Experts advised caution on Brainbees Solutions Ltd, the operator of FirstCry, due to the company's ongoing financial challenges and a lofty valuation, despite a positive market response following its debut on the exchanges on August 13. The shares of Brainbees got listed at a 40 percent premium on the NSE at Rs 651 per share, compared to the IPO price of Rs 465.
The IPO, with an issue size of Rs 4,193.7 crore, included a fresh issue of 3.6 crore shares worth Rs 1,666 crore and an offer for sale of 5.4 crore shares amounting to Rs 2,527.7 crore. At 11.13 am on August 13, shares of Brainbees were trading 43.8 percent higher at Rs 675.70 after having reached an intraday high of Rs 707.7.
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"The company faces significant challenges, including persistent negative cash flows, regulatory issues, and rising debt," said Akriti Mehrotra, Research Analyst at StoxBox. "In FY24, FirstCry saw a 15 percent revenue increase to Rs 6,575.1 crore but reported Rs 321.5 crore in losses and a substantial rise in debt from Rs. 176.5 crore to Rs. 462.7 crore," she pointed out. The IPO proceeds are earmarked for operational uses rather than debt reduction, which according to Mehrotra suggests caution despite the initial enthusiasm. She advised investors to book profits and exit their positions for the time being. "We will revisit our stance if there is a sustained improvement in the company's financial metrics in the future," she said.
Also Read | FirstCry: Should investors subscribe to this IPO?
Narendra Solanki, Head of Fundamental Research at Anand Rathi Shares and Stock Brokers, acknowledged the IPO's strong debut but raised concerns over its valuation. "On the valuation front, we believe that the company is richly priced. Thus, we recommend 'Subscribe' rating to the IPO," Solanki said in a note.
While acknowledging that the Brainbees IPO exceeded the pre-listing expectations, Shivani Nyati, Head of Wealth at Swastika Investmart said, "While Firstcry's market leadership and strong brand position are undeniable, investors should remain cautious about the company's path to profitability. The reliance on third-party manufacturers and negative cash flows remain areas of concern that require close monitoring."
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