FirstCry IPO Review | Detailed Analysis | CA Rahul Malodia

Summary

The video discusses the IPO of FirstCry, a major player in the baby care market. It covers the company's business model, growth trajectory, financial health, and the strengths and weaknesses of investing in its IPO. Despite increasing revenue and expansion, the company is still incurring losses and has a significant debt load. The video provides insights on whether to invest in this IPO, considering both short-term listing gains and long-term potential, while also highlighting the high valuation concerns.

Takeaways

• 😀 First Crayons was founded in 2010 and started as a marketplace for baby care products, selling products from other companies.
• 🎨 The company later introduced its own brand, Baby Hug, expanding its product range to include diapers, clothes, and more.
• 📈 First Crayons has a strong online presence with over 7500 brands and more than 16 lakh products being sold online.
• 🛍️ The company has also expanded offline, opening 1033 stores across 28 states and five union territories, with 680 stores being franchisee-operated.
• 🌐 Internationally, First Crayons has a presence in the UAE and Saudi Arabia, selling products online and through 12 physical stores.
• 📊 The company's revenue has seen significant growth, increasing from 2516 crores to 6575 crores in three years, indicating a positive trend.
• 📉 Despite revenue growth, the company has been reporting losses, with the loss amount decreasing from 78 crores to 321 crores over the last three years.
• 💼 The asset base of the company has also grown, increasing from 6127 crores to 7510 crores, showing an overall positive financial health.
• 💸 The company is planning to use the IPO proceeds to expand its offline and online presence, invest in technology, sales, and operations, and for general corporate purposes.
• 📉 The net worth has slightly decreased, which could be a concern for potential investors looking at the company's financial stability.
• 🤔 The high valuation of the company, despite ongoing losses, may be a deterrent for investors who are cautious about investing in loss-making companies.

Q & A

What is the primary focus of FirstCry's business?

FirstCry focuses on selling products for babies and young children, ranging from newborns to 12 years old. They offer a wide range of items, including baby care products, clothing, toys, and shoes, both from other brands and their own in-house brands like Babyhug and Cute Walk.

How has FirstCry expanded its product range over time?

FirstCry initially started by selling baby care products from other brands but later introduced its own in-house brands, such as Babyhug and Cute Walk. They have also expanded their product range to include items for children up to 12 years old.

What is the current online and offline presence of FirstCry?

FirstCry has a strong online presence with over 1.6 million products available on their platform. Additionally, they have opened 1,033 offline stores across 28 states and five union territories in India, with 680 of these stores operating on a franchise model.

What are the main strengths of FirstCry according to the analysis?

The main strengths of FirstCry include its first-mover advantage in the organized baby and child care market in India, its comprehensive supply chain with over 80 warehouses, and its strong online and offline presence. The company also benefits from its focus on a growing sector and the leadership of experienced founders.

What are the key weaknesses or risks associated with investing in FirstCry's IPO?

The key weaknesses include the large portion of the IPO proceeds being used for Offer for Sale (OFS) by existing investors, increasing debt, and the company's ongoing losses despite revenue growth. The high valuation despite the lack of profitability also raises concerns.

How has FirstCry performed financially in recent years?

FirstCry's sales have more than doubled from 2021 to 2023, but the company has also reported significant losses, which have decreased slightly in the last year. Assets have increased, but net worth has slightly declined, and debt has grown substantially.

What are FirstCry's plans for the funds raised from the IPO?

FirstCry plans to use the IPO funds to expand its online and offline presence, increase the number of physical stores, enhance its operations in the Middle East, invest in technology, and possibly acquire other companies.

What is the significance of the industry in which FirstCry operates?

FirstCry operates in the baby and child care industry, which is a growing market in India. The sector is largely unorganized, with FirstCry being a leader in the organized segment. The industry has significant potential as the demand for branded baby products is increasing.

What is the potential long-term outlook for FirstCry according to the analysis?

The long-term outlook for FirstCry appears positive due to its strong market position, growing industry, and potential for profitability. However, the short-term prospects are uncertain due to the company's current financial situation and high valuation.

What advice does the analyst give to potential investors in FirstCry's IPO?

The analyst suggests that investors should carefully consider their own risk tolerance, especially regarding the company's losses and debt. While the long-term growth potential is promising, the high valuation and current financial challenges may make it less appealing for some investors.