FirstCry Withdraws $500 Million IPO Plans After Scrutiny from SEBI

Brainbees Solutions, the parent company of FirstCry, a leading omnichannel retailer catering to children’s needs, is reportedly withdrawing its initial public offering (IPO) plans just four months after filing the necessary paperwork with the Securities and Exchange Board of India (SEBI).

Regulatory Scrutiny Delays IPO Launch

According to a Reuters report, SEBI, the Indian market regulator, raised concerns about the key business metrics that FirstCry disclosed to potential investors in its draft red herring prospectus (DRHP). New regulations introduced by SEBI in 2022 mandate companies seeking IPOs to share all key business metrics previously presented to prospective investors over the preceding three years.

The report suggests that FirstCry might refile its IPO documents soon, incorporating the latest financial data for the first three quarters of the current fiscal year (April-December 2023). Entrackr, a news website focusing on startups, has reportedly contacted FirstCry for comment on the matter, but no response has been received yet.

IPO Details and Investor Landscape

The DRHP filed by FirstCry, which is backed by SoftBank, outlined plans to raise funds through a combination of a fresh issue of equity shares worth up to Rs 1,816 crore and an offer for sale (OFS) involving up to 54,391,592 existing equity shares.

This OFS component would have facilitated the exit of various investors from the company, including SoftBank, Mahindra & Mahindra, Premji Invest, New Quest Asia, Apricot Investments, Valiant Partners, TIMF Holdings, Think India Opportunities, and Schroders Capital.

Financial Performance and Regulatory Landscape

FirstCry’s financial performance over the past year paints a mixed picture. While the Pune-based company witnessed a significant increase in revenue from operations for the fiscal year ending March 2023 (FY23), surging over two-fold to Rs 5,632 crore compared to Rs 2,401 crore in FY22, it also reported a substantial rise in losses. These losses grew sixfold to Rs 486 crore in FY23. The company’s first-quarter performance for FY24 (April-June 2023) reflected a revenue of Rs 1,407 crore but also a loss of Rs 110 crore.

FirstCry’s decision to withdraw its IPO application following SEBI’s scrutiny is likely to serve as a precedent for other late-stage startups contemplating IPOs. This incident highlights the increasing emphasis on transparency and compliance by regulatory bodies like SEBI and RBI in India. Last year, Go Digit, an insurance company, faced a similar situation when SEBI raised concerns regarding its employee stock ownership plans, leading to the return of its prospectus. Additionally, stricter actions from RBI across sectors like peer-to-peer lending, short-term loans, and gaming underline the potential consequences of circumventing regulatory policies.

Similar Cases of Withdrawn IPOs

Several other major Indian startups, including Oyo, MobiKwik, boAt, and PharmEasy, have withdrawn their IPO plans in the past. However, MobiKwik refiled its DRHP in January 2024 after achieving profitability.