Brainbees Solutions(Firstcry) was founded in 2010. It caters to the needs of mothers, babies, and kids via its online platform ‘FirstCry‘.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, amongst others. The portfolio includes Indian third-party brands, global brands, and own brands. The extensive offerings consisted of more than 1.65 million stock keeping units (SKUs) from more than 7,580 brands on its multi-channel platform across categories as of March 31, 2024).

BabyHug, one of Firstcry‘s house brands was the largest multi-category brand for mother, baby, and kid products in India by gross merchandise value (GMV) in FY 2024, according to a RedSeer report. Other key house brands include Pine Kids, Cute Walk by BabyHug, and Babyoye.

Firstcry has expanded in select overseas markets, establishing a presence in the United Arab Emirates (UAE) and Kingdom of Saudi Arabia (KSA) in 2019 and 2022, respectively. The aim is to replicate its India playbook. According to a RedSeer Report, Firstcry is the largest specialized online retail platform for maternal, baby, and kid products in the UAE by GMV in FY2024.

The multi-channel retailing platform includes Firstcry’s online platform accessible through its mobile application and website. It contributed 70.7% of the revenue in FY2024.Firstcry modern stores comprise franchisee-owned, franchisee-operated modern stores (FOFO), company-owned and company-operated modern stores (COCO) as well as general trade retail distribution channel. Together they contributed 29.3% of the total revenue in FY2024. The Firstcry mobile application in India had been downloaded more than 127 million times as of March 31, 2024. Further, there iss a network of 1,063(435 COCO and 628 FOFO)FirstCry and BabyHug modern stores in 533 cities in 28 states and five union territories across India. These were spread over 2.12 million square feet of retail space, as of March 31, 2024. It had the largest retail space and retail footprint among specialty mothers, babies, and kids’ retailers in India asof March 31, 2024.

Object of the offer

The IPO consists of a fresh issue of Rs 1666 crore and 5,43,59,733equity shares through offer for sale (OFS).

Out of the proceeds from the fresh issue of Rs 1666 crore, Rs 108.1 crore will be used for establishment of new modern stores under the BabyHug brand and establishment of a warehouse in India; Rs 93.9 crore towards lease payments for existing identified modern stores owned and operated in India; Rs 299.6 crore towards investments in subsidiary Digital Age for setting up new modern stores under the Firstcry brand and other house brands and lease payments for the existing identified modern stores owned and controlled by Digital Age in India; Rs 155.6 crore towards investment in subsidiary Firstcry Trading for overseas expansion by establishing new modern stores and establishment of warehouses in KSA; Rs 169 crore towards investment in subsidiary Globalbees Brands for the acquisition of an additional stake in its subsidiaries; Rs 200.0 crore towards sales and marketing initiatives; Rs 57.6 crore towards technology and data science costs, including cloud and server hosting costs; and the balance to finance inorganic growth through acquisitions and other strategic initiatives and general corporate purposes.

Strengths

One among the India’s largest multi-channel retailing platform for mothers’, babies’ and kids’ products by GMV in FY2024. The scale in multi-channel retailing in India, along with a large parenting community on own platform,imparted a variety of advantages such as a large volume of organically generated content, brand affinity, the opportunity to launch additional home brands, and the potential to improve the margins from economies of scale. The multi-channel retail model lends itself well to mothers’, babies’ and kids’ products categories, providing a `touch-and-feel’ experience through modern stores and the convenience of ordering online through the online platform. The multi-channel approach also benefits customers who follow a `research online – purchase offline’ shopping behavior.

The Firstcry platform has powerful network effects, driven by content, brands and data. The content-led strategy enables engagement with parents early in their parenting lifecycle through the Firstcry.com parenting platform. Firstcry customers value the content on the platform and enhance it by adding their own experiences on to the platform, leading to a virtuous cycle of new customer acquisition and enriched content.The inputs received from the content and the community platform helps to identify product and pricing gaps in the mothers’, babies’ and kids’ market. The Firstcry mobile application in India had been downloaded more than 127 million times as of March 31,2024.

