Synopsis: Ethos Limited leads India’s luxury watch retail market through premium boutiques and global brand partnerships, but faces multiple risks. High valuations, forex volatility, heavy inventory, rising rentals, and aggressive expansion pressure margins. Limited Tier 2 demand, long inventory cycles, and store cannibalization add long-term challenges that investors must weigh carefully.
Luxury watches are often seen as symbols of status, craftsmanship, and wealth, and in India, Ethos Limited has emerged as the country’s most prominent retailer in this space. The company has built a strong brand, premium store network, and deep relationships with global luxury watchmakers, making it a key player in India’s growing luxury market. However, behind this polished image of success lies a business that operates in a highly niche, capital-intensive, and unpredictable industry. So, what are the real risks behind India’s top luxury watch retailer?
About Ethos
Ethos Limited is India’s leading pure-play luxury and premium watch retailer, focused on retailing rather than manufacturing. Instead of making its own watches, the company works with over 80 global luxury brands and sells their timepieces through exclusive boutique stores and an integrated online-to-offline platform. Its business model is built around curated luxury retail, offering high-end Swiss watches, personalized customer experiences, and premium after-sales services.
Ethos generates revenue primarily from retail store sales, exclusive brand partnerships, certified pre-owned watches, and repair and servicing. The company positions itself as an experience-driven retailer, emphasizing one-on-one consultations, high-value purchases, and carefully selected inventory to cater to affluent and aspirational consumers. Its portfolio includes top global brands such as Rolex, Omega, TAG Heuer, Cartier, IWC, Panerai, and Hublot, among others.
The company caters to a wide price spectrum within the luxury segment, with watches ranging from around Rs. 13,000 to as high as Rs. 8 crore. A key differentiator for Ethos is its Second Movement platform, which focuses on certified pre-owned luxury watches. Through this platform, Ethos buys, refurbishes, sells, and trades pre-owned timepieces, providing customers with a one-year performance guarantee on each watch. This allows the company to tap into the growing demand for pre-owned luxury watches, a market estimated by McKinsey and The Business of Fashion to reach 29 to 32 billion dollars by 2025.
The Key Risks Involved With Ethos
High Valuations
Ethos Limited is currently trading at a very high valuation, which poses a significant risk for investors. The company’s price-to-earnings ratio stands at 72.4x, even though it has come down from 100.7x in July 2024. Despite this correction, the valuation still appears stretched when compared with its financial performance. Over the last ten quarters, Ethos has shown highly volatile year-on-year sales growth, fluctuating between 18 percent and 32 percent.
Profit growth has been even more unpredictable, swinging from as high as 58 percent in some quarters to negative 16 percent in others. This inconsistency raises concerns about the sustainability of its earnings at such elevated valuation levels.
On an annual basis, the company’s revenue growth has been slowing, declining from 49 percent in 2022 to around 25 percent in 2025. While Ethos has delivered an impressive five-year profit compounded annual growth rate of 120 percent, its five-year sales CAGR stands at only 22 percent, indicating that profits have grown much faster than revenues. At such high valuations, even a minor business disruption, demand slowdown, or margin pressure could lead to a sharp correction in the stock price.
Forex Risk
Ethos Limited faces meaningful foreign exchange risk as it is a net importer of luxury watches. According to an ICRA report, around 40 percent of its inventory is imported, which makes the company sensitive to movements in foreign currencies, especially the Swiss Franc. Global luxury brands also revise prices from time to time, further increasing exposure to currency fluctuations. To manage this risk, Ethos hedges nearly 50 percent of its foreign exchange transactions through forward contracts, which provides some protection but does not eliminate the impact entirely. As a result, the company remains partly vulnerable to sharp currency movements.
In Q3FY26, forex volatility became a major challenge for Ethos, particularly due to the strengthening of the Swiss Franc against the Indian Rupee. The CHF/INR rate moved from Rs. 95.24 on January 1, 2025 to Rs. 113.37 by December 31, 2025, marking a depreciation of about 19 percent for the rupee over the year. By January 31, 2026, the Swiss Franc had further risen to Rs. 119.12, taking the total depreciation to around 25 percent. Since Ethos only partially passed on higher import costs to customers in order to protect brand value and long-term relationships, its margins were affected. The company estimated an adverse forex impact of Rs. 14.3 crore on gross margins, which included Rs. 3.8 crore from creditor restatement and Rs. 10.5 crore from notional exchange losses and higher cost of goods sold.
