Ethos Ltd Q2 FY2025 Concall Summary

Key Takeaways

• Record quarter despite headwinds: Revenue grew 26.3% YoY in Q2, overcoming heatwaves, elections, heavy rainfall, Swiss natural calamities, and an inauspicious period falling in the quarter.
• October signals accelerating momentum: A record month with 47% YoY growth sets up a strong Q3, which captures the festive and wedding season.
• Brand portfolio transformation underway: Three new exclusive brand partnerships signed, Favre Leuba globally relaunched, and a first-of-its-kind Messika jewellery boutique set to open, all while 20% of existing boutiques are under renovation to welcome large incoming brands.
• Margin story is about timing, not erosion: H1 EBITDA margin held flat at 16.8% despite a ₹4.65 crores FOREX loss; excluding this, the margin would have been 17.6%, with new store costs front-running their revenue contribution.
• What to watch next quarter: The Favre Leuba India launch in January, the Messika boutique opening in February, and whether the 47% October growth rate sustains through the festive quarter.

Demand & Revenue Drivers

• Volume and value both climbed: Overall volume grew 17% in Q2 and 5% in H1, while ASP rose to ₹2.16 lakhs from ₹1.87 lakhs, driven by the share of luxury and high luxury watches reaching an all-time high in H1.
• Same-store strength: Same-store sales growth hit 15.5% in H1 FY25, which management described as demonstrating strong progress even as 20% of boutiques underwent full renovation.
• Pre-owned segment accelerates: The CPO segment, Second Movement, grew 33% in H1 to ₹43 crores billings from ₹32 crores YoY, with a strategy focused on acquiring more high-value watches on consignment.
• October breakout: October delivered 47% YoY growth, a record month that management points to as an early signal for Q3, which captures major festive events and an increase in weddings.
• Headwinds absorbed: The quarter absorbed extreme heatwaves driving customers abroad, a general election slowing cash movements, heavy rainfall reducing walk-ins and weddings, logistical challenges from Swiss natural calamities in June, and the ‘shradh’ period falling in Q2 versus Q3 last year.

Pranav Saboo: "On 10th of January there will be a launch at the Swiss embassy. On 11th of January is another launch at the Formula One circuit celebrating motor cars and the association of Favre Leuba with it. And we have from 12th of January onwards the Favre Leuba watches will be available across 40 boutiques in India along with a strong digital marketing campaign which will start at that time."

Brand Portfolio & Store Expansion

• Three new exclusive partnerships signed: Since April 2024, Ethos signed exclusive agreements with ID Geneve, Singer Reimagined, and Hautlence, adding to a portfolio that already spans 60 brands.
• Favre Leuba global relaunch executed: The brand was successfully launched in Geneva on August 29, 2024, with Ethos holding a long-term exclusive agreement for India; the India launch is set for January 10-12 across 40 boutiques with a strong digital campaign.
• Messika marks jewellery entry: The inaugural Messika Jewellery Boutique at Chanakya Mall, Delhi, is in setup phase and on track to open by January or February 2025; management hopes to open 8 to 10 more Messika boutiques in the next 5 years.
• Rimowa scaling rapidly: Celebrating one year of the Rimowa boutique, management is targeting an 8X to 10X increase in the business over the next 5 years, with more luxury luggage brands to be announced in the coming quarter.
• Store footprint expanding aggressively: 12 new stores opened from April 2024 to present with a total capital outlay of ₹35 crores, and the company is actively working on adding 13 more stores before the end of FY25.
• Renovations are strategic, not defensive: 20% of boutiques are under full renovation, accelerated in preparation for many large brands wanting to enter India in the next year and coming years.
• Store consolidation improves efficiency: Two stores were combined into one boutique in a location under renovation, so the store count will come down but overall revenue will increase.

Pranav Saboo: "I am confident that our entry into the international jewelry sector which will happen in February, will be a flying success and will open several doors for us in the future."

Margins & Costs

• FOREX masked underlying margin strength: H1 EBITDA margin was 16.8% versus 16.9% prior year, impacted by a ₹4.65 crores FOREX loss from INR/CHF fluctuations; excluding this, the EBITDA margin would have been 17.5% for Q2 and 17.6% for H1.
• New store costs front-run revenue: Other expenses jumped QoQ from ~₹31.5 crores to ₹39 crores, primarily due to 12 new boutiques at advanced or just-opened stages, with additional manpower and rental expenses incurred before revenue picks up.
• Gross margin confidence intact: Management believes it will be able to maintain and grow gross margins at 30% irrespective of a potential GST hike.
• EFTA tailwind ahead: The EFTA agreement has not started yet but will begin next year, reducing customs duty and positively impacting the bottom line while opening up the market for Swiss brands.

GST & Regulatory Outlook

• Revenue-neutral price increase estimated at 8%: If GST increases and FOREX is stable, management estimates a revenue-neutral price increase of roughly 8%, but believes brands will not take the full 8% and that consumer offers in India can be lowered to absorb the impact.
• No major impact expected on accessible luxury: Management sees no major impact on sales up to the \$50,000 price point, and EFTA benefits will be passed on to consumers if a GST change materializes.
• Management engaging government: The company is in discussion with government representatives to present its view that a lower tax rate would be beneficial for the country by increasing future tax revenues.
• Hypotheticals not entertained: Management repeatedly declined to model specific demand elasticity or margin reversal scenarios, stating it will comment only if and when a GST change actually happens.

Pranav Saboo: "I don't think the GST is a big dampener if it comes. And again, I want to highlight, this is the fact that we are in discussion with the right representatives of the government to also give our views on how it can be beneficial for the country to have a lower tax rate as it will increase tax revenues in the future if and when it comes."

Long-Term Vision & Growth Algorithm

• 10x revenue in 10 years: The stated long-term goal is to increase overall revenue 10 times in 10 years, achieved through a healthy mix of same-store growth and new store additions.
• Store opening runway is deep: Management sees an opportunity for 20 to 25 store openings per year, with the capacity to open 20 stores a year for the next 5 years.
• Pre-owned segment to sustain 20% growth: Management foresees 20% growth in the pre-owned segment for the remainder of the year.
• Jewellery strategy is boutique-first: The company wants to focus on jewellery through dedicated jewellery boutiques first, and may return to in-store pop-ups later after establishing the format.
• More luxury luggage brands incoming: Additional brands in the luxury luggage category will be announced in the next quarter, building on the Rimowa success.

Pranav Saboo: "I remain confident of the ability of our management to be able to steer the company through this without changing our 10 year vision."

Guidance & Commitments

Key Metrics