FirstCry operator Brainbees Solutions shares are expected to list with double-digit premium over the issue price of Rs 465 per share on August 13, given the decent IPO subscription numbers, though it is richly valued, according to experts.
Even the grey market participants are trading FirstCry IPO shares at around 15 percent premium, the market observers said. The grey market is an unofficial platform for trading in IPO shares till the listing. Investors generally look at grey market to know the possible listing price of IPO.
The initial public offering of Pune-based Brainbees that sells mothers’, babies’ and kids’ products through its online platform FirstCry was subscribed 12.22 times during August 6-8, with major support from qualified institutional buyers who bought 19.30 times the allotted quota. Non-institutional investors, and retail investors picked 4.68 times and 2.31 times the portions set aside for them.
The company raised Rs 4,194 crore through its IPO, which was a mix of fresh issue of Rs 1,666 crore, and an offer-for-sale of 5.4 crore equity shares worth Rs 2,528 crore by the corporate shareholders.
Akriti Mehrotra, Research Analyst at StoxBox advised caution despite the anticipated 15 percent to 18 percent premium at listing, indicating initial market interest.
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"FirstCry effectively integrates its physical and online platforms, benefiting from strong network effects and efficient operations. However, the company faces significant challenges, including persistent negative cash flows, regulatory issues, and rising debt," Akriti said.
In FY24, the company saw a 15 percent year-on-year increase in revenue at Rs 6,481 crore, but recorded Rs 321.5-crore in losses, narrowing from loss of Rs 486 crore in FY23 and a substantial rise in debt from Rs 462.7 crore to Rs 691.85 crore during the same period.
The funds being raised are for operational purposes rather than debt reduction. The finance cost has increased to Rs 115.4 crore in FY24, up from Rs 71.5 crore in the previous year.
FirstCry will utilise its fresh issue proceeds for setting up new modern stores under the BabyHug brand and a warehouse in India. Further, the money will be spent for lease payments for its existing identified modern stores, and investment in subsidiaries Digital Age, FirstCry Trading, and Globalbees Brands. In addition, the fresh issue money will be utilised for sales and marketing initiatives; technology and data science cost, and inorganic growth.
"Given these factors, market may reflect initial enthusiasm but does not fully account for the company’s ongoing financial difficulties and rising debt. Therefore, while the listing price shows short-term market confidence, the underlying financial challenges suggest a need for caution," Akriti said.
Narendra Solanki, Head Fundamental Research - Investment Services at Anand Rathi Shares and Stock Brokers also believes that the company will be listed at a premium based on the current grey market price of the company.
At the upper price band, the company is valuing at market cap/sales of 3.7x with a market capitalization of Rs 2,414.2 crore after the issuance of equity shares. Therefore, on the valuation front, Narendra believes that the company is richly priced.
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