The impending Initial Public Offering (IPO) of FirstCry has stirred a significant buzz in the financial realm, unveiling a plethora of details pertinent to the company’s financial landscape, future projections, and inherent risks. With a tapestry woven from its draft red herring prospectus (DRHP), here are the essential facets encapsulating FirstCry’s IPO:
Offer Size and Stakeholders:
Primary Issue: FirstCry seeks to amass Rs 1,816 crore through the issuance of equity shares.
Existing Investors: Renowned entities like Mahindra and Mahindra (M&M), SoftBank, Premji Invest, TPG, NewQuest, and others plan to divest a total of 5.4 crore shares in the Offer for Sale (OFS).
Other Stakeholders: Additionally, entities such as Apricot Investments, Valiant Mauritius, TIMF, Think India Opportunities Fund, Schroders, and even the company’s CEO, Supam Maheshwari, intend to sell portions of their stakes in the OFS.
Utilization of Funds:
Expansion: FirstCry earmarks the raised capital for expanding its footprint by venturing into international markets like Saudi Arabia, alongside opening 483 retail stores across India between FY25 and FY27.
Advertising and Promotions: A chunk of the funds will be allocated to advertising and promotional expenses, crucial for customer acquisition and market positioning.
Financial Insights and Risks:
Past Financials: The DRHP unveiled an insightful retrospective on FirstCry’s financial trajectory. The company endured escalating losses from Rs 79 crore in FY22 to Rs 486 crore in FY23, raising concerns about its profitability.
Cash Flow Concerns: Persistent negative cash flows in the past and the ominous possibility of continued negativity in the future pose substantial operational challenges for FirstCry.
Customer Acquisition Risk: Uncertainty looms over the company’s ability to sustain its customer base growth rate. Failure in cost-effective customer acquisition could impede revenue growth and operational expansion.
Creditor Obligations: FirstCry shoulders a significant debt of Rs 797 crore owed to over 6,900 creditors, accentuating the weight of financial liabilities. Of note, a solitary creditor stakes a claim of Rs 49 crore, showcasing a critical creditor obligation.
Market Adaptability: FirstCry acknowledges the need to adapt its marketing strategies in line with evolving trends. Failure to do so could potentially dent its operational efficiency and financial health.
Marketing Expenses: The company’s spending on advertising and sales promotion exhibited an escalating trend, consuming 10.23% and 11.19% of revenue from operations in FY21 and FY22, respectively. Despite increased total ad expenses in FY23, the percentage relative to revenue fell to 7.39%.
The IPO’s success hinges not just on the promised expansion and market penetration but also on its ability to navigate through financial turbulences, stemming from persistent negative cash flows, escalating losses, and creditor obligations. The proactive allocation of funds for expansion and marketing endeavors underscores the company’s aspirations to fortify its market presence.
The DRHP has laid bare a mosaic of challenges and prospects, spotlighting the crucial juncture at which FirstCry finds itself poised. As the company steers towards its IPO, the market awaits eagerly, balancing its optimism for growth against the backdrop of fiscal uncertainties.
Courtesy: Money control