical inventory? What are the sales per store and what is the store level margins that is one? The second is if you can help me understand how we are competitive in terms of prices with respect to global markets despite having very high import duty and GST as well? The third is if I compare our numbers revenue and billing numbers between FY2019 and FY2022, the sales and billings have al
Yashovardhan Saboo
Sure Sabyasachi good morning and let me answer your last question first which is on ASP and volumes. You are right the ASP has gone up. It has doubled and to that extent have declined. This is a reflection of the implementation, a very conscious strategy that we have adopted about three years ago which was to reduce our focus on the entry level price points and increase the focus on the high price points the luxury and high luxury. Why did we do that strategy, low price points especially price points below Rs.30,000 to Rs.40,000, those are price points that number one are being let us say that
Q
Thanks for the opportunity again. Firstly can you highlight what kind of scale up that we are expecting in a see through business like in terms of what could be the overall contribution of CPO business in the medium to long term? I think currently it is immaterial at the moment but the growth that you are seeing could it be like 15% to 20% to 25% kind of business over the long run? Yashovardhan Saboo: Yes Ankush it can be. What I want to point you to is I think it was a McKinsey study as you check out McKinsey’s study of 2022 they said that the size of the preowned market globally is already o
Ankush Agrawal
Right and the dynamics of CPO business allow us a lower working capital requirement with a slightly lower gross margin right? Yashovardhan Saboo: Yes correct so far that seems to be the case. Lastly, just a clarification what CFO just mentioned on the SSG so what you said like after a store starts or after three to four years you expect a steady SSG of 10%? Did I hear it right? Yashovardhan Saboo: Yes correct. So like in the last quarter also you mentioned in a statement that you expect if SSG which was historically about 10% to 12% to grow to like on the higher 17%, 18% and 20% so if you are
Q
Thanks for the followup. Sir one question on the new store fundamentally, I understood about luxury that it is not about having more stores but rather more throughput and higher price points and then fulfillment happens offline quite a lot? Should we assume most of the new stores would be more monobrand, smaller in sizes, acting as fulfillment centres, more about gaining lion share in new cities, and less of big flagship stores and the second part of the question is how does CPO fit in this new 40 number? Is there a change in terms of CPO planning as well?
Yashovardhan Saboo
So it is a combination of multibrand and monobrand stores. Majority is not going to be monobrand. The majority is actually going to be multibrand stores. There will be some flagship stores. It is very important that in new geographies we establish a physical footprint because in new geographies even if I do not stock very high priced watches there is a market for those kind of watches which you cannot really solve. It is impossible to serve it completely online right. If you have a store you have creditability. You have people to talk to and you have people to network into. A good example of t
Q
Thank you for the opportunity. Sir really congratulations on a good set of results deepening the market and market share gain is encouraging? Sir what I want to know is our inventory days currently would be around on sales over the last six months would be 168 days? As we see the same store sales growth also always picking up in a store do we see this optimizations over a medium to long term after we have expanded on these 40 stores. Will that be a very good sort of optimization every year for a good period of time from 168 days? Yashovardhan Saboo: We do expect optimization once this growth p
Amin Shah
The reason Sir the way I was asking this I see ourselves also becoming something like watches of Switzerland where we a prime retailer in UK? Their inventory stock on sales is somewhere 95 days as of now? Since you are studying watches of Switzerland you will noticed that they have now started to make a distinction between supply constraint brands and non supply constraint brands. Have you noticed that? No? Please look at that so lot of their business comes from three brands which are their strength. Demand is far more than supply therefore it is very difficult to hold on to inventory. Whateve
Q
Congratulations on a great set of numbers. I just have one question as we expand into adjacent luxury streams like jewellery and luggage like Rimowa and Messika? I know it is difficult to kind of say but let us say in the next three to four years how big can these businesses become in relation to what we have on the watches side? Yashovardhan Saboo: Hiren that is a great question and we constantly devise this. Frankly said I think you will start to see the size of these businesses on the grass but it will still be I would say rather small in three years compared to the size of the watch busine
Hiren Ved
Got it and you think margins will be in and around what we earn on the watches segment? I think margins will be little better than the watch segment. Thanks and all the best. Yashovardhan Saboo: As we have got three more questions, I have to leave early so can we restrict to one question from each please.
Q
So congratulations on a good set of numbers. My question is regarding the exclusive brands so I wanted to understand how this works like it is like no one else in India will sell that brand or there are certain products on these brands which we will exclusively sell and do we have any kind of agreement with them or how does the contracts are made that is it?
Yashovardhan Saboo
So exclusive brands mean that nobody else in India retails these brands. These are retailed exclusively by Ethos and yes there are agreements and contracts with these brands and from time to time they need to be revised which is a normal process that we do, but most of them are governed by contracts. Are you planning to look to add more brands? Yashovardhan Saboo: We are. I mentioned that in the speech as well. We are in discussions with several brands and over the next two or three quarters we hope to be able to announce new brand collaborations soon. That is it from my side. Congratulations
Q
Thank you for the opportunity. I have a couple of questions? How many units of watches did we sell in H1 FY2023? Yashovardhan Saboo: H1 FY2023 about between 24,000 and 25,000.
Abhishek Gupta
Okay so why I asked this is because I think we sold around 39,000 watches so that 24,000 and 25,000 will take us towards the 50000 watch run rate which will be 25% increase in our revenue so I just wanted to understand do you think these 50,000 watches have corresponding 50,000 end customer or do you think there are buying multiple watches? There are people buying multiple watches. So how many would be unique customers as of you who will be buying these 50,000 watches broadly? I am not very sure because it would also be that it is only this or are there repeat from someone who bought a watch i
Q
Yes Sir I just had a followup question on the payback period that you had mentioned as I could see that you do Rs.80 Crores to Rs.90 Crores EBITDA which excludes the broadly Rs.40 Crores of rent that goes into the business which would give you a broad net EBITDA after rent of Rs.50 Crores which is broadly Rs.1 Crores per store so it somehow does not matches up with the numbers of the payback years and because the payback period number should be Rs.1.6 Crores approximately per store coming over three years so am I missing something here or if you could just clarify? Yashovardhan Saboo: Vinayak
Vinayak Mohta
No worries. I will do that. Thank you.
Q
Thank you and I hope we have been able to answer the questions satisfactorily. I know that some questions need a followup and our investor relation advisors, SGA and our CFO Ritesh will connect. I thank you once again for taking the time to join us on the call. Thank you very much and have a nice day.
Opening remarks
Yashovardhan Saboo
Thank you and a very good morning to all. I hope you had the opportunity to review our presentation and financial results, which are available on the stock exchange and our company’s website. I am accompanied by Mr. Ritesh Agrawal our CFO and SGA our investor relations advisors are also present on this call. I am very glad to share the news of yet another excellent quarter. The quarter that confirms again the growth potential of the premium watch segment in India and the dominance of Ethos in this segment. We report with pleasure that our Omni channel platform seamlessly combining offline and online has done very well. We also reported a higher share in the business which differentiates our offering. Furthermore, our EBITDA margins continue to expand on the back of cost optimization initiatives and operating leverage. Here are the financial highlights. For Q2FY23 Revenue was up by 32% from Rs.134 Crores to Rs.178 Crores in Q2 of this year. EBITDA was up by 93% from Rs.15.4 Crores in Q2