FirstCry IPO Review | Detailed Analysis | CA Rahul Malodia

CA Rahul Malodia: Business Coach

5 Aug 202412:47

Summary

TLDRThe 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.

Outlines

00:00

🚀 Exploring the Business Model of a New Loss-Making Startup

The video discusses the entry of a new loss-making startup in the market, likening it to Paytm's impressive success. It focuses on understanding the company's business model, its profitability, and whether one should invest in it. The company, which started in 2010, initially focused on selling products for newborns and kids up to 6 years old, functioning as a marketplace for other companies' products. Later, it launched its own brand, Baby Hug, which included a range of baby care products and expanded to include products for kids aged 6 to 12. With a shift towards offline presence, the company opened 1,033 stores across 28 states and five union territories in India and extended its reach internationally to the UAE and Saudi Arabia. The startup, part of a multi-brand chain in India, plans to use its IPO proceeds to expand its online and offline presence and invest in technology.

05:01

📊 Financial Insights and Investment Considerations

The script delves into the financial aspects of the startup, noting its increase in sales and assets over the past three years. Despite growing revenues, the company continues to experience losses and increasing debt. The startup's financial statements reveal that it faces a significant loan burden, which has multiplied over the years. However, it shows potential for growth within the rapidly expanding baby care market in India. Investors are encouraged to consider the company's strengths and weaknesses before deciding on investing in the IPO. The video also provides a link for opening a Demat account, suggesting the opportunity to invest in this or other IPOs during a surge of public offerings.

10:01

🌟 Strengths and Weaknesses of the Startup

The video outlines the key strengths of the startup, including its operation in a growing industry, a substantial market share in the organized sector, and a strong leadership team. The founder, Supam Maheshwari, is highlighted for his business acumen, with multiple successful unicorn startups under his belt. The company's first-mover advantage, extensive supply chain, and increasing revenue also add to its strengths. However, the video also points out significant weaknesses, such as a large portion of the IPO being used to provide exits for existing investors instead of investing in the company's growth, rising debt, lack of profitability, and high valuation. These factors are considered negative aspects that potential investors should be wary of.

Mindmap

Keywords

💡Startup

A startup refers to a young company that is typically seeking to develop and scale its business rapidly. In the video, the discussion revolves around a new startup in the loss-making sector, indicating the company's early stage in its business lifecycle and its focus on growth over immediate profitability.

💡Business Model

A business model outlines how a company generates revenue and makes a profit. The script discusses the business model of the startup, inquiring whether it is profitable or not, which is central to understanding the company's approach to commerce and its potential for financial success.

💡IPO (Initial Public Offering)

An IPO is the process by which a private company goes public by offering its shares for sale to the general public for the first time. The script mentions an IPO, discussing the company's plan to go public, its pricing band, and the potential for investors to apply for shares, which is a significant event in a company's financial journey.

💡Growth

Growth in a business context usually refers to an increase in sales, assets, or market share. The video talks about the company's growth plans, such as expanding its physical stores and online presence, which is indicative of the company's ambition to increase its market footprint.

💡Profitability

Profitability is the ability of a business to generate profit from its operations. The script raises questions about the startup's profitability, indicating concerns about whether the company is making a profit or incurring losses, which is a key indicator of financial health.

💡Online Platform

An online platform refers to a website or application that provides services or facilitates transactions. The video mentions the startup's online platform, which is a critical component of its business model, allowing it to sell products to a broader audience.

💡Offline Presence

Offline presence refers to a company's physical presence in the market, such as brick-and-mortar stores. The script discusses the startup's move from an online-only business to having physical stores, which is part of its strategy to increase accessibility and customer engagement.

💡Brand

A brand represents the identity and reputation of a company or product. The video talks about the startup's own brand and its efforts to establish a strong brand presence in the market, which is essential for customer recognition and loyalty.

💡Investment

Investment in a business context refers to the allocation of money with the expectation of generating income or profit. The script discusses the startup's IPO as a form of investment by the public, as well as the company's plans to invest in growth and expansion.

💡Financial Statement

A financial statement is a formal record of a company's financial activities, including income statements, balance sheets, and cash flow statements. The video mentions reviewing the company's financials, which is crucial for assessing its financial performance and stability.

💡Market Share

Market share is the portion of the total market for a particular product or service that a company controls. The script refers to the startup's market share, indicating its position within the industry and its potential for growth relative to competitors.

Highlights

A new loss-making startup has entered the market, with a focus on the baby care industry.

The company initially operated as a marketplace for baby products, selling products from other companies.

They transitioned to creating their own brand, 'Baby Hug', offering a range of baby products including diapers and clothes.

The company's online platform sells over 7500 brands and more than 16 lakh products.

They have expanded their product range to cater to children up to 12 years old, not just from birth to 6 years.

The company has opened 1033 offline stores across 28 states and five union territories in India.

Among the stores, 680 are operated under the franchise model, while the rest are company-owned.

The company is present internationally, selling products in the UAE and Saudi Arabia, with 12 stores.

The IPO is scheduled to open on August 6 and close on August 8, with a price band of 440 to 465.

The fresh issue is for 1666 crores, while the offer for sale is 2527 crores, including funds for the company's growth and existing investors.

The funds from the IPO will be used to expand the company's offline and online presence, invest in technology, and for general corporate purposes.

The company's revenue has seen a significant increase, doubling from the previous year.

Despite increasing revenue, the company has been reporting losses, with a reduction in the loss percentage over the years.

The company's assets have grown from 6127 crores to 7119 crores within a year, indicating a positive financial trend.

Net worth has slightly decreased, suggesting some financial tightening.

The company's debt has increased, which is a concern for potential investors.

The company has a first-mover advantage in the organized baby care sector, with a significant market share.

The baby care market in India is growing, with over 26 million children born annually, indicating a steady demand for baby care products.

The company's valuation is considered high by the market, which may affect its attractiveness to investors.

The company's founders and early investors are exiting, which could signal a lack of confidence in the company's future.

The company's growth potential is significant, but it is currently not profitable, which is a concern for investors.

The company's supply chain is robust, with over 80 warehouses and 900 contract manufacturers, providing a strong backend support.

The company's online and offline presence is commendable, with a wide reach across India and international expansion plans.