One moment, stocks are rallying like there is no tomorrow and some days, they are all falling like apples from a tree.
Interestingly, despite the high volatility, investors have not lost their faith in the markets. This can be seen from their reaction Recent IPOs,
From large companies like Life Insurance Corp (LIC), Campus Activewear to smaller companies like Rainbow Children Medicare, Prudent Corporate all the recent IPOs have been oversubscribed.
This means that IPOs are still a popular investment tool among investors. Therefore, investors should keep themselves updated about all the upcoming IPOs.
Today we see ethos upcoming ipo,
Let’s know the special things of IPO …
digit span: 18 May 2022 to 20 May 2022
problem size, 4,722.9 m (fresh issue value .) 3,750 meters and offer for sale worth 972.9 m)
price band, 836 to 878 per equity share
bid lot: 17 in shares and multiples thereof
application range: Minimum one lot Maximum thirteen lots
Face value, 10 per equity share
items of issueThe Company intends to use the funds raised for a number of purposes such as:
– Repayment or prepayment of all or some of the loans taken by the company in full or in part
To meet the working capital requirements of the company
– Financing of capital expenditure for (i) setting up of new stores and refurbishment of certain existing stores and (ii) up-gradation of enterprise resource planning software.
General corporate purpose.
The size of the new allotment offer has been reduced as the company has done a pre-IPO placement of 250 m
The company has reserved 50% of the shares of the offer for Qualified Institutional Buyers (QIBs). It has reserved 15% for High Net Worth Individuals (HNIs). Therefore 35% of the shares are available to retail individual investors.
IPO Allotment Date: 25 May 2022 (tentative allotment date)
Tentative listing dateShares will be provisionally listed on 26th May 2022.
Let’s know 5 things about IPO …
#1 About the company
Established in 2003, Ethos Watch is one of the most prestigious watch retailers. It has around 50 stores in India and sells around 60 premium luxury watch brands.
Ethos is the largest Indian chain of luxury wristwatch boutiques. They sell both new and used watches. Apart from selling watches, they also sell accessories like straps, watch winders, jewelery boxes, etc.
They repair and service all watches from around 60 brands. Athos has physical stores as well as online stores. It is also present on social media.
#2 Financial position of the company
The turnover of the company is good. But it has almost equal cost. As a result, the profit margin is very low.
The profit margin before the pandemic was 2.2%. So it was very clear that the company would be in loss during the lockdown period.
Moreover, it has also not been able to generate reasonable returns on its net worth. It earned a return of 8.5% in FY22.
So overall the financial position of the company does not give a pleasant picture.
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#3 Peer comparison
The company does not have any listed peers.
#4 Argument in favor of business
Ethos aims to be the most trusted imported watch seller in India. There is a massive sale of smuggled, counterfeit and refurbished watches in India. And Ethos wants to be a company known for product authenticity.
Ethos sells about 60 brands.
With its large number of offline stores across the country, it offers a wide range.
Athos not only sells watches but also service and repair the watches they sell. Customer can walk offline and get the watch servicing or repaired.
Ethos also has good customers. Its huge customer base appears loyal with repeat purchases accounting for over 35% of total revenue.
#5 Risk Factors
-Heavy Cost – Ethos has around 50 stores in India. He has to keep a stock of branded watches everywhere. These watches are very expensive and maintaining them is another cost story in itself.
Slow Growth – Sales of premium watches in India are limited. In a country where a large proportion of the population lives below the poverty line, the business of extremely expensive watches is bound to slow down.
-Lower Margin – As the above data shows, the company had a margin of 1.4% in the year 2020-21. This raises doubts about the sustainability of the business.
Dependent business – The Indian government allowed the import of premium watches in 2003. There are no restrictions yet. But if at any point the government brings back the ban, the company will go out of business.
-30 As on September 2022, the company had contingent liability 371.8 m The liabilities are huge and are not recognized as debt. Liability mainly relates to VAT.
Equity markets are very volatile these days. Even fundamentally strong companies have been taken to the cleaners.
So at a time when even fundamentally strong stock When beaten, choosing which IPO to invest in becomes risky.
You should note that newly public companies do not have a proven record of operating in the public sector.
For example, investors had high expectations from tech stocks like Zomato, Paytm etc, but all these stocks have disappointed the shareholders to a great extent. Even Rainbow Medicare’s recent IPO opened at a discount on listing day.
So it would not be an exaggeration to say that no matter how strong, how popular or financially the company is, everyone has been blown out of the punch of the global decline.
In the midst of this chaos, how will a company with weak financials survive? Athos suffered losses in 2020-21. It could barely survive the pandemic. So, will the shareholder be put at a disadvantage every time the economy comes under pressure?
Stay tuned to get more updates on this IPO and all upcoming ipo in the market.
Happy investment!
Disclaimer: This article is for informational purposes only. This is not a stock recommendation and should not be treated as such.
This article is syndicated from Equitymaster.com