In simple words, because Ethos buys many luxury watches from abroad, it has to pay in foreign money, especially Swiss Francs. When the Swiss Franc becomes more expensive compared to the Indian Rupee, Ethos has to spend more rupees to buy the same watches. To protect itself, the company locks in prices for about half of its purchases in advance, but this does not cover everything. In the last quarter, the Swiss Franc rose sharply, making imported watches much costlier for Ethos. The company did not fully increase prices for customers because it wanted to protect its luxury image, so it had to absorb part of the extra cost itself, which hurt its profits by about Rs. 14.3 crore.
Operational And Supply Chain Risks
Ethos Limited operates a business that requires heavy working capital because it must maintain large and varied inventory across multiple luxury watch categories. To meet global retail standards and provide a premium in-store experience, the company needs to display a wide range of products at all times. This makes inventory management critical to its operations. Over the past year, Ethos’ working capital intensity has increased from around 39 percent as of March 31, 2024 to approximately 43 percent as of March 31, 2025, indicating a higher level of funds being tied up in inventory and day-to-day operations. This rising capital requirement adds financial strain, especially if sales slow down or demand weakens.
The company’s cash conversion cycle stood at 215 days in FY25, with inventory holding period alone stretching to 247 days, which is significantly long and poses a major risk. This is particularly concerning as Ethos has been expanding beyond watches into luxury lifestyle products such as Rimowa luggage. Unlike high-end watches like Rolex or Omega, which retain value and demand over time, lifestyle products are highly trend-driven and seasonal. If Ethos stocks too much of a particular Rimowa design or color that later goes out of fashion, it may struggle to sell the inventory without steep discounts. Such discounting could hurt profitability and damage its luxury brand image, creating both financial and reputational risk.
Saturation Point
Ethos operates in a highly niche segment that caters mainly to ultra-affluent and high-income customers, which naturally limits its growth potential. Its stores work best in premium locations in Tier 1 cities, where there is consistent demand for luxury watches and lifestyle products. However, expanding aggressively into Tier 2 cities poses a long-term risk because average income levels and luxury spending power are significantly lower outside major metros.
While Ethos currently operates 89 boutiques across 27 cities, including its second Haute Horology boutique in Mumbai and a second exclusive Rimowa store in New Delhi, the company may eventually reach a saturation point in key urban markets. It has recently entered Ranchi in Q3FY26 and is exploring other Tier 2 cities, but sustaining strong sales in such markets remains uncertain due to weaker demand for ultra-premium products.
Another challenge is that Ethos has already secured most of the best luxury retail locations in major cities, which come with very high rental costs. Even in areas with strong footfall, store-level profitability can remain thin after factoring in expensive leases and heavy inventory costs.
Additionally, customer behavior in Tier 2 cities is different from metros; for example, a store in Ranchi is unlikely to see the same daily walk-ins as a high-end mall location in Mumbai, leading to slower inventory turnover. At the same time, Ethos continues to deepen its presence in metros by opening additional boutiques, which raises the risk of cannibalization, where new stores end up taking sales away from existing ones instead of generating entirely new demand.
Aggressive Expansion Strains
Ethos has been expanding very aggressively, which is putting pressure on its profitability in the short term. In 9MFY26 it opened 21 boutiques with 8 in Q1FY26, further 8 more in Q2FY26 and 5 more in the latest Q3FY26. While this rapid expansion shows management’s ambition to grow the brand, it also means that many of these stores are still in an early stage and not yet generating strong revenues. Even though same-store sales growth remained healthy at 16.5 percent in Q2 and 14.1 percent in Q3, the overall cost burden of running so many new stores has started to weigh on financial performance.
As a result of this expansion, Ethos’ EBITDA margin declined from 16.7 percent in Q3FY25 to 15.9 percent in Q3FY26. The drop was mainly driven by higher expenses related to new store rentals, increased staffing, and initial operating costs for recently opened boutiques. Since these stores are still in their nascent phase, their revenues have not yet caught up with the rising costs, creating what can be described as a “profitability gap.” If this trend continues, the company may face further margin pressure until its new boutiques mature and start contributing meaningfully to cash flows.
Ethos Limited is a strong and well-positioned luxury retailer in India, but it is not without risks. High valuations, foreign exchange volatility, heavy inventory requirements, rising costs, and aggressive store expansion all create pressure on profitability and stability. At the same time, the company faces long-term challenges in scaling beyond Tier 1 cities due to limited luxury demand and high real estate costs. While Ethos benefits from premium brand partnerships and a growing pre-owned watch market, investors need to carefully consider whether its growth, margins, and expansion strategy justify its current valuation.
Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on tradebrains.in are their own, and not that of the website or its management. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution while investing or trading in stocks. Trade Brains Technologies Private Limited or the author are not liable for any losses caused as a result of the decision based on this article. Please consult your investment advisor before investing.