Customers have brand affinity, loyalty and trust in the Firstcry brand. The brand affinity built attracts customers engagement. The brand affinity is reflected inthe annual unique transacting customers’ base:growing to 9.11 million in FY2024 from 6.86 million in FY2022.Leveraging the brand strength has enabled the addition of more product and service adjacencies on the platform, thereby further increase customer traffic and base. The strategy of expanding into select international markets and adjacent categories (such as education)helps improve brand visibility.

The diverse products consisting of third-party and home brands significantly contributed to the growth of revenue from operations in the last three financial years. Long-term and mutually beneficial relationships are maintained with global and domestic brands.

Being technology- and data-driven, personalized customer journey leads to higher customer engagement and, inturn, higher revenue.

Firstcry has control over the manufacturing and retail distribution value chains. Manufacturing of home brands is primarily carried out by over 900 contract manufacturers as per the design specifications. Quality control is exercised over the manufacturing process of the contract manufacturers. Further, the multi-channel retailing platform is backed by an integrated supply chain consisting of 80 warehouses and stock keepers across 47 cities in India. The total capacity of 3.18 million square feet supports 1,063 modern stores and a network of 567 distributors and over 1,312 sub-distributors, enabling swift supply to 160,842 general trade and modern trade retailers.

The business model is scalable. The franchisee model is scalable and provides more touch points at limited additional costs. The cost of setting up and operating modern stores by capital expenditure and operating expenditure are borne by franchisees. Further, the fungible inventory between channels insulates from demand fluctuation and obsolescence risks.

Weaknesses

Had negative cash flow from operations in the past. The situation may continue in future. This could materially affect the ability to operate the business and implement growth plans. Operating cash flow stood at Rs -131.73 crore in FY 2022, Rs 399 crore in FY 2023, and Rs 42.1 crore in FY2024.

Had incurred losses in the past periods. This situation may continue in future, adversely affecting the business and the value of equity shares. Losses comprised Rs 78.69 crore in FY 2022, Rs 486.06 crore in FY 2023, and Rs 321.51 crore in FY2024.

Proceeds from the fresh issue will be invested in subsidiaries incurring losses and certain newly established businesses. There cannot be any assurance that the investments will enhance profitability or yield the desired results.

Investment in direct-to-customers (D2C) through the own Globalbees brands platform may not be successful.

Failure to acquire new customers or experience or a decline in engagement with its existing customers will dent revenue.

Failure to retain relationships with third-party brands, or attract new relationships, may affect the business.

Failure to obtain from third party manufacturers adequate quantities or desired quality of products in a timely manner or at acceptable prices may adversely affect the business.

Third-party manufacturers are not contractually obliged to exclusively manufacture or supply products. Some of them may choose to manufacture products for, or supply products to, other parties including competitors.

The modern stores on leased or licensed properties are exposed to the retail rental market. Leased rentals on stores owned and operated stood at Rs 41.6 crore and on stores owned and operated by Digital Age stood at Rs 48.9 crore in FY2024.

Any slowing of the growth of the online commerce industry in India and inadequate response to the changing customer behavior may adversely affected the business as the GMV from online segment constituted 76.9% of the total GMV.

The covid-19 pandemic, or any future pandemic or widespread public health emergency, could affect the business.

Valuation

Consolidated sales were up 15.1% to Rs 6480.86 crore in FY 2024. Revenue growth was contributed by organic as well as inorganic expansion, particularly, the acquisition of Digital Age in May 2022. OP turned positive to Rs 70.49 crore as against operating loss of Rs 317.27 crore. OI decreased by 4.6% to 94.23 crore. Interest cost increased 61.2% to Rs 115.36 crore. Depreciation went up26% to Rs 370.87 crore. Loss before exceptional items stood at Rs 321.52 crore as against loss of Rs 584.39 crore. Net loss was Rs 274.28 crore as against net loss of Rs 441.08 crore.

At the higher price band of Rs 465, the offer is made at around 3.8 times EV/FY2024 sales and 353 times EV/FY 2024 EBITDA. The company is incurring losses. As such PE could not be calculated.

Various investors including SVF Frog (Cayman), had transferred equity shares to investors at a price of Rs 487.44 per equity share of Rs 2 each, including premium, in October and November 2023.

The company does not have any listed peers