Titan to take majority stake in Carat Lane3 min read . Updated: 07 May 2016, 12:30 PM IST
Deal with online jeweller comes amid a weak quarter for the firm, which has seen its own jewellery business stall
Hyderabad: Titan Co. Ltd, the maker of Tanishq jewellery and Titan and Fastrack watches, said it will acquire a majority stake in online jewellery chain Carat Lane Trading Pvt. Ltd in an all-cash deal.
Friday’s news coincided with a disappointing quarterly report card from the firm, which has seen its mainstay jewellery business struggle during the past year.
The deal with Carat Lane comes at a time Titan is looking to make its brands appeal better to the young. It is also an attempt by yet another established retailer to stay relevant by jumping onto the e-commerce bandwagon.
“We believe it is a perfect compliment to both online and brick-and-mortar businesses," Titan’s managing director Bhaskar Bhat said.
The world’s fifth largest watchmaker posted weaker-than-expected profit in the fourth quarter on weak sales across all its businesses. It blamed poor consumer sentiment, weak market conditions and new regulatory restrictions in the jewellery business for the poor results.
“Q4 performance has been disappointing," Bhat said in a conference call on Friday.
In January, Titan warned investors it expected to take a hit of about ₹ 500 crore in 2015-16 due to a new government rule requiring jewellery shoppers to furnish their permanent account number for transactions above ₹ 2 lakh. The rule is an attempt by the government to bring such purchases under the lens of the taxman.
The jewellery division is the biggest revenue earner for Titan, constituting three-fourths of income. The rest comes from watches (18%), eyewear and other divisions.
Net profit fell 14.4% to ₹ 184.11 crore in the March quarter. Sales fell 1.5% to ₹ 2,456.30 crore. Both missed analyst expectations.
A Bloomberg poll of 21 analysts on average expected Titan to report a net profit of ₹ 188.90 crore on net sales of ₹ 2,740.50 crore in the period.
Besides selling jewellery online, Carat Lane also operates 13 stores across the country.
Titan is yet to finalize the terms of the deal. It informed the bourses on Friday that it expects to close the deal with the Tiger Global-funded online jewellery start-up by June.
Carat Lane competes with Bluestone.com, which is backed by Ratan Tata, chairman emeritus of Tata Sons Ltd, the parent firm of Titan.
The deal would also be an exit for Tiger Global, which has invested several rounds of funding into Carat Lane, the Business Standard reported.
A stake in the nine-year-old start-up will also give Titan access to new customers and design capabilities of Carat Lane, company executives said.
Founded by Srinivasa Gopalan and Mithun Sacheti, who hails from a family involved in the jewellery business, Carat Lane raised $52 million in three rounds, according to start-up database Crunchbase.
Carat Lane will continue to be run independently. It will rapidly roll out stores, and some of Titan’s products such as Mia jewelry will be sold at Carat Lane’s stores. That should help open newer sales channels for Titan.
On an annual basis, the company’s consolidated net profit fell 15.5% to ₹ 689.56 crore on a revenue of ₹ 11,277 crore, which fell by 5.3%.
Income from jewellery sales, Titan’s biggest money earner, fell 7.55% in the year because of the absence of revenue from the Golden Harvest scheme during the first eight months of fiscal 2016, and on account of an industrywide jewellers strike against government policies.
The Golden Harvest scheme allows customers to deposit monthly payments to the retailer that can be redeemed for gold purchases over a short term. Titan discontinued the popular scheme in July 2014 after the new Companies Act termed the gold deposit scheme as a public deposit scheme. The scheme was subsequently renewed.
Titan, which sells eyewear, watches, jewelry, fragrances and accessories, has been trying to position itself as a lifestyle retailer. It has partnered with Helwett-Packard Co. to make smartwatches and has started retail operations for luxury brand Montblanc International in a joint venture with the company.
“2015-16 is behind us now. We are looking at opportunities of profitable growth while making investments behind our brands," Bhat said.
At the same time, it is attempting to reduce costs by trimming its workforce. Titan last month rolled out a voluntary retirement scheme for employees who completed 10 years of service or are above 40 years age. Annual employee costs increased 10.8% to ₹ 700.94 crore.
Titan’s stock grew 1.31% to ₹ 364.10 on BSE while the benchmark Sensex declined 0.13% to 25,228.50 points. The results were declared after markets closed on Friday.