SoftBank-backed Brainbees Solutions Pvt. Ltd, the parent company of baby products retailer FirstCry, is set to launch its initial public offering (IPO) on Tuesday, closing on Thursday, at a price band of ₹440- ₹465. The IPO will include both fresh issues and an offer for sale (OFS), with the company aiming to raise ₹4,194 crore at the upper end of the price band.
As investors prepare for the IPO, let’s explore FirstCry’s business landscape, market position, and growth prospects.
Launched in 2010, FirstCry has established itself as a leading multi-channel retailing platform for mothers’, babies’, and kids’ products. The company has also expanded internationally, establishing a presence in the United Arab Emirates and Saudi Arabia in 2019 and 2022, respectively, where it aims to replicate its success in India.
FirstCry's strength lies in its growing customer base. The number of annual unique transacting customers rose 12.4% on year to 8.7 million in financial year 2023-24. This growth underscores the company's ability to attract and retain customers.
Additionally, the company saw a 15% year-on-year increase in orders to 34 million during the period, with the average order value rising to ₹2,226 from ₹2,156, indicating healthy demand for FirstCry's products and potential for future growth.
Despite its strengths, FirstCry faces significant challenges. One major concern is the rising number of customers returning orders, which poses risks due to delivery and freight costs, and the trend of fraud returns.
“In some cases, where the product is a home brand and the returned inventory is not suitable for resale, our overall margins may be further impacted,” the company highlighted in its red herring documents.
FirstCry witnessed a 10% year-on-year increase in order cancellations to 1.6 million in 2023-24, following a 46% increase in 2022-23. “The company witnessed a rise in order cancellations in the last two years, which might be due to inventory management issues leading to stockouts, and pricing discrepancies between online and offline,” said Atul Parakh, chief executive officer of online investment and trading firm Bigul. Additionally, product returns rose11% to 10.7 million in 2023-24 after rising 12% in 2022-23.
The company has also incurred significant debt, with total borrowings more than doubling from ₹176.5 crore in FY23 to ₹462.7 crore in FY24. This was a substantial increase from ₹90 crore debt in 2021-22, which could restrict FirstCry's ability to seize new opportunities.
But there are growth opportunities as well.
The childcare products market in India is growing rapidly, with projections suggesting it will grow at a compounded average growth rate (CAGR) of 13.2% over the next five years, compared to a 9.4% growth between FY17 and FY24. This presents a significant opportunity for FirstCry to expand its market share and increase revenue.
Additionally, childcare products spending per capita in India is expected to grow at a CAGR of 13-15% from FY24 to FY29, outpacing mature markets like the USA and China.
“The children’s product market size is rapidly increasing. FirstCry is one of the leading players in this industry, so they can capitalize on this opportunity by expanding the product range to cover more age groups, investing in technology for a personalized shopping experience, and strengthening the omnichannel presence,” said Parakh.
However, there are potential threats that FirstCry must navigate.
The company has a high attrition rate, which reached 42% in FY24. “High attrition rates of 42% in the financial year 2024 are a matter of concern for the company’s management. The company must focus on improving employee engagement and satisfaction programs,” said Parakh.
Moreover, FirstCry is exposed to risks from the non-availability of exclusive arrangements with third-party brands, which could impact its product offerings and competitiveness. The company stopped selling products from 580 brands during 2023-24, after discontinuing 1,502 brands the previous year. The number of new brands onboarded also declined in 2023-24.
