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FirstCry's Parent Company Brainbees Solutions Withdraws $500 Million IPO Amid SEBI Scrutiny



Brainbees Solutions, the parent company of the popular kids-focused omnichannel retailer FirstCry, has decided to withdraw its $500 million Initial Public Offering (IPO) just four months after filing a draft red herring prospectus with the Securities and Exchange Board of India (SEBI).

Reportedly, SEBI raised concerns regarding key metrics disclosed to investors, leading to the decision to pull back the IPO papers. SEBI's new rule, implemented in 2022, requires IPO-bound companies to share all key business metrics that were disclosed to prospective investors in the past three years.

According to a Reuters report, FirstCry is planning to refile the IPO papers soon, this time including the latest financials from three quarters of FY24 (March 2023 to December 2023).

In its Draft Red Herring Prospectus (DRHP), SoftBank-backed FirstCry had proposed to raise funds through a fresh issue of equity shares totaling up to Rs 1,816 crore and an offer for sale (OFS) of up to 54,391,592 equity shares.

Apart from SoftBank, other major stakeholders like Mahindra & Mahindra, Premji Invest, New Quest Asia, Apricot Investments, Valiant Partners, TIMF Holdings, Think India Opportunities, and Schroders Capital were also planning to divest their shares in the OFS.

For the fiscal year ending March 2023 (FY23), FirstCry reported a significant increase in revenue from operations, more than doubling to Rs 5,632 crore from Rs 2,401 crore in FY22. However, the Pune-based firm also reported a six-fold jump in losses to Rs 486 crore in FY23. In Q1 FY24, it reported revenue of Rs 1,407 crore and a loss of Rs 110 crore.

The withdrawal of FirstCry's IPO following SEBI's concerns is likely to set a precedent for other late-stage startups that are yet to file their initial papers. Regulators in India, such as SEBI and RBI, have become increasingly stringent regarding disclosures and compliances. Last year, insurance company Go Digit faced a similar situation when SEBI returned its prospectus over employee stock plans. The strict actions by RBI across peer-to-peer lending, short-term loans, and gaming segments highlight that avoiding compliance could have serious consequences.

Previously, companies like Oyo, Mobikwik, boAt, PharmEasy, and others also withdrew their IPO plans. However, Mobikwik refiled its DRHP in January this year after becoming profitable.

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