Titan Silently Blings with Carats, without Noise
Anjal Agrawal
M&A and Strategy at Virtusa || Ex-IB at Nomura (PPO) || IIM Shillong (17-19) || CA || Yes Bank FutureReady Scholar || Ex-JPM || Ex-Baker Tilly DHC || #ProudSINKWAD
At the beginning of the millennium, Titan’s results started with a major hiccup. In FY 2001-02, net profit fell 44% and in FY 2002-03, net profit further slipped 55%. However, the jewellery business grew 29% in 2002-03. This prompted Rakesh Jhunjhunwala, who is also called India's Warren Buffett, to buy Titan shares for INR 30-32, and buy and sell Titan shares over the next 20 years. In 2022, Jhunjhunwala owned 5.1% of Titan stocks.?The Titan company stock zoomed over 82x since he first bought the stock. It is often regarded that Titan company stock was Jhunjhunwala’s favourite stock and played a major role in his success.?
At present, Titan holds the title of the world’s fifth-largest wristwatch manufacturer. The company’s 16 brands expand across 240+ cities in India, 7,000+ multi-brand watch outlet stores, 2,000+ exclusive Titan stores, 2.5m square feet of retail space, and operated by 8,000+ employees.
Let’s take a look at the Titan’s house of brands –
In Aug-23, Titan acquired the remainder of the 27% stake held by the founder in CaratLane for ~$550m at a valuation of $2bn+.
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Executing the unthinkable – Selling jewellery online
Mithun Sacheti wanted to sell jewellery online in a country where e-commerce itself hadn’t taken off in a big way. Now imagine selling jewellery, a high-ticket product built solely on trust, online. Of course, the company struggled and losses were mounting. When CaratLane bagged funding from Tiger Global in 2011, the company burnt through it quickly and the revenue didn’t grow fast enough.
That’s when Titan entered the picture. In 2016, they bought out Tiger Global and ran the business with just the founders. Titan’s online jewellery business was negligible, while Carat Lane is an online company. Titan bought a 62% stake in CaratLane for ~$50m (valuation of ~$85m).
When CaratLane needed more money in 2019, Titan demanded profits and the legendary Rakesh Jhunjhunwala demanded cashflows. Instead of spending heavily on opening new stores, CaratLane went the franchise route, with only working capital funding at a low cost. In FY21, CaratLane reported its first profits, nearly doubled its store size within the next year and the profits swelled even further.
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Titan’s expensive bet on CaratLane
In 2023, Titan’s stake in CaratLane had increased to 71%. In Aug-23, Titan bought the remaining 27% stake in the company for ~$550m (valuation of $2bn+).
Titan paid 7.8x of the FY23 revenues for CaratLane, which is a higher valuation than Titan’s own business, despite CaratLane’s lower EBITDA margins than Titan’s own jewellery brand Tanishq and the overall Titan empire. As per analysts, CaratLane accounts for only 6% of Titan’s share value.
Why would Titan overpay? In Jul-16, Titan bought 62% stake in Caratlane for $54m. Titan’s plan always included buying CaratLane out completely before the revenues rose exponentially, causing the valuations to soar similarly. In FY23, CaratLane grew by 73%, whereas Titan’s standalone jewellery revenue grew by just 37%. Also, CaratLane’s gross margin of 35% is higher than Titan’s Tanishq. CaratLane has 3x higher revenues than its second biggest competitor and is a market leader in its space?—?lifestyle jewellery for everyday wear.
For Titan, CaratLane’s focus on lifestyle jewellery will be the big driver?—?and this includes diamond studded jewellery. And CaratLane’s bet isn’t just on the “India consumer story” but on more women becoming financially independent and making their own purchase decisions.
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Titan reaching Great Heights
In Mar-22, Titan acquired a 17.5% stake in US-based Great Heights Inc for $20m (valuation of ~$115m). Great Heights is another jewellery and watch maker, and retails jewellery through its brand "Clean Origin". The strategic investment will expose Titan to the fast-growing Lab Grown Diamond (LGD) and Direct-to-Consumer (D2C) sectors.
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Titan’s fallout with Noise
In May-23, Titan was close to buying a majority stake in Noise, valuing the company between $85m-97m. Noise is a smart wearables and wireless headphones/ hearables brand that sells smartwatches, speakers, wireless earbuds, and wireless headphones.
Despite reaching an advanced stage, a deal could not materialise due to differences in valuation between the parties. After the ongoing conversation with Titan fell apart, Noise was seeking ~$50m in growth capital from the investors. It eventually raised $10m from US-based audio equipment major Bose Corporation at a valuation of $420m.
But why did Titan consider buying Noise? The India wearables market is a growing market that saw 20% growth between January – March 2022 with shipments crossing 13.9m units. Watches remained the fastest-growing category, followed by earwear, and truly wireless stereo.
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In India, boAT has the highest market share in the smart wearables segment at 22.9%, while Noise stood in second place with a 10.9% market share, followed by OnePlus, Fire-Boltt and Realme. BoAT and Noise are amongst the biggest wearable sellers globally.
Titan is the fifth-largest integrated own-brand watch manufacturer in the world and sells other fashion accessories such as jewellery, eyewear, fragrances and other accessories. The entry of Titan into the wearables category could have given Indian earphones a global standing.
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Here's a look at how the company has performed on the stock market:
Summarising a few other acquisitions that Titan made along the way –
This concludes the seventh and final case study in the series “Tata Group – The Globally Local M&A Strategy.” The series covered some of the major Tata Group companies and their M&A strategies. In this series, we learnt about the global expansion of Tata group across segments using inorganic growth; how Tata Tea acquired Tetley to become the world's second-largest tea brand, the acquisition of Air India by Tata Group for nearly $2.2bn, the acquisition of Wistron’s India operations that is Apple’s first iPhone manufacturer in India, Tata Steel's problematic European expansion, as well as successful turnaround of two companies on domestic grounds, Tata Motor’s global move by acquiring JLR, Tata Consumer's House of Brands and Titan’s acquisition of Caratlane to boost their jewellery business.
I hope this was a wonderful learning experience for you as it was for me. Until next time, thank you for your time. Please post your feedback and comments.
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Please find below all the information sources that have been instrumental to the above article, along with some additional reading materials. Gratitude to all the creators –
1.????? Mergermarket
Economics (Hons) Major at Hindu College University of Delhi || Commerce Minor || Hindu 26’27
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