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Tiger Comes Out Of the Diamond Lane
Tiger Global Management’s bet on CaratLane.com doesn’t seem to have paid off rich dividends as the hedge fund giant is getting almost the same money it invested by selling its stake to Titan Co. Ltd. Read the detailed analysis by Arpit Kala to understand the online jewellery business actual game in India.
By: Diamond World News Service
Jul 30 2016 10:51AM
Reference: 13275  

Tiger Global total in total invested about Rs. 302 crore ($52.22 million) in the four tranches to acquire about 19.14 million shares of CaratLane, according to VCCEdge. Tiger Global first invested in CaratLane in 2011 and put more money in each of the next three years. It last invested in the firm in December 2014 at a valuation of US$117 million (Rs. 716 crore then). After Titan acquiring over 62 per cent stake for Rs. 357.24 crore, which freshly evaluates CaratLane at Rs. 576 crore i.e. valuation loss of 19.5 per cent over two years, as per VC Circle.

Funding Analysis

Any VC or PE funds evaluate and look for 2 to 5 times return over the time span before exiting any business model. Here, Tiger Global exited with almost same amount in 3-5 years of investment, means a clear wrong call on their planning and estimation or this is a sign of no confidence in this sector. Online jewellery still looks like a bubble in Indian online business market, where returns are low and even after pouring money, turnover looks tough to increase. CaratLane managed to clock only Rs. 141 crore in 2015-16 even after the huge funding of Rs. 302 crore from Tiger Global. As per few analysts, it’s a herd game, if one VC funds any sector, other also considers it. This is what is happening in jewellery sector, wherein BlueStone also received several rounds of funding in spite of low turnovers.

Online Challenges

In India, there are several challenges, where jewellery is bought majorly for occasions like marriage, anniversary and mostly for investment. Jewellery bought for these occasions are taken with collective decision, after physically trying and generally from traditional known high-street jeweller. The new consumer who is net savvy is in the age group of 21 to 29. These millennials have started buying low-price jewellery on Mother’s Day, Women’s Day, and Valentine’s Day or even for office wear. This ranges between Rs. 5000 to Rs. 15,000 and accounts to very low percentage of overall jewellery sales. Another product, which is largely bought or compared online are diamond solitaires ranging between 0.20 to 2 cts. This sells easily because of standardised parameters and trusted third party certificates. Besides this, it is not easy to attract customer online in-spite of various benefits it provides. This is also the reason many e-tailors have started Omni-channel approach that is opening physical stores along with online which would help them increase their sales and overcome problem of see- feel and buy. Voylla, BlueStone and CaratLane have started opening Experience lounges in various cities form last two years.

CaratLane Numbers

CaratLane, which was incorporated in 2007, had revenue of Rs. 141 crore in 2015-16, Rs. 127 crore in 2014-15 and Rs. 101 crore in 2013-14, reports added. In June 2011, CaratLane received its first funding of US$ 6 million, when company director quoted that its current turnover is Rs. 50 crore and it expects to make it Rs. 135 crore during fiscal 2012, as reported in The Hindu.

Table 1: CaratLane’s turnover, funding received and valuation as per different sources available online.
Table 1: CaratLane’s turnover, funding received and valuation as per different sources available online.
BlueStone Funding

Online jewellery retailer BlueStone has raised Rs. 200 crore (US$29.7 million) in a Series D round of funding in July 2016 led by IIFL Holdings Ltd and existing investor Accel Partners with participation from new investor RB Investments and existing investors Kalaari Capital and IvyCap Ventures.

Exactly a year ago, BlueStone raised US$16 million in a round of funding from Ivy Capital and Dragoneer with participation from Accel Partners, Kalaari Capital and Saama Capital. It had previously raised an undisclosed amount from Ratan Tata in September 2014, a US$10 million investment in March 2014 from Kalaari Capital, Accel Partners and Saama Capital and US$5 million from Accel Partners and Meena Ganesh in January 2012.

Funding Analysis BlueStone Jewellery and Lifestyle, which houses the business, earned revenues of Rs. 59.83 crore in FY15, compared with Rs. 17.04 crore in the previous year, as per Registrar of Companies filings. However, the losses in FY15 of Rs. 42.82 crore were double those in the previous year.

Interesting to note, in an interview to news agency PTI in March this year, the firm’s COO Arvind Singhal said the firm clocked annual revenues of Rs. 250 crore in 2015-16. Registrar of Companies does not yet confirm this figureas quoted by the COO. CaratLane, who is the leading and oldest player has clocked only Rs. 141 crore, so a figure of Rs. 250 crore by BlueStone seems suspicious, i.e a sudden jump of more than 4 times from previous year.

Table 2: BlueStone’s turnover and funding received as per different sources available online. * not confirmed, quoted by COO.
Table 2: BlueStone’s turnover and funding received as per different sources available online. * not confirmed, quoted by COO.
Profit when?

It has all turn out to be an evaluation game, where in by a new investment, the old investor gets a gain on a new evaluation of the company. But if you see how these companies will make money and when, it looks very difficult on paper. If we analyze CaratLane’s gross profit margin in 2012-13, it was 4.54 per cent, and a loss of Rs. 17.8 crore on a turnover of Rs. 77.91 crore. It means it required Rs. 392 crore i.e. five times of sales over that years turnover to achieve break even. In 2015-16, it clocked Rs. 141 crore only, so only a big jump more in times and along with two figure gross margin can only help them achieve their first profit in coming years.

Exit when you are an ultimate gainer

All VCs look for right time to exit. In case of CaratLane, no other company would be best suited to take over its online operations other than Titan Co. Ltd. Titan came as a strategic partner, with its huge presence on offline model, it can really leverage it to its use. Mithun Sacheti and Titan seem to be the ultimate gainer out of the deal. Since there was no other investor other than Tiger Global, it did not really capitalise the evaluation which it had made of Rs. 716 crore while making his last funding of US$31 million, as it got exited with almost same amount of US$ 52 million (Overall Investment in 3-5 Years) on a evaluation of Rs. 576 crore at the time of exit to Titan.

In case of BlueStone, sudden funding right after the Titan-CaratLane deal, it looks they are eyeing for an eventual company who would take reins just like how Titan got of Caratlane. But one needs to understand; there is only one Titan. Besides, there are hardly any corporate players in jewellery industry. Organised players like PC Jeweller, Kalyan Jewellers, PNG Jewellers are still in expansion mode and are struggling to make their foothold strong in areas other than they belong to.

Many jewellery companies jump into online without understanding the eventual game. If you are offline player and if strategically it helps your existing brand, it can be a right move. But if you are looking to create a brand and grow by your funding or VCs, above analysis will help you understand what you are working for and where will you stand.

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