Brainbees Solutions (FirstCry) IPO review (May apply)

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Review By Dilip Davda on August 2, 2024

•    The FirstCry brand has become India's largest multichannel retailing platform.
•    It offers variety of products across its widest portfolio for Mothers, Babies and Kids.
•    Though its footprint has widened, it still incurring losses at the net level following accounting adjustments for ESOPs and other amortization requirements.
•    Due to negative earnings, its IPO is priced at a negative P/E.
•    Well-informed investors may park moderate funds for the long term.

ABOUT COMPANY:
Brainbees Solutions Ltd. (BSL) is popularly known by its brand name "Firstcry". It is India's largest multi-channel retailing platform for Mothers', Babies' and Kids' products, in terms of GMV, for the Financial Year 2024, according to the RedSeer Report, with a growing presence in select international markets. In India, it sells Mothers', Babies' and Kids' products through online platform, company-owned modern stores, franchisee-owned modern stores and general trade retail distribution.

BSL launched the FirstCry platform in India in 2010 with the goal to create a one-stop destination for parenting needs across commerce, content, community engagement, and education. The company named its platform "FirstCry" because a baby's first cry is a special moment for parents, and it aims to make such moments of the parenting journey filled with joy and happiness. It seeks to develop a tangible, emotional, multi-year relationship with parents, especially mothers, with whom BSL's first engagement begins from their baby's conception (i.e., nine months before birth) and can continue until their child reaches about 12 years of age. According to the RedSeer Report, childcare is a non-discretionary, essential expense, for which there is perpetual need. 

The company operates in a retail category with high purchase frequency, in which children outgrow clothing sizes quickly and need consumables such as diapers and other baby products along with other needs that evolve with age. Thus, once parents establish a connection with it, they are likely to start a predictable and frequent transactional journey of about twelve years as their children grow.  BSL has expanded internationally in select markets, establishing a presence in UAE and KSA in 2019 and 2022 respectively, where it aims to replicate India playbook. According to the RedSeer Report, it is the largest specialist online Mothers', Babies' and Kids' Product retail platforms in UAE, in terms of GMV, for the Financial Year 2024. Further, in KSA, it is the largest online-first Mothers', Babies' and Kids' product-focused retail platform, according to the RedSeer Report. After the UAE, the company aims to replicate India playbook in KSA.

Across its platform, the company offers products from third-party Indian brands, global brands, and its home brands. It has created trusted home brands in the Mothers', Babies' and Kids' products categories through deep insights and understanding of the requirements of customers, robust data analytics tools, in-house design and development capabilities and by leveraging the market recognition of the "FirstCry" brand. As a reflection of FirstCry's strong brand recognition and customer trust, BabyHug, one of FirstCry's home brands, is the largest multi-category Mothers', Babies', and Kids' products brand in India in terms of GMV, for the Financial Year 2024, according to the RedSeer Report. Further, the company leverages its management team's experience in creating and scaling up home brands to help D2C Indian and global brands scale their business in India across direct-to-customer channels and modern stores. BSL has no identifiable promoter. It maintains robust governance practices, which have been critical to supporting the growth of business. Its management team is guided by a strong Board, which has included representatives of its significant shareholders, and Independent Directors. Significant strategic decisions have been taken with the guidance and approval of Board of Directors, a majority of whom are presently Independent Directors, and after consultation with its significant shareholders.

For the reported periods of operations, on a consolidated basis, its annual unique transacting customers grew from 6.86 million (FY22) to 9.11 million (FY24), and the orders volume grew from 26.73 million (FY22) to 35.85 million (FY24). Its average value order also jumped from Rs. 2170 (FY22) to Rs. 2544 (FY24). Its contract manufacturers tally increased from 740 (FY22) to 982 (FY24). Thus it posted rising trends on these metrics.  

