FirstCry Faces Setback Over $500 Million IPO In Regulatory Scrutiny

In a turn of events that ensued through India’s financial form, FirstCry, the renowned Indian retailer specialising in baby products, is on the brink of withdrawing its papers for an Initial Public Offering (IPO) worth a staggering $500 million.

27 April 2024

By Ishika Kumar

FirstCry, the renowned Indian retailer specialising in baby products, is on the brink of withdrawing its papers for an Initial Public Offering (IPO) worth a staggering $500 million. This decision comes as the Securities and Exchange Board of India (SEBI), the country’s markets regulator, has raised critical questions regarding the disclosure of key metrics to potential investors. The resubmission of the Draft Red Herring Prospectus (DRHP) will result in a postponement of FirstCry’s public listing by several months, with the e-commerce platform now anticipated to debut on the stock exchanges in the period spanning July to August. 

This decision follows recent reports indicating that FirstCry is on the verge of retracting its DRHP on its $500 million IPO, prompted by SEBI’s interrogation regarding the disclosed key metrics within the preliminary documentation. The esteemed unicorn lodged its DRHP with SEBI in December of the preceding year, intending to mobilise INR 1,816 crore through fresh issuance of shares alongside an Offer for Sale (OFS) component encompassing up to 5.4 crore shares. This setback is backed by the heightened scrutiny faced by companies seeking to tap into India’s expanding capital markets.

BrainBees, the parent company of FirstCry, had initiated the IPO process by filing its Draft Red Herring Prospectus (DRHP) with SEBI in December of the preceding year. The proposed IPO was poised to be one of the most significant offerings in India for the year, the biggest one too. Initially, FirstCry aimed to raise approximately $215 million through the issuance of new shares, supplemented by an additional $300 million from the sale of existing shares, according to sources familiar with the matter.

FirstCry’s ambition to go public has been propelled by support from heavyweight investors such as SoftBank, TPG and Mahindra and Mahindra. The company, which caters to the niche market of new parents in the world’s most populous country, offers a diverse range of baby products encompassing clothing, diapers and toys. 

However, recent developments have cast a shadow over FirstCry’s IPO aspirations. SEBI has asserted that the company failed to adhere to Indian regulations mandating the disclosure of all significant business metrics and documents which need to be shared with potential investors over the preceding three years. This regulatory chide reflects SEBI’s efforts to strengthen the prevention of oversights, following widespread criticism of relaxed analysis over loss-making firms with inflated valuations which miss the eye of scrutiny.

Central to SEBI’s concerns are FirstCry’s Key Performance Indicators (KPIs), including metrics such as average order value, annual transacting customers and the volume of orders. The regulator’s insistence on comprehensive disclosure underlines its commitment to ensuring transparency and investor protection in India’s capital markets. As a consequence of SEBI’s intervention, FirstCry is poised to withdraw its IPO papers imminently, with plans to revise and refile them soon in the near future. This development not only signifies a setback for the company but also heralds a significant delay in the realisation of its IPO ambitions. 

The withdrawal will necessitate a meticulous reassessment of its disclosure practices and business metrics to align with all the necessary regulatory requirements. It is imperative to note that despite its formidable market presence, FirstCry remains a loss-making entity. Recent financial disclosures reveal a substantial sixfold increase in losses, amounting to $57.6 million for the fiscal year ending 31st March, 2023. Nevertheless, the company’s total income witnessed a commendable doubling, reaching $684 million during the same period.

As FirstCry navigates the intricate terrain of regulatory compliance and investor scrutiny, the unfolding tale serves as a cautionary one for companies seeking to commence their IPO journey in India’s dynamic market environment. The episode outlines the crucial role of regulatory bodies to recognise the oversight which takes place in safeguarding the integrity and credibility of the capital markets, while also accentuating the imperative for companies to uphold transparency and accountability in their dealings with investors. 

In conclusion, the impending withdrawal of FirstCry’s IPO papers points toward the formidable regulatory challenges confronting companies in India’s capital markets. As the narrative continues, stakeholders await with bated breath the company’s response to regulatory scrutiny and its subsequent course of action in navigating the complex IPO landscape.