Ethos Ltd Q1 FY2024 Concall Summary

Key Takeaways

• Strong headline growth, one margin blemish: Revenue rose 33% YoY to INR230 crores and EBITDA grew 32% YoY, but a sharp INR/CHF forex swing shaved ~110 bps off margins, a hit management expects to fully reverse by January.
• The Favre Leuba bet is now live: Ethos acquired a controlling stake in the Swiss entity that bought the 1737-founded brand's IP, aiming to restore it as a global Swiss watch name; the investment is early-stage with no quantified capital plan yet.
• Pre-owned growth missed its own projection: The dedicated second-movement boutique was non-functional for two months due to mall renovation and litigation, holding pre-owned growth to ~15% YoY, below the company's internal target.
• ASP keeps climbing, but the pace is normalizing: ASP rose 12% YoY and will continue to rise steadily, though the sharp COVID-era mix shift away from lower price points is now behind the company.
• What to watch next quarter: Whether the remaining 25% of brands take the price increase needed to restore margin, the pace of the 20–25 new boutique openings planned for this fiscal year, and any update on Favre Leuba's team and product strategy.

Top-Line Performance & the Forex Drag

• Revenue and EBITDA: Revenue from operations hit INR230 crores, up 33% YoY; EBITDA reached INR38.6 crores, up 32% YoY. The growth was broad-based across the portfolio.
• The CHF problem: The INR/CHF rate moved from ~INR83 a year ago and ~INR86 in December to ~INR95 now, a nearly 13% move. About 75% of brands have already taken a price increase at the INR91 average Q1 rate; the remaining 25% will correct by January or earlier, at which point margin will be fully restored.
• Quantified hit: The forex impact was around 110 basis points this quarter, plus an additional INR77 lakhs in related payments.
• Wedding season tailwind: Management acknowledges a strong correlation between wedding buying and luxury product sales, so an improving wedding season would lift results, though the company does not track this flow specifically.

Yashovardhan Saboo: "Supply side constraints are a reality that we will have to live with... it also adds to the brand's respect and prestige when things are not just available and you can ask for a discount or anything like that."

Favre Leuba & Brand Investments

• The acquisition: Ethos acquired a controlling majority of Silvercity Brands AG in Switzerland, which in turn acquired all intellectual property assets of Favre Leuba, the second-oldest Swiss watch brand (established 1737). The brand was active until 2019 and went inactive during COVID.
• What happens next: Management is now selecting a team; together with that team it will create a business plan and product strategies, after which precise investment figures will be known. The stated ambition is to restore Favre Leuba to the global fame it held decades ago.
• Haute-Rive stake: Ethos took a 6.25% stake in Haute-Rive, a new Swiss brand created by a third-generation watchmaker. Watches will be unveiled in the last quarter of this year; the stake secures India allocation rights and strategic insight into high-end watchmaking.
• New brand signings: Six brands signed this quarter: Swiss names Perrelet, Ikepod, Eterna and Alpina; German brand MühleGlaschutte; and Belgian brand Ressence. Ethos will be the exclusive Indian retailer for each.
• Exclusive brand philosophy: The goal is quality over quantity, contributing to each brand's success at a global scale rather than accumulating a large portfolio.

Yashovardhan Saboo: "What will give us great satisfaction is if the brand Favre Leuba achieves the fame that it had at a global level several decades ago. And we believe that's completely possible."

Pre-Owned Business: Correction Context & Operational Hiccup

• Growth below projection: The pre-owned business grew ~15% YoY in Q1, lower than the company's internal target, because the dedicated second-movement boutique was non-functional for nearly two months due to ongoing mall renovation and litigation. It is expected to be operative again soon.
• Price correction is real but narrow: Global pre-owned watch prices have fallen, but management stresses this is a correction from overheated COVID levels where prices rose 200%–300%. The correction is limited to less than 7%–8% of the brands Ethos operates with, and within those brands, only 20%–25% of the collection (the hype pieces). The majority of the pre-owned business remains unaffected in pricing.
• Confidence intact: Management is "very confident of growing rapidly in pre-owned watches," sees no structural challenge, and is putting greater resources and marketing efforts behind the segment.
• Guidance denial: When asked whether the INR200 crore pre-owned revenue target in 3–4 years still stands, management stated it never gave that guidance and is not providing a three-to-four-year number.

Pranav Saboo: "I do want to underline the fact that, it is limited to less than 7%- 8% of the brands that we operate with, where these corrections are happening and that too in about 20%- 25% of their collection of these 7%- 8% of the brand... the majority of the business was not these timepieces, and it remains unaffected by that."

Store Expansion & ASP Trajectory

• New openings accelerating: Six new boutiques opened in Q1, adding three new cities: Surat, Bhubaneswar and Raipur. The company plans about 40 new openings over the next two fiscal years, with 20–25 in the current fiscal year.
• Upcoming locations: A first Rimowa boutique is coming to Jio World Plaza Mall in Mumbai. Six boutiques (five monobrand plus one Ethos Summit multi-brand) are planned for Mall of Asia in Bangalore, though mall dates can slip. Two stores are opening at Mall of Millennium in Pune, plus a new monobrand boutique at Select City Walk in New Delhi. Additional openings are in the pipeline for Mumbai, Delhi NCR, Kochi and other new cities.
• Store economics: Stores become profitable at the operational level within the first year. Monobrand boutiques and multi-brand stores deliver roughly the same average sales and return levels, with differences depending on brand, location and brand push.
• ASP rose 12% YoY: The sharp COVID-era ASP increase came from reducing emphasis on lower price points; that shift is now complete. ASP will continue to rise steadily but more gradually, driven by the interplay of more expensive brands and mid-to-low-price additions from smaller-city expansion. Management expects ASP will certainly be higher in three years than today.
• Jacob & Co exclusive editions: The Jacob & Co boutique partnership produced exclusive India editions; an 11-piece Jacob in Steel Epic X at INR26 lakh MRP sold out in under 36 hours.

Inventory & the Growth-Versus-Efficiency Tradeoff

• Inventory days are elevated by design: The company is investing in growth, having signed 19 brands in the last two years. These exclusive brands will "fire two years or three years later," and as the portfolio matures, inventory days will decline. Management has explicitly decided growth is more important than lowering inventory days for at least the next couple of years.
• No obsolescence risk: Premium and luxury watches remain on catalogue for 5–20 years; unlike fashion watches, collections do not become unsellable due to trend changes. There are no unsold watches in the traditional sense.
• Renovation spend: INR3.5–4 crores is allocated for store renovation in the next year.

Pranav Saboo: "The opportunity in India over the next five years to seven years is massive. We must be in a position to dominate that. To that extent, we continue to invest in new brands."

Data Gaps & Unanswered Questions

• Management declined to provide new watch and certified pre-owned sales numbers with and without GST on the call, offering to connect separately.
• Management declined to give online revenue contribution or pre-owned revenue separately, stating the company no longer distinguishes between online and offline given its omnichannel model.
• Management declined to comment on Titan's experience with Favre Leuba or reasons for discontinuing the brand.
• Management declined to provide top-line and bottom-line growth expectations for the next year, or a minimum inventory-days target.
• When asked about any material change in thoughts on the new-watch and CPO businesses versus plans a year ago, management gave a general answer about strategy being clear and flexible but did not identify any specific changes.

Guidance & Commitments

Key Metrics