Multi-bagger stock: Axis Securities sees over 29% upside in this small-cap jewellery scrip

Shares of luxury watches and jewellery company Ethos have given multi-bagger returns of over 140 per cent in a year, and the stock, as per the brokerage firm Axis Securities, is set to rise more in the coming sessions.

Axis Securities has initiated coverage on the stock with a 'buy' call.

From Saturday's market closing price, Axis Securities sees over 29 per cent upside in Ethos and has given the target price of Rs 3,050 apiece. The reason behind its bullish stance is the company's robust and consistent performance over the past several quarters.

Analysts at the brokerage firm believe that the trend will continue in the coming years, supported by factors such as consistently strong same-store sales growth (SSSG) of over 15 per cent and improving earnings before interest, tax, depreciation, and amortisation (EBITDA) margins, rising from 11.3 per cent in FY20 to 14.5 per cent in FY23.

"We expect the company’s EBITDA margin to expand 100 basis points to 15.6 per cent by FY26E from 14.5 per cent in FY23, led by 1) improving product mix—a gradual increase in the ASP and exclusive brand portfolio—2) store expansion and operating leverage, and 3) increasing CPO business—further improving the company’s ROCE from 16 per cent in FY23 to 20 per cent in FY26E," said Axis Securities in its report.

The company's continued focus on store expansion and an increased emphasis on expanding its exclusive brand portfolio resulted in an overall average selling price (ASP) increase of 2.2x from Rs 84,200 in FY20 to Rs 187,500 in H1 FY24.

As per the report, overall margins will be driven by an increasing share of high-margin exclusive brands in the portfolio, given that these brands command 35–40 per cent gross margins as compared to non-exclusive brands.

On the valuation front, with improved visibility in earnings growth and a stronger return profile, the stock appears attractive to the brokerage within the small-cap space.

Ethos share price: Past performance 

In a year, shares of Ethos have gained over 140 per cent against the Nifty 50's rise of over 19 per cent. 

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