Brainbees Solutions Limited, popularly known by its brand name ‘Firstcry’, a leading multi-channel retailing platform for childcare products has launched its IPO and is open for subscription till August 8, 2024. The IPO is a mix of fresh issue of ₹1,666 crore and offer for sale up to ₹2,528 crore, totalling to ₹4,194 crore.
Incorporated in 2010, FirstCry has grown to become the largest multi-channel multi-brand retailing platform for Mothers’, Babies’ and Kids’ products as per its red herring prospectus (RHP).
Broadly set under the consumption theme, the Indian childcare products industry is expected to grow to around ₹5,45,000 crore at a CAGR of 12-14 per cent between 2024 to 2028. This goes together with the digitisation theme making the niche, unorganised industry in which FirstCry operates, ripe for disruption.
In the valuation front, EV to Sales is at a reasonable 3.5 times which provides some headroom for investors to join the table, with the underlying industry within which the company operates, expected to grow at a robust pace. To get a perspective on valuation, this could be compared with Nykaa (FSN E-Commerce Ventures Limited), which is a new-age e-commerce with comparable business model, which is currently trading at around 8.5 times EV to FY 24 Sales.
Though, the company’s revenue for FY 2023-24 grew by a tepid 15 per cent, gross merchandise value (GMV) grew by a healthy 25 per cent Y-o-Y with improvement in gross margins. Considering the opportunities to increase the market share in a growing, unorganised industry coupled with scope for margin expansion, investors with a high risk appetite can subscribe to the issue with a long term perspective of around 3-5 years.
Business model
Brainbees Solutions Limited (FirstCry) operates a wide network of 16.5 lakh SKUs and partnering with 7,580 brands. The company also has its own private labels namely BabyHug, BabyOye, Cute Walk and Pine Kids while it invests in other D2C brands too.
At present, the company operates through an asset-light model, with the online channel raking in around 81 per cent of the GMV. The company provides same day delivery across 45 cities and next day delivery in 1,043 cities.
The company boasts of an offline network of 1,063 stores as on March 31, 2024, out of which 435 stores are company-owned-company-operated (CoCo) and 628 are franchise operated.
The company operates 4 broad segments - India multichannel, international, GlobalBees Brands and Others.
Contributing to around 70 per cent of the total revenue in FY 2023-24, India multichannel segment covers the entire India operations including online platform, offline retail channels and the manufacturing operations.
International segment covers the online operations in UAE and Kingdom of Saudi Arabia (KSA). The company commenced operations in UAE and KSA in 2019 and 2022 respectively and their share stands at 11 per cent of FY 2023-24 revenue. The company only has online presence overseas.
GlobalBees Brands contributing to 18 per cent of FY 2023-24 revenue, houses several D2C brands, ranging across 4 key segments - home utilities, fashion/lifestyle, home appliances and beauty and personal care, as step-down subsidiaries.
FirstCry also operates a network of pre-schools under the brand name ‘FirstCry Intellitots’. This segment at present contributes to only 1 per cent of the topline.
Growth plans
Out of the fresh funds raised, ₹500 crore and ₹155 crore is allocated towards enhancing the domestic and overseas business respectively through setting up and managing retail stores and warehouses.
₹169 crore is proposed to be utilised for buying additional stakes in existing D2C brands housed under GlobalBees.
Around ₹416 crore will add to the war-chest for inorganic growth and other strategic initiatives while the balancing figure is for general corporate purposes.
Improving operating metrics
For FY 2023-24, at the net level, the company was bleeding losses at ₹321.5 crore.
But the company has cut down on losses Y-o-Y on the back of 25 per cent and 8 per cent increase in GMV and the Average Order Value (AOV) Y-o-Y in the last 2 FYs. Existing customers contributed to around 72 per cent of the GMV during the last 2 FYs which is robust albeit, marginally lower than Nykaa’s which is at 79 per cent for FY 2023-24.
And the annual unique transacting customers increased by 14 per cent Y-o-Y to 91.1 lakh during FY 2023-24.
The company has been profitable at the adjusted EBITDA levels (EBITDA adjusted for ESOP, deal related costs and exceptional items) atleast since FY 2021-22, while operating EBITDA turned positive for the first time in FY 2023-24.
But it is to be monitored if the company can sustain the momentum with investments in international business continuing to be a drag on the bottomline and spends on sales promotion likely to go up from the present 7 per cent of revenue.
What clicks?
The organised players have steadily doubled their share in the Indian childcare product market dominated by the unorganised sector, from just 8 per cent to 16 per cent between 2017 and 2024. FirstCry, though the largest player in the industry, enjoys a measly 3 per cent share in the overall market and around 17 per cent in the organised segment of the market. This provides the company twin opportunities for growth starting with an industry growing at mid-teens, coupling with an opportunity to eat into the unorganised market with organised efficiencies.
The company is also expected to benefit from trends such as urbanisation, increasing share of women in workforce and increasing number of nuclear families. Childcare products being essentials, FirstCry could enjoy higher realisations riding the premiumisation trend with Babyhug, which is the biggest in FirstCry’s stable of brands and notably, one of it’s home brand.
Though brand-consciousness and user experience might provide the required push to convert existing customers to repeat customers while bringing in new customers, another point that gnaws at FirstCry is the narrow age group of 0 to 12 years it caters to.
Notwithstanding everything said above, it is to be seen if the company can sustain winning new customers and increase the wallet share from existing customers. On the other hand, the company will have its task cut-out to protect its customer base from the likes of deep-pocketed e-commerce giants and quick commerce players who have overlapping products. Thus, the IPO is recommended for high-risk investors.