FirstCry IPO

FirstCry IPO will open for subscription on August 6, 2024 and close on August 8, 2024. We break down the multi-channel retail platform's strengths, weaknesses, and growth prospects to help investors make an informed decision.

FirstCry IPO in a nutshell

• Quality : Its three-year average ROE and ROCE were -7.6 per cent and -7 per cent, respectively.
  
• Growth : Its revenue grew 64.3 per cent per annum between FY22 and FY24, but the company reported a cumulative loss after tax of Rs 787 crore over the same period.
  
• Valuation : Post the IPO, the stock will be valued at a P/B ratio of 5 times. The P/E ratio can not be determined as the company has been loss-making in the last three years.
  
• Overview: India has among the highest birth rates globally. The demand for child care products is also growing 10 per cent annually, as per industry estimates. Against this backdrop, the company's already established brand will translate into strong growth. However, the company operates in a very fragmented industry and faces stiff competition from many unorganised and organised players.

About FirstCry (Brainbees Solutions)

With the highest gross merchandise value (GMV), FirstCry, owned by Brainbees Solutions, is India's largest multi-channel retail platform for mother and child care products like clothing, toys, diapers, and baby food, among others. It has 1,063 stores in 533 cities and enjoys a market share of 16-17 per cent in the organised child care product market by GMV (as of FY24). It sells its own brands and third-party brands through its online platform, offline stores, and general retail outlets. Its online platform also caters to global markets of the UAE and Saudi Arabia. But it earns most of the sales from the India business, which accounted for 70 per cent of its total revenue in FY24.

FirstCry's strengths

• Solid client connection: The company has built solid rapport with its customers that helped it become the market leader (in the organised segment) and capture share away from unorganised players. Since childcare is a non-discretionary expense with high purchase frequency, the company believes that parents tend to start a predictable and frequent purchase journey once they establish a connection with the platform. The online platform also allows customers to assess the pricing with ease, while the offline channels allow evaluating product quality.
  
• Robust distribution: The company touts a robust supply chain from manufacturing to distribution. In FY24, it partnered with 900 contract manufacturers for its own brands. The company also has an impressive integrated supply chain of 80 warehouses, stockists, 567 distributors and over 1,312 sub-distributors that enable same day deliveries in 45 cities and next-day deliveries in 1,043 cities in India.

FirstCry's weaknesses

• Streak of losses: The company has been loss-making for the last three years with negative cash flow from operations as it remains primarily focused on expansion and gaining market share. The same is true for some of its material subsidiaries, four of which, recorded negative net worth with total losses of over Rs 21 crore in FY24. Another subsidiary Firstcry Retail DWC has reported a cumulative loss of Rs 342 crore (as of FY23) since its inception in 2019.
  
• High goodwill due to rapid inorganic growth: The company's goodwill on the balance sheet has steadily increased to 21 per cent in FY24 from 15 per cent in FY22 due to its aggressive and rapid acquisition spree. In the last four years, it made five acquisitions worth about Rs 1,287 crore. High goodwill is undesirable on the balance sheet due to high risk of impairments, which can severely dent the company's financials.

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Risk report

FirstCry and its business

• Was the company's earnings before tax more than Rs 50 crore in the last 12 months?
  No. The company reported a loss (before tax) of Rs 321.5 crore in FY24.
  
• Will the company be able to scale up its business?
  Yes. India has one of the highest birth rates globally, which is expected to keep demand for childcare products upbeat. This will allow the company to scale up.
  
• Does the company have recognisable brands with client stickiness?
  Yes. The FirstCry platform and its Babyhug brand have solid recognition. Nearly 72 per cent of the company's GMV came from existing customers in FY24.
  
• Does the company have a credible moat?
  No. Many organised and unorganised players offer similar products as offered by the company.

FirstCry's management

• Do any of the company's founders still hold at least a 5 per cent stake? Or do promoters hold more than a 25 per cent stake in the company?
  No. The company is professionally managed and does not have an identifiable promoter.
  
• Do the top three managers have more than 15 years of combined leadership?
  Yes. Key managerial personnel and senior management have combined experience of more than 15 years.
  
• Is the management trustworthy? Is it transparent in its disclosures, which are consistent with SEBI guidelines?
  Yes. No information to suggest otherwise.
  
• Is the company's accounting policy stable?
  Yes. No information to suggest otherwise.
  
• Is the company free of promoter pledging of its shares?
  Yes. No shares have been pledged.

FirstCry's financials

• Did the company generate a current and three-year average return on equity of more than 15 per cent and a return on capital employed of more than 18 per cent?
  No. Its three-year average ROE and ROCE were -7.6 and -7 per cent, respectively. In FY24, its ROE and ROCE were -8.3 and -5.8 per cent, respectively.
  
• Was the company's operating cash flow positive during the last three years?
  No. The company reported negative cash flow from operations in the last three years.
  
• Is the company's net debt-to-equity ratio less than one?
  Yes. The company's net debt-to-equity ratio was 0.4 times as of FY24.
  
• Is the company free from reliance on huge working capital for day-to-day affairs?
  No. The business is working capital intensive. Although the company has managed to bring down its working capital cycle from 102 days to 53 days in FY24, high payable (52 days) and inventory days (92 days) remain a concern. The company's inventory accounted for 53 per cent of total current assets in FY24.
  
• Can the company run its business without relying on external funding in the next three years?
  No. Its working capital requirements for FY24 amounted to Rs 1,480 crore. It is now raising Rs 1,666 crore from the IPO, but given its history of negative cash flows, the company will have to rely on debt or external fundraise going forward.
  
• Is the company free from meaningful contingent liabilities?
  Yes. Its contingent liabilities as a percentage of total equity was around 0.2 per cent as of FY24.

FirstCry's valuations

• Does the stock offer an operating earnings yield of more than 8 per cent on its enterprise value?
  No. After listing, the stock will offer an operating earnings yield of -1.2 per cent on its enterprise value.
  
• Is the stock's price-to-earnings less than its peers' median level?
  P/E can't be calculated as the company is loss making. It has no listed peers.
  
• Is the stock's price-to-book value less than its peers' average level?
  It will trade at a P/B of 5 times. It has no listed peers.

Disclaimer: This is not a stock recommendation. Investors should do their due diligence before investing.

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