Ethos Ltd Q4 FY2025 Concall Summary

Key Takeaways

• 25% revenue growth, but a messy quarter: FY25 revenue rose 25.3% YoY to INR1,252 crores, yet GRAP IV restrictions in Delhi NCR delayed boutique openings and the City of Time launch by 90 days, pushing revenue and inventory costs out of sync.
• The inventory build is strategic, not a warning: Inventory jumped from INR440 cr to INR593 cr to pre-position stock for 8 boutiques opening in May 2025 and the delayed City of Time, where rentals were paid with zero revenue during the construction freeze.
• ASP growth is normalizing by design: After a 20% ASP jump last year from culling lower-price-point brands, this year's 7.4% rise reflects a deliberate shift toward a healthy volume-value mix, with new non-metro stores targeting INR1-4 lakh price points.
• Margins are structurally better but currency-volatile: Gross margin at 31% could have been higher absent CHF strength; management sees the improvement as sustainable from better products and lower discounting, but short-term volatility from INR-CHF moves will persist.
• What to watch next quarter: Whether the delayed City of Time and 8 new boutiques begin converting inventory into revenue, the pace of May's geopolitical-sentiment recovery, and any progress on EFTA duty benefits expected by year-end.

The Delhi Disruption: What Happened and What It Cost

• GRAP IV froze construction for 90 days: Pollution-linked restrictions in Delhi NCR halted all construction activity, preventing the completion of 8 boutiques originally slated for the last financial year and delaying the City of Time launch from January/February to May.
• Revenue missed, costs did not: City of Time inventory had already landed for the planned launch window, but with no revenue flowing, rentals and other fixed costs had to be absorbed through the quarter.
• The boutiques are now open: All 8 delayed boutiques opened recently, and City of Time Gurgaon launched on 10th May with five exclusive brand boutiques, two multi-brand galleries housing 50+ independent brands, watchmaking zones, and a cigar lounge.
• Two more exclusive brand boutiques will open by next quarter to complete the City of Time rollout.

Pranav Saboo: "In India, we don't see any impact on demand at the moment. April was a very strong month for us. And May, the only slowdown in May has been because of geopolitical tensions, nothing so much for tariffs, and we don't expect any -- even May will recover."

Inventory: Why It Rose and Where It Goes Next

• The INR153 cr increase is tied to expansion, not stagnation: 14 new boutiques, the City of Time project, and the Messika boutique investment are all in early revenue ramp-up, so the inventory sitting against them has not yet converted to sales.
• Pre-arranged stock for May openings landed in Q4: Inventory for the 8 boutiques opening in May 2025 was proactively brought in during the March quarter, inflating the quarter-end number ahead of the revenue those boutiques will generate.
• Working capital normalization is expected: Some shipments were paid ahead of time to secure better product availability, and management expects this to normalize over time.
• Inventory days have room to fall: Ethos sits at much lower inventory days than international peers, and management sees scope to drive days down through better merchandising software and modular decision-making, though execution is not straightforward.

Margin Structure: The Good, the Bad, and the Unhedged

• 31% gross margin understates the structural improvement: The quarter absorbed an unquantified hit from a strengthening Swiss franc against the rupee, with price hikes not yet passed through to customers. Absent that currency move, margins would have been materially higher.
• The structural story is real: Better product mix, India-edition pieces with lower discounting, and the removal of lower-price-point brands from boutiques have lifted the underlying margin profile. Management calls this sustainable long-term.
• Short-term CHF-INR volatility will remain a swing factor: The company hedges approximately 50% of foreign currency exposure through forward contracts, leaving the other half exposed to spot-rate moves.
• Management declined to give EBITDA margin guidance for the coming two years, citing too much currency volatility right now.

Pranav Saboo: "The basic principle that we've applied to all the -- with all the brands is that we will share the gain and we will also share the pain."

Growth Levers: New Categories, New Geographies, New Formats

• Messika marks the jewellery entry: The first Messika boutique opened at The Chanakya Mall, New Delhi on 14th May, taking Ethos into international luxury jewellery for the first time.
• Rimowa is working and expanding: The Mumbai Rimowa boutique is performing well, a second Delhi boutique will launch soon, and a third location has already been identified.
• Pre-owned is a quiet 30% grower: The Second Movement pre-owned segment is growing over 30% YoY as customers recognize the value of buying and selling through a trusted platform.
• UAE subsidiary is exploratory: Ficus Trading LLC has been established as a wholly-owned subsidiary in Dubai, with rights to retail Favre Leuba there and potential to expand the pre-owned vertical.
• More lifestyle brands are coming: Management will sign additional brands in the premium and luxury lifestyle space while watches continue to grow as the core.
• EFTA duty benefits expected by year-end: The agreement should be effectively in place by the close of this year, with the first benefit being duty reduction; the SOR model arrives only when duties go to zero over 6-7 years.

Pranav Saboo: "Our journey started with watches. Watches continues to be our core focus."

The 10x Vision: Walking the Path, Not Racing It

• The commitment stands: Management reaffirmed the 10x revenue growth over 10 years stated at the time of listing, and says the company has been walking that path and will continue to do so.
• No segment-wise breakup yet: When asked to split the 10x vision between watches and other premium categories, management called it too early to quantify.
• Market share ambition is tempered by profitability: Ethos grew faster than all competitors, but management frames the jump from 35% to 45% share as a long haul and prioritizes profitable, compliant share over share for its own sake.
• ROCE improvement is a work-in-progress: Levers include revenue and margin growth through product mix and lower discounting, modular store fit-outs to reduce per-square-foot capex, and better merchandising software to bring down months of inventory stock.
• Franchising is under study, not imminent: Management is exploring the pros and cons and will bring someone on board for a detailed study, but no rollout is expected this year and the company remains protective of in-store experience control.

Pranav Saboo: "I do know for sure that we are committed to this 10x growth in 10 years. This was stated at the time of listing the company, and we have been walking that path and we'll continue to walk that path."

Guidance & Commitments

Key Metrics