Titan Company shares rose nearly a per cent in early trade on Monday, August 21, after the company last week announced the acquisition of an additional 27.18 per cent stake in its subsidiary CaratLane for Rs 4,621 crore, thereby taking its total holding to 98.28 per cent.
CaratLane is an unlisted private company engaged in the manufacture and sale of jewellery and is a subsidiary of Titan. Titan had first acquired a 62 per cent stake in CaratLane in 2016 for Rs 357.24 crore, and had subsequently raised its stake in the omni-channel jewellery retailer.
Analysts believe Titan increasing stake in CaratLane will be value accretive in the medium term as the company is a high-growth business with opportunity to ensure healthy revenue and margin. However, the transaction will also be EPS dilutive in the short-term for Titan.
Brokerage firm Macquarie has assigned a ‘outperform’ rating to the Titan stock with a target price of Rs 3400 per share. The brokerage firm further stated that it “likes attractive valuations for stake increase and continuation of most of key management team.”
Further, “to factor higher interest expenses the firm has cut FY24/25/26 standalone earnings per share (EPS) by 2 per cent/4 per cent/3 per cent respectively.”
Analysts at Antique Stock Broking believe the acquisition optically appears to be expensive, but it is positive for Titan in the long run as CaratLane will play a critical part in Titan’s ambition to dominate the organized jewelry space in India, especially e-commerce.
“We note that CaratLane is in a sweet spot with the share of online jewelry in India expected to double in the next five years from 5.9 per cent in FY22 to 9.2 per cent in FY27E. Overall, we understand that the acquisition is positive for Titan over the long run,” Antique Stock Broking said.
JPMorgan has given an ‘overweight’ rating to the Titan stock with a target price of Rs 3260 per share. The brokerage house further stated that, “CaratLane is a high-growth business with opportunity to ensure healthy revenue and margins. The transaction will be EPS dilutive in short-term.”
CLSA has assigned an ‘outperform’ rating to the Titan stock with a target price of Rs 3270 per share. The brokerage firm further stated that, “the move highlights focus of Titan on building CaratLane as an integral component of jewellery business. The acquisition is unlikely to have a material impact on earnings.”
Titan expects the acquisition to be complete by October 31, 2023, subject to the timely receipt of requisite regulatory approvals from the Competition Commission of India (CCI).
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