Titan Intends To Acquire Great Caratlane But Faces Valuation Challenges.

According to those familiar with the situation, disagreements have arisen between the Tata Group and the CaratLane founders on the valuation of the founders’ residual interest, resulting in a months-long stalemate. Titan, India’s largest omnichannel jewellery brand, is mainly owned by Tata Group. The standoff is alleged to have reached the office of Tata Sons chairman N Chandrasekaran after meetings ended inconclusively. According to the persons quoted above, the purpose is to break the deadlock and achieve a rapid conclusion. It’s a continuing negotiation, which takes time, according to a top Tata Group official.

Titan is a publicly traded firm; thus, it must adhere to specific regulations. Entrepreneurs, on the other hand, desire rapid answers since startups must be agile.”

Since 2010, CaratLane has maintained a strategic vendor partnership with Tanishq, Titan’s jewellery brand. Titan infused funds in the firm in tranches between 2016 and 2019, paying Rs 440-450 crore, mainly through a secondary acquisition of shares from Tiger Global, an early-stage backer. Titan made a Rs 99 crore investment in the firm. CaratLane is now a 72.3% subsidiary of Titan and is regarded to be the company’s most valuable arm by experts. The three founders and employees still own the remaining 27.8%.

The original share purchase agreement states that Titan can call for the remaining 28% ownership under a pre-agreed-upon formula beginning in 2021. This formula allowed the remaining stockholders to exercise a put option on Titan for their remaining shareholding starting in 2023.

Each party may hire a banker to conduct an impartial 3rd party review to assess the worth. The average of the two was to be nominated, but only after approval from both parties. There was no arbitration agreement in place to resolve conflicts.

Titan has not exercised its call option. Earlier this year, it hired Bank of America to negotiate for the remaining 28% share. BofA made the proposal in March that valued the entire firm at Rs 6,000-7,000 crore, translating to Rs 1,680-1,960 crore for the founders’ equity.

This is argued to have been rejected by the founders as excessively low. The founders, who work with Avendus as the banker, terminated the process without doing a valuation exercise.

Titan and Tata Group officials have been trying to re-engage with CaratLane managers since March. According to sources, Titan may make a fresh offer nearer to the Rs 15,000 crore value.

Analysts following the firm estimate CaratLane’s equity to be worth Rs 23,446 crore on average. The firm is estimated to have finished the Financial year 2023 with revenues of Rs 2,300 crore and earnings of Rs 160 crore. In the past 5 years, it has expanded at a CAGR of 55%. It has made a profit before taxes for the last triplet of years.

According to people familiar, the CaratLane team regarded the Titan valuation exercise to be done in poor faith and consequently dumped it. As a result, even the board supposed that the proposal was too low.

CaratLane is valued at $2.3 billion, according to Jaykumar Doshi of Kotak Institutional Equities. He forecasts that margins will double-digit in 3-5 years as it invests in personnel, retail network, and marketing.

The firm added 47 new stores in the March quarter, bringing the total to 222 across 88 locations.

According to Latika Chopra of JP Morgan, Titan’s initiatives on broadening its customer base (store additions, scale-up of CaratLane/Mia), expanding ticket sizes (innovation, studded, wedding mix), and appealing customer propositions (GHS, gold exchange, tactical activations, etc.) continue to support market share gain driven topline momentum for jewellery. GHS is for the company’s instalment Golden Harvest Scheme for purchasing jewels.

If no resolution is reached, the fair valuation finding will only occur when the business goes public, which may be two years from now, according to sources familiar with the situation. According to executives close to the company, it can now pay dividends to parent Titan and no longer relies on funding from its primary backer.

Sacheti, the founder of Caratlane, is now at a crossroads, with CaratLane emerging as one of the jewels in Tata Group’s consumer retail crown. Titan plans to acquire Sacheti and his family’s 27% ownership in CaratLane, converting the company into a wholly-owned subsidiary.

Proofread & Published By Naveenika Chauhan