Evaluating Brainbees Solutions Ltd (Firstcry) IPO opportunity; Should you invest?

In this analysis, we take a closer look at Brainbees Solutions Ltd and present you with the exclusive IPO details.

About the Issue:  

Brainbees Solutions Ltd is set to launch its initial public offering (IPO) for equity shares, each with a face value of Rs 2. The IPO price range is set between Rs 440 and Rs 465 per equity share, resulting in a total issue size of Rs 4,193.73 crore at the upper price band.

The IPO is scheduled to commence on August 06, 2024, and will conclude on August 08, 2024. The market lot size for the IPO is 32 shares, with the option to apply for multiples of this lot. Individual retail investors have the opportunity to apply for a maximum of 13 lots, equivalent to 416 shares or a total investment of Rs 1,93,440 assuming the upper price band.

Objects of the Issue  

The offer encompasses both the fresh issue and the offer for sale. It's important to note that the company will not accrue any proceeds from the offer for sale. The company plans to allocate the net proceeds raised from the fresh issue for the following purposes:

1. Expenses of the company for: (i) establishment of new modern stores under the ‘BabyHug’ brand; and (ii) establishment of a warehouse in India

2. Expenditure on lease payments for existing identified modern stores owned and operated by the company in India

3. Investments in its subsidiary Digital Age for (i) setting up new modern stores under the FirstCry brand and other home brands of the company; and (ii) lease payments for the existing identified modern stores owned and controlled by Digital Age in India

4. Investment in subsidiary FirstCry Trading for overseas expansion by: (i) establishment of new modern stores; and (ii) establishment of warehouses in KSA

5. Investment in subsidiary Globalbees Brands for the acquisition of an additional stake in its subsidiaries

6. Sales and marketing initiatives

7. Technology and data science costs, including cloud and server hosting costs

8. Financing of inorganic growth through acquisitions and other strategic initiatives and general corporate purposes.

Promoter holding  

The company stated that it does not have an identifiable promoter.

Company profile  

The company launched the FirstCry platform in India in 2010 with the aim of creating a one-stop destination for parenting needs, encompassing commerce, content, community engagement, and education. According to the RedSeer Report, it is India’s largest multi-channel retailing platform for mothers’, babies’, and kids’ products, in terms of gross merchandise value (GMV), for the FY24, and it has a growing presence in select international markets.

As of March 31, 2024, the company offers over 1.65 million SKUs from 7,580 brands across its platform, including third-party Indian brands, global brands, and its own home brands. The product range includes everything needed for infants up to the age of 12, such as apparel, footwear, baby gear, nursery items, diapers, toys, and personal care products.

The company sells products through its online platform, company-owned modern stores, franchisee-owned modern stores, and general trade retail distribution. It has a network of 1,063 FirstCry and BabyHug modern stores in 533 cities across 28 states and five union territories in India, encompassing over 2.12 million square feet of retail space.

Financials  

The company has experienced strong topline growth in recent years, achieving a Compound Annual Growth Rate (CAGR) of around 62 per cent in revenue from FY22 to FY24. Despite facing a significant setback in FY23 due to substantial employee benefits expenses and higher finance & depreciation costs, the company successfully managed to narrow down its losses in FY24.

Looking ahead, the company plans to establish new stores for its subsidiaries and set up a warehouse. These initiatives are expected to boost product penetration, enhancing profitability through improved scalability and operating leverage.

Valuation and outlook  

The issue is priced with a P/BV ratio of 6.49 times, calculated using its Net Asset Value (NAV) of Rs 71.65 as of March 31, 2024. At the upper price cap, it is priced at a P/BV ratio of 4.99 times, considering its post-IPO NAV.  When calculating the PE ratio for the company based on FY24 earnings relative to the fully diluted paid-up equity capital, the resulting PE ratio is negative.

The company stated that there are no directly listed companies in India that have a business model comparable in size and scale to its operations. As a result, providing an industry comparison for the company is not feasible.

The company operates in a retail category characterized by high purchase frequency, where children quickly outgrow clothing sizes and require consumables like diapers and other baby products, along with evolving needs as they age. Thus, once parents establish a connection with the company, they are likely to begin a predictable and frequent transactional journey spanning approximately twelve years as their children grow.

Given the company’s unique business model, which positions it as the first choice with products catering to children from conception to the age of 12 years, the absence of listed competitors in the Indian market, and its significant growth potential, we advise investors to consider subscribing to the issue with a long-term outlook.