Has Titan Struck Gold With CaratLane?

Often, markets have an opinion on a huge purchase. In May 2018, when Walmart completed its majority control of Flipkart, the market was slightly uneasy. The share price of Walmart was down 3.5% when the announcement was made.

History did not repeat itself when Titan made a similar announcement of it acquiring a further 27% stake in Caratlane. The share price stayed just about flat. Translation: The market thought Flipkart was a slightly expensive deal while the CaratLane deal was on point.

Just for context: CaratLane is valued at 7.8 times its FY23 sales while Titan is at 7.07 times. Not too far apart.

There are many more parallels between these two deals. Both are the biggest exits founders have made in the tech ecosystem to date. Both have added significant muscle to these large behemoths that were missing a strong online presence.

But while a lot of ink has been spilt on diving deep into how Flipkart augments Walmart, not enough has been written on how CaratLane augments Titan.

Over the years, Titan has been a stock, which has over-performed the market. It has been up close to 260% while the Sensex has appreciated 70% in the past five years. The reasons have been pretty straightforward.

Titan has strong fundamentals.

It is a profitable stock. Titan’s earnings per share is Rs 37.54 for FY23.

It taps into a very stable market — gold, which has multiple use cases. It is an inflationary instrument while having immense value aesthetically.

There are few companies that have the scale of Titan making it one of the largest companies in the business.

It has had a strong, reliable leadership.

Now, where does CaratLane fit into this puzzle?

India is going to continue to shop online. It’s getting comfortable making big-ticket purchases by clicking a button. A good indicator of how India has gotten comfortable with large online purchases is the iPhone. When that iconic Apple product was first launched, it cost anywhere between Rs 31,000 and Rs 36,000. Guess what? India thought it was too expensive. So they bought it, but they lined up outside a brick-and-mortar store to make the purchase.

This is something Mithun Sacheti, the founder of CaratLane, picked up as well.

“Nobody was selling affordable daily-wear jewellery in 2008. I was seeing young women looking to choose their own jewellery rather than being handed over something picked up by their mothers. That is the space we thought we could play in, the diamond jewellery segment within the Rs 20,000-25,000 price point,” says Mithun.

Flash forward to 2023, buying a Mac Pro for Rs 2.5 lakh online isn’t considered an extraordinary purchase. The ability and expression of the Indian middle class have changed. And that change is something Titan saw happening in 2016 when it first acquired a strategic stake in the company. Since then, according to reports, CaratLane has been growing fast. What started as a company trying to entice young women to buy relatively affordable jewellery online has evolved to being an omnichannel company that encourages people to explore their products online and in-store. With a gentle nudge to complete the purchase on the app.

For Titan, where 88% of its revenue is in selling primarily premium jewellery, this is smart diversification. It adds layers to its business by adding a company, which can attract a large but different audience.

“Titan has always prided itself in building strong brands that are amongst the leaders in their categories. We have great faith in the India consumer story and believe that the growth journey of CaratLane has only begun,” says C K Venkataraman, managing director, Titan.

Venkataraman’s response has some interesting nuggets of insight. It speaks to two important stories.

One. India’s growing consumer story. As mentioned earlier, it’s not just India’s ability to make large online purchases, it’s also India’s ability to make large purchases. As the economy grows, the disposable income within India’s middle class will grow as well. And with that, there will be more people who will buy jewellery.

Two. CaratLane’s story has just begun. Venkataraman is now speaking about not just CaratLane but also Titan. The Tata Group company is creating a highway for its users to upgrade their choices and do it without leaving their devices. The next generation of shoppers is going to spend much more than Rs 2.5 lakh online buying jewellery; that's how user behaviour is evolving. And Titan needs to be part of the evolution or it risks being left behind.

This is an evolutionary purchase for Titan so that it can maintain its 260% pace for the next five years as well.