FirstCry IPO: 5 Things to Know Before Investing in the IPO

India's retail industry is on an increasing trend, with e-commerce leading the way. More people are getting online access, mainly from smartphones and better internet connections.

By 2029, there might be a bn internet users and up to 350 m online shoppers. The increase in potential customers through the Internet provides an opportunity.

The e-commerce market is set to grow about 20% each year expecting to touch around US$ 157 bn by 2029.

People in smaller cities like tier 2 and 3 are getting access to the internet and an increase in awareness. This helps companies to leverage these aspects and can tap into these markets.

With the upward trend of the population in India, parents are spending more on their kids.

They're buying more childcare products as they become more aware of child health and have more money to spend. This market is growing faster than in the US or China.

In this thriving landscape, today we will focus on one notable player: FirstCry.

Positioned to leverage the ongoing growth of the Indian retail e-commerce market, FirstCry is set to have its IPO strides in this dynamic sector.

What Does FirstCry Do?

The company offers everything needed for an infant up to the age of 12, including apparel, footwear, baby gear, nursery, diapers, toys, and personal care, among others.

Brainbees Solutions' (FirstCry) mission is to create a one-stop store for parents' retail, content, community engagement, and education needs.

The company offers products from Indian third-party brands, global brands, and its own brands.

It has an extensive offering for mothers, babies, and Kids with more than 1.5 m SKUs from more than 7,500 brands on its multi-channel platform.

The categories of operation for the company includes apparel and fashion, toys, books, school supplies, diapers, bath and skincare, nutrition and breastfeeding, health and safety, baby gear, and maternity wear.

With its extensive product portfolio and significant market position, FirstCry is now gearing up for its IPO.

Here are the key details of the upcoming offering.

Issue period: 6 August 2024 to 8 August 2024

Type of issue: Book Built Issue

Price band: Rs 440 - 465 per share

Face value: Rs 2 per equity share

Lot size: 32 shares

Application limit: The minimum lot size for an application is 32 shares, requiring a minimum investment of Rs 14,880 for retail investors.

Tentative IPO allotment date: 9 August 2024

Tentative listing date: 13 August 2024

Apart from this, the IPO is a book-built issue of Rs 41.9 bn. The issue is a combination of fresh issue of 35.8 m shares aggregating to aggregating to Rs 16.66 bn and an offer for sale of 54.4 m shares aggregating to Rs 25.28 bn.

FirstCry: How it's Planning to Use the IPO Funds

The IPO of FirstCry includes a fresh issue of Rs16,6 bn and an offer-for-sale (OFS) of 53,559,733 equity shares by its existing shareholders, amounting to Rs 25 bn.

At the upper end of the price band, the company aims to raise a total of Rs 41.6 bn via primary stake sale. The anchor book for the issue opens on Monday, 5 August.

The net proceeds from the issue will be utilised for establishing new modern stores under the 'BabyHug' brand and a warehouse in India; covering lease payments for existing identified modern stores; investing in its subsidiary Digital Age; acquiring Globalbees Brands; funding sales and marketing initiatives; and for general corporate purposes.

Financial Performance of FirstCry

FirstCry (Brainbees Solutions) reported revenue from operations of Rs 64.81 bn in FY24, up 15.06% from Rs 56.33 bn in FY23.

Losses in FY24 were Rs 3.22 bn, an increase of 33.85% from Rs 4.86 bn in FY23. There was an improvement in material costs, employee benefits expenses, purchase of stock, finance costs, and other expenses which have limited its losses.

The earnings per share in FY24 were Rs - 6.20 per share, an improvement of 37.81% from the previous year's Rs -9.97 per share. The improvement in EPS was based on cost control with increasing revenue.

Retail business is capital intensive, and Brainbee's equity value is positive. The company's gearing ratio in FY24 stood at -0.07 compared to -0.29 in FY23. The negative gearing ratio exists because the company has excess cash after the debt is repaid.

FirstCry recognises its revenue from operations under India multi-channel, GlobalBees Brands, International, and Others.

In FY24, the India multi-channel segment contributed 70.66% of the revenue, International - 11.63%, GlobalBees Brand - 18.66%, and Others - 0.51%.

Competitive Analysis

There are no listed companies that engage in a business like that of the company or are of a comparable size to that of the company. Accordingly, it is not possible to provide an industry comparison in relation to FirstCry.

FirstCry IPO Review - KPI Highlights

The consolidated Gross Merchandise Value (GMV) stood at Rs 91.21 bn compared to Rs 72.58 bn in FY23.

Their average order value in FY24 stood at Rs 2,544 against Rs 2,342 in FY23, which is a decent growth. The order volume grew to 358 m in FY24, up from 309 m in FY23.

The advertisement cost in FY24 was Rs 4.82 bn, which was around 7.44% of its operating revenues, and Rs 4.16 bn in FY23.

Courier charges were Rs 5.46 bn in FY24, up 27.13% from Rs 4.29 bn, contributing 8.42% of the revenue in FY24. These expenses take the majority of the profits.

Key Factors Affecting Operational Performance

1. Manufacturing Dependence

   The company lacks exclusive agreements with contract manufacturers, suppliers, and third-party brands. This allows these manufacturers to work with competitors as well.

2. Rental Market Risks

   The company relies on leased properties for its modern stores. This exposes it to rental market fluctuations and risks associated with lease renewals, potentially leading to store closures or relocations that could affect overall sales and incur additional costs.

3. Highly Competitive Market

   The company operates in a highly competitive industry, facing rivals like Reliance Retail, Gini & Jony, Amazon, Flipkart, and Meesho.

   The company holds only a 2.5-3% market share in the India childcare products market. Intense competition could hinder growth strategies and impact profitability.

Conclusion

As India's retail landscape evolves with rapid e-commerce growth and increased internet penetration, opportunities abound, especially in the booming childcare sector.

The surge in online shoppers, particularly from smaller cities, combined with rising parental spending on child health, highlights a promising market trajectory.

FirstCry, with its established platform, is well-positioned to capitalise on this trend. However, controlling costs is essential to mitigate cash burn and focus on profitability.

Despite its strong presence, FirstCry faces intense competition from numerous established players entering the market.

Strengthening brand value, ensuring high product quality, and expanding outreach will be crucial for increasing market share.

Given these factors, it is vital for investors to evaluate opportunities judiciously and make informed decisions to effectively navigate this dynamic and competitive market.

Happy Investing!

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