FirstCry Seeks Rs 1,816 Crore, But Widening Losses and Marketing Hurdles Raise Concerns

29 Dec 2023 , 12:55 PM

In a significant move for the Indian e-commerce landscape, FirstCry, a Pune-based company, has filed its draft red herring prospectus (DRHP) with the Securities Exchange Board of India (SEBI) on December 28. This marks a watershed moment as FirstCry positions itself to become the first new-age e-commerce firm to go public after Nykaa’s successful listing in 2021.

Offer Size and Stakeholders: 

FirstCry aims to embark on its IPO journey with a formidable goal of raising Rs 1,816 crore through a primary issue of equity shares. The offer includes a substantial contribution from existing investors such as Mahindra and Mahindra (M&M), SoftBank, Premji Invest, TPG, NewQuest, among others, who plan to sell a total of 5.4 crore shares in the offer for sale (OFS). Notable entities like Apricot Investments, Valiant Mauritius, TIMF, Think India Opportunities Fund, Schroders will also part with a portion of their stake in FirstCry. Additionally, founder and CEO Supam Maheshwari and top executives will participate in the OFS, and Ratan Tata will divest his entire holding of 77,900 preference shares.

Utilization of Funds: 

The substantial capital raised through this IPO is earmarked for strategic initiatives. FirstCry envisions opening new stores and warehouses to bolster its physical presence. Furthermore, the company has set its sights on international expansion, specifically targeting the Kingdom of Saudi Arabia (KSA). In India, FirstCry plans to augment its footprint by opening a total of 483 retail stores between FY25 and FY27, building on its existing network of 936 stores, comprising 615 franchise-owned and franchise-operated stores and 321 company-owned and company-operated stores.

Financial Overview: 

FirstCry, in its DRHP, transparently presented its financial landscape. The document underscores the company’s commitment to marketing and customer acquisition. In FY21, advertising and sales promotion expenses amounted to Rs 164 crore, representing 10.23% of its revenue from operations. This figure increased to Rs 269 crore (11.19% of revenue) in FY22 and spiked to Rs 416 crore (7.39% of revenue) in FY23. As of June 30, 2023, FirstCry had already invested Rs 110 crore in ads, constituting 7.82% of its operating revenue.

The company acknowledges potential challenges in its marketing strategies and anticipates the need for sustained advertising and promotional expenditures to attract customers. The DRHP points out that failure to adapt to evolving trends or ineffective marketing efforts could adversely impact business operations and financial conditions.

Risks and Challenges: 

FirstCry, cognizant of the volatile market dynamics, has highlighted various risk factors in its DRHP. The company saw a widening loss from Rs 79 crore in FY22 to Rs 486 crore in FY23. Negative cash flows, especially over extended periods or in the short term, could significantly impact the company’s ability to operate and implement growth plans. The document cautions that FirstCry cannot assure positive net cash flows in the future, considering the negative net cash flows experienced in the past and the potential for continued negative cash flows.

Customer acquisition is identified as another potential risk. The document underscores the uncertainty of sustaining or increasing revenues and growing operations if the company fails to acquire new customers, especially in a cost-effective manner.

FirstCry also acknowledges its financial obligations to creditors, owing a total of Rs 797 crore to 6,925 creditors as of June 30, 2023. The document highlights one material creditor to whom FirstCry owes Rs 49 crore.