Titan shares: CaratLane stake purchase EPS dilutive in near term. Stock price targets & more

Shares of Titan Company will be in focus on Monday morning as the acquisition of 27.18 per cent additional stake in the CaratLane by the Tata group firm looks optically expensive and could be EPS dilutive in the near-term but is seen as long-term positive. Titan Company is acquiring CaratLane promoters' stake for Rs 4,621 crore, valuing the target company at Rs 17,000 crore. With this, Titan’s stake in the unlisted company would reach 98.28 per cent.

The acquisition optically appears to be expensive, said Antique Stock Broking. "However, we understand that the acquisition is positive for Titan in the long run as CaratLane will play a critical part in Titan’s ambition to dominate the organised jewellery space in India, especially e-commerce. CaratLane is in a sweet spot with the share of online jewellery 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," the brokerage said while suggesting a target of Rs 3,009 for Titan Company.

JM Financial said the acquisition value of the balance shareholding in its unlisted subsidiary from founder Mithun Sacheti and family was lower than its target valuation of Rs 24,500 crore. "But then, the latter also implicitly included some premium for the ‘Tata/Titan’ co-branding as well – Titan has possibly excluded that aspect from the acquisition price paid by it. Our workings suggest that the transaction could be near-term EPS-dilutive (c.4 per cent) but we believe is certainly value-accretive. Caratlane is a high-quality high-growth business built by Mithun Sacheti from scratch – it has a richer gross margin profile (c.35%) vs Tanishq’s and at steady-state could possibly be clocking a higher operating margin than Tanishq," JM Financial said.

JM Financial said the stake acquisition has been done at 4.5 times FY25E sales, which is a tad lower than Titan’s own valuation of 5 times sales. "Titan remains a solid discretionary consumption play, in our view, and any volatility in stock price should be used as an opportunity to add to positions," it said.

Titan had first invested in Caratlane in 2016. Nuvama estimates Titan's fashion and everyday jewellery segment, which is the core of Caratlane’s, may grow at 15 per cent CAGR (CY20-CY26), much higher than the traditional jewellery market, with a much larger appeal with Gen Z and millennial segments.

"This is a positive move for Titan given the scale-up potential for Caratlane – the higher the share that Titan owns, the better for its shareholders.

Among its competition, Caratlane has the best metrics and is nearly 3 times its next competitor. Also, the valuation Caratlane is a fair price as per us. At this price it comes to 3.8 times FY25 sales and 75 times PE. Titan remains among our Top Picks. Maintain ‘BUY’ with an unchanged target of Rs 3,425 (60x Q1FY26E EPS)," it said.

CLSA has maintained its target of Rs 3,270 on the stock. Macquarie finds the stock worth Rs 3,400. JPMorgan has a target of Rs 3,360 while HSBC sees the stock at Rs 3,580.

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