Moats and macros are weaving favorable tales for Ethos, given visible growth outperformance and upside from the signed Trade and Economic partnership agreement (TEPA)/ramp-up of own-brand Favre Leuba (FL). The signed TEPA offers elimination of the 22 per cent custom duty gradually, in 7 annual instalments.

Also read: Broker’s call: Gail India (Buy)

We believe most of the benefits should be shared by retailers and brands, as consumer pricing is broadly akin to global pricing. Our bear/bull case analyses suggest 20/50 per cent target price upside. Along with this, ramp-up of FL on target lines (35 per cent CAGR) has potential to raise our target price by another 10 per cent.

As regards execution, outperformance is continuing as Ethos has noted about 30 per cent topline growth in 9M vs. sub-10 per cent for other categories like QSR, Apparel, and Footwear. Ethos has also provided best-in-class medium-term outlook of 25 per cent topline CAGR, backed by share gains in new watch retail and faster growth in pre-owned/other luxury categories/FL.

Increase in GST slab from the current 18 per cent could partly offset gains from the custom duty reduction. We retain Buy.

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