Soft debut of Ethos disappoints investors in Dalal Street. What ails the stock?

Investors at Dalal Street were very gung ho about the Ethos IPO because it is backed by marquee investors like Mukul Mahavir Agarwal, Hiren Ved and Sunil Singhania.

Mukul Mahavir Agarwal increased his stake in the premium watch retailer via a rights issue and bought 23,145 equity shares for Rs 550 apiece. He increased his stake to 9,24,121 equity shares or 4.84 per cent from 9,00,976 equity shares earlier. His stake in the company is valued at Rs 81.13 crore at the upper range of the price band, the ET stated.

Hiren Ved-promoted Alchemy Capital also added another 12,500 equity shares through the rights issue to increase its stake to 5,12,500 equity shares or a 2.69 per cent stake in the company. The stake is worth close to Rs 45 crore.

Sunil Singhania, through his Abakkus Growth Fund II, a SEBI registered Alternative Investment Fund came in as a pre-IPO investor.

The fund bought 3,02,663 equity shares of the company for a price of Rs 826 per share, holding a 1.59 per cent stake in the company as on the date of the filing of the RHP. His investment in the company is valued at Rs 24.99 crore.

The Ethos IPO opened for subscription between May 18-20. The shares were offered in the range of Rs 836-878 apiece to raise Rs 472.29 crore via the primary route.

The issue was overall subscribed 1.04 times, with the quota for QIB investors getting 1.06 times subscription whereas the HNI portion fetched 1.48 times bids. The retail portion was booked only 84 per cent.

To everyone’s disappointment, Ethos had a disappointing debut trade and listed at a discount. The listing price was Rs 825, a discount of 6 per cent over its issue price of Rs 878. The pain intensified post listing as the scrip dropped as much as 12 per cent to Rs 774. It scaled an intraday high of Rs 839.65 on Monday, before the sharp selloff.



According to the ET, a majority of the analysts are negative on the issue, due to its pricey valuations, muted performance and weak financials.

Mohit Nigam, Head - PMS, Hem Securities blamed the poor listing to rich pricing and current market sentiments.

An expert named Santosh Meena was very blunt in his opinion. He pointed out that the high valuations, lack of exclusive agreements with watchmakers, inventory heavy operations make this issue suitable only for long-term investors having a high-risk appetite. It is not a stock for people seeking quickfire gains.

He advised investors who applied for listing gains to maintain a stop loss of Rs 800 and exit the counter.

Another expert named Arafat Saiyed blasted the aggressive pricing of the IPO for not leaving anything meaningful on the table for investors.

However, Saurabh Joshi, a Research Analyst at Marwadi Financial Services advised investors to hold the stock from a short to medium-term perspective. He explained that the IPO was richly priced, and the company will have to continue growing its business at a high growth rate in order to justify the valuation which keeps cautious from a long term perspective.