The company has an extensive Mothers', Babies' and Kids' offering, more than 1.65 million SKUs from more than 7,580 brands on its multi-channel platform across the clothing and fashion, toys, books, school supplies, diapers, bath and skin care, feeding and nursing, health and safety, baby gear, and maternity categories, as at March 31, 2024. Its portfolio includes home brands, domestic brands, international brands including various premium brands. The breadth of its portfolio, coupled with its understanding of the needs and preferences of parents, enables it to personalize selection even as it caters to a more diverse customer base. Its FirstCry store footprint in India is 435 COCO format and 628 FOFO format. As at March 31, 2024, the Company had 3,499 full-time employees and 2,311 employees on a contractual basis.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden/combo IPO of fresh equity shares issue worth Rs. 1666.00 cr. (approx. 35827957 shares at the upper cap), and an Offer for Sale (OFS) of 54359733 equity shares (worth Rs. 2527.73 cr. at the upper cap). The company has announced a price band of Rs. 440 - Rs. 465 per equity shares of Rs. 2 each. The overall size of the issue will be approx. 90187690 shares worth Rs. 4193.73 cr. The issue opens for subscription on August 06, 2024, and will close on August 08, 2024. The minimum application to be made is for 32 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. The issue constitutes 17.37% of the post-IPO paid-up equity capital. From the net proceeds of the fresh equity issue, the company will utilize Rs. 108.10 cr. for setting up new modern stores under the "BabyHug" brand and warehouse, Rs. 93.10 cr. for lease payments of its existing identified modern stores owned and operated by it in India, Rs. 299.60 cr. for investment in its subsidiary - Digital Age for setting up of new modern stores for its brand "FirstCry", and other home brands and lease payments for identified new modern stores, Rs. 155.60 cr. for investment in its subsidiary FirstCry Trading for overseas expansion, setting up of new modern stores and warehouse in KSA (Kingdom of Saudi Arabia), Rs. 169 cr. for investment in subsidiary Globalbees Brands for acquiring additional stake in step down subsidiaries, Rs. 200.00 cr. for Sales and Marketing initiatives, Rs. 57.60 cr. for technology and data science cost including cloud and server hosting related costs, and the rest for funding inorganic growth and general corporate purposes. 

The company has reserved equity shares worth Rs. 3.00 cr. for its eligible employees and offering them a discount of Rs. 44 per share. From the rest, it has allocated not less than 75% for QIBs, not more than 15% for HNIs and not more than 10% for Retail investors. 

The five joint Book Running Lead Managers (BRLMs) to this issue are Kotak Mahindra Capital Co. Ltd., Morgan Stanley India Co. Pvt. Ltd., BofA Securities India Ltd., JM Financial Ltd. and Avendus Capital Pvt. Ltd., while Link Intime India Pvt. Ltd. is the registrar to the issue. 

Having issued initial equity shares at par, the company issued/based on Rs. 2 FV), between February 2011 and July 2024. It has also issued 1891 shares in February 2013, and 63991530 shares in March 2017, as bonus shares. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. 0.01, Rs. 0.98, Rs. 1.79, Rs. 2.00, Rs. 3.64, Rs. 4.43, Rs. 4.51, Rs. 4.54, Rs. 4.83, Rs. 4.89, Rs. 5.06, Rs. 5.17, Rs. 5.53, Rs. 5.57, Rs. 5.76, Rs. 5.94, Rs. 11.26, Rs. 11.44, Rs. 11.63, Rs. 12.03, Rs. 12.11, Rs. 12.27, Rs. 14.24, Rs. 15.25, Rs. 15.44, Rs. Rs. 77.96, Rs. 84.72, Rs. 133.69, Rs. 145.26, 154.40, Rs. 172.03, Rs. 196.38, Rs. 280.87, and Rs. 312.48 per share. 

Post-IPO, its current paid-up equity capital of Rs. 96.67 cr. will stand enhanced to Rs. 103.84 cr. Based on the upper cap of the IPO price band, the company is looking for a market cap of Rs. 24141.75 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has (on a consolidated basis) posted a total income/net profit/ - (loss) of Rs. 2516.92 cr. / Rs. - (78.69) cr. (FY22), Rs. 5731.28 cr. / Rs. - (486.06) cr. (FY23), and Rs. 6575.08 cr. / Rs. - (321.51) cr. (FY24). 

For the last three fiscals, the company has posted an average EPS of Rs. - (6.71) and an average RoNW of - (8.92) %. The issue is priced at a P/BV of 6.49 based on its NAV of Rs. 71.65 (basic) as of March 31, 2024, and at a P/BV of 4.99 based on its post-IPO NAV of Rs. 93.16 per share (at the upper cap). 

If we attribute FY24 annualized earnings to its post-IPO fully diluted paid-up equity capital, then the asking price is at a negative P/E.

As the company has incurred losses for the reported periods, it has no PAT and RoCE margins data for the relevant periods.  

DIVIDEND POLICY:
The company has not paid any dividends for the reported periods of the offer document. It has already adopted a dividend policy in December 2023, based on its financial performance and future prospects.

COMPARISON WITH LISTED PEERS:
As per the offer document, the company has no listed peers to compare with. 

MERCHANT BANKER'S TRACK RECORD:
The five BRLMs associated with the offer have handled 55 pubic issues in the past three fiscals, out of which 12 issues closed below the offer price on the listing date. 

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