Titan-acquired CaratLane challenges ED notice on alleged FEMA violation, says report
On Saturday, Titan bought over the remaining 27.18 per cent stake in its jewellery arm CaratLane for Rs 4,621 crore in cash from the brand’s founder Mithun Sacheti.
- Aug 23, 2023,
- Updated Aug 23, 2023 12:08 PM IST
CaratLane Trading, which was recently acquired by Tata Group’s Titan, has challenged a show-cause notice from the Directorate of Enforcement (ED) that alleged it of violating rules between 2011 and 2014 by receiving foreign direct investment (FDI), a report in the Economic Times said.
The ED said CaratLane had violated the Foreign Exchange Management Act (FEMA). The notice, dated March 28, 2022, stated that FDI was not allowed in single-brand retail at the time. The notice has not been made public till now, the report added.
On Saturday, Titan bought over the remaining 27.18 per cent stake in its jewellery arm CaratLane for Rs 4,621 crore in cash from the brand’s founder Mithun Sacheti and his family, the company said in an exchange filing.
CaratLane is an unlisted private company engaged in the manufacture and sale of jewellery and is a subsidiary of Titan. Titan said that it would acquire 91.90 lakh equity shares in CaratLane, following which it will hold 98.28 per cent stake in the company.
The ED violations are much before Titan’s investment in CaratLane, the report said.
CaratLane reportedly consulted a former chief justice of India who said that it was not in violation of FEMA since it applied to the B2B sector and not retail trade.
“Based on the legal opinion and assessment of the transactions for the years under consideration, CaratLane management believes no provisioning is required,” Titan's FY23 balance sheet stated.
Titan is likely to complete the acquisition of the additional stakes in CaratLane by October 31, 2023.
On acquisition, Titan would hold an aggregate of 98.28 per cent of the equity share capital and voting rights ( on a fully diluted basis) in CaratLane.
The transaction will be subject to completion of customary regulatory approvals and closing conditions and is expected to be financed through a combination of cash balances, internal accruals and debt.
CaratLane was founded in 2008 by Mithun Sacheti and Srinivasa Gopalan. Since 2010, CaratLane has been in a strategic vendor relationship with Titan’s jewellery brand Tanishq. The Tata group company had first bought a 62 per cent stake in CaratLane in 2016 at a valuation of about Rs 563 crore.
Between 2016 and 2019, Titan bought shares of the omnichannel retailer in tranches, spending a total of Rs 440-450 crore, mainly through secondary purchase of shares from Tiger Global, the only venture investor in CaratLane.
CaratLane financials
CaratLane has been reporting a positive profit before tax number for the last three years, growing at 55 percent compound annual growth rate (CAGR) over a five-year period.
In FY23, CaratLane crossed the Rs 2,000-crore topline mark, posting a turnover of Rs 2,177 crore, a 72 per cent growth from Rs 1,267 crore it reported in FY22. In FY21, CaratLane had recorded revenue of Rs 723 crore.
In the June quarter of this fiscal, the company witnessed a 32.4 percent year-on-year surge in revenues to Rs 640 crore, with earnings before interest and taxes (EBIT) standing at Rs 35 crore – an EBIT margin of 5.5 percent. CaratLane has added 11 stores in the June quarter, taking the store count to 233 spread across 93 cities in India.
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CaratLane Trading, which was recently acquired by Tata Group’s Titan, has challenged a show-cause notice from the Directorate of Enforcement (ED) that alleged it of violating rules between 2011 and 2014 by receiving foreign direct investment (FDI), a report in the Economic Times said.
The ED said CaratLane had violated the Foreign Exchange Management Act (FEMA). The notice, dated March 28, 2022, stated that FDI was not allowed in single-brand retail at the time. The notice has not been made public till now, the report added.
On Saturday, Titan bought over the remaining 27.18 per cent stake in its jewellery arm CaratLane for Rs 4,621 crore in cash from the brand’s founder Mithun Sacheti and his family, the company said in an exchange filing.
CaratLane is an unlisted private company engaged in the manufacture and sale of jewellery and is a subsidiary of Titan. Titan said that it would acquire 91.90 lakh equity shares in CaratLane, following which it will hold 98.28 per cent stake in the company.
The ED violations are much before Titan’s investment in CaratLane, the report said.
CaratLane reportedly consulted a former chief justice of India who said that it was not in violation of FEMA since it applied to the B2B sector and not retail trade.
“Based on the legal opinion and assessment of the transactions for the years under consideration, CaratLane management believes no provisioning is required,” Titan's FY23 balance sheet stated.
Titan is likely to complete the acquisition of the additional stakes in CaratLane by October 31, 2023.
On acquisition, Titan would hold an aggregate of 98.28 per cent of the equity share capital and voting rights ( on a fully diluted basis) in CaratLane.
The transaction will be subject to completion of customary regulatory approvals and closing conditions and is expected to be financed through a combination of cash balances, internal accruals and debt.
CaratLane was founded in 2008 by Mithun Sacheti and Srinivasa Gopalan. Since 2010, CaratLane has been in a strategic vendor relationship with Titan’s jewellery brand Tanishq. The Tata group company had first bought a 62 per cent stake in CaratLane in 2016 at a valuation of about Rs 563 crore.
Between 2016 and 2019, Titan bought shares of the omnichannel retailer in tranches, spending a total of Rs 440-450 crore, mainly through secondary purchase of shares from Tiger Global, the only venture investor in CaratLane.
CaratLane financials
CaratLane has been reporting a positive profit before tax number for the last three years, growing at 55 percent compound annual growth rate (CAGR) over a five-year period.
In FY23, CaratLane crossed the Rs 2,000-crore topline mark, posting a turnover of Rs 2,177 crore, a 72 per cent growth from Rs 1,267 crore it reported in FY22. In FY21, CaratLane had recorded revenue of Rs 723 crore.
In the June quarter of this fiscal, the company witnessed a 32.4 percent year-on-year surge in revenues to Rs 640 crore, with earnings before interest and taxes (EBIT) standing at Rs 35 crore – an EBIT margin of 5.5 percent. CaratLane has added 11 stores in the June quarter, taking the store count to 233 spread across 93 cities in India.
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