Tata Group, CaratLane In Valuation Battle, Deadlock Could Impact IPO Plans
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Tata Group, CaratLane In Valuation Battle, Deadlock Could Impact IPO Plans

Tata Group, CaratLane in valuation battle, deadlock could impact IPO plans

The Tata Group and the founders of CaratLane have been unable to agree on the valuation of the founders’ remaining stake in the company.

This has led to a prolonged deadlock, which has now reached the attention of N Chandrasekaran, Chairman of Tata Sons, who is reportedly trying to find a swift resolution to the dispute.

A senior executive from the Tata Group stated to a media house that ongoing negotiations can take time due to the different requirements of a listed company like Titan and the urgency often desired by entrepreneurs in startups.

Since 2010, CaratLane and Tanishq, Titan’s jewellery brand, have been in a strategic vendor relationship. Titan gradually acquired a stake in CaratLane between 2016 and 2019, investing a total of Rs 440-450 crore through a combination of secondary share purchases from Tiger Global and a primary infusion of Rs 99 crore. Currently, CaratLane is 72.3 per cent owned by Titan and is considered its most valuable subsidiary. The remaining 27.8 per cent stake is still held by the three founders and employees.

As per the original share purchase agreement, Titan has had the option to acquire the remaining 28 per cent stake starting from 2021, while the remaining shareholders have the right to sell their stake back to Titan starting from 2023.

To determine the value, both parties were expected to appoint their chosen bankers for an independent third-party valuation. The average of the two valuations was to be considered, subject to the approval of both sides. However, there is no arbitration clause in place to resolve disputes.

Titan did not exercise its call option to acquire the remaining stake of the company from its founders. Instead, it engaged Bank of America (BofA) to negotiate for the remaining stake. In March, BofA presented an offer that valued the entire company at Rs 6,000-7,000 crore. This resulted in a valuation of Rs 1,680-1,960 crore for the founders’ stake. The founders rejected this offer as being too low, and the valuation process was called off without initiating a formal exercise.

Since then, Titan and Tata Group officials have been attempting to resume discussions with the CaratLane team. Sources suggest that Titan may make a revised offer closer to a valuation of Rs 15,000 crore.

Analysts tracking the company estimate CaratLane’s equity value to be around Rs 23,446 crore on average. The company is expected to report sales of Rs 2,300 crore and an operating profit of Rs 160 crore in FY23. It has been experiencing a 55 per cent compound annual growth rate (CAGR) over the past five years and has been consistently profitable before tax (PBT) for the last three years.

If a resolution is not reached, the fair valuation discovery may only happen when the company goes public, which could be around two years from now. However, plans for an IPO have not been finalised yet. Sources close to the startup have said that CaratLane is now able to pay dividends to its parent company, Titan, and does not need to rely on funding from its majority shareholder.

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