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SoftBank set to offload over 16% stake as part of OFS in FirstCry’s IPO

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SVF Frog, a SoftBank-operated, Cayman Islands-registered entity, is set to offload over 16 per cent of its stake as part of the offer for sale (OFS) in Brainbees Solutions’ ( initial public offering (IPO). PI Opportunities Fund-1 is expected to offload over 36 per cent stake and Mahindra & Mahindra would sell over 5 per cent stake as part of the IPO of the multi-channel retailing platform for newborns, mothers, and kids.

The Pune-based unicorn’s initial public offering comprises a fresh issue of equity shares aggregating up to Rs 1,816 crore and an OFS of up to 54,391,592 equity shares by selling shareholders, according to the analysis of the 572-page Draft Red Herring Prospectus (DRHP).

FirstCry filed its Draft Red Herring Prospectus (DRHP) with the market regulator Securities and Exchange Board of India (Sebi) on December 28, 2023.

SVF Frog would contribute 37.35 per cent (over 20 milllion shares) of the total OFS shares as part of the IPO. PI Opportunities Fund-1 is expected to contribute 15.8 per cent (over 8.6 mn shares) and Mahindra & Mahindra would contribute 5 per cent (2.8 mn) to the OFS.

Individual selling shareholders in the OFS include Ratan Tata, the Chairman emeritus of Tata Sons, who holds 0.02 per cent of the company and 77,900 equity shares and is expected to sell his entire shareholding. FirstCry co-founder and chief executive officer (CEO) Supam Maheshwari, holds 5.95 per cent stake in the entire company which comprises 2.8 crore equity shares. Maheshwari is set to offload 6.3 per cent of his total stake in the firm.

Co-founder Sanket Hattimattur is set to offload 51.6 per cent (1.45 million shares) of his stake . Another co-founder Prahant Jadhav, who holds 1.44 per cent of the entire shareholding of the firm is set to offload 20.58 per cent (1.45 million shares shares). Alongside co-founder Amitava Saha, who holds 1.99 per cent of the entire shareholding is expected to offload over 14 per cent (1.3 million shares).

The Supam Maheshwari-led company proposes to utilise the net proceeds from the offer towards funding the expenditure for setting up new modern stores, a warehouse, and lease payments for existing identified modern stores in India. It would also use it towards funding the investment in its subsidiary, FirstCry Trading. The plan also includes overseas expansion by setting up new modern stores and warehouses in the Kingdom of Saudi Arabia (KSA).

The capital would also help fund the investment in its subsidiary, GlobalBees Brands, and the acquisition of additional stakes in its indirect subsidiaries. Other such initiatives include sales and marketing initiatives, technology and data science costs including cloud and server hosting-related expenses. It would also use the funds towards inorganic growth through acquisition and other strategic initiatives as well as for general corporate purposes.

The remuneration of the company’s managing director and CEO Supam Maheshwari was Rs 29 crore for FY 2022. However, the remuneration to key managerial personnel including Maheshwari increased to Rs 200.7 crore in FY 2023. This included short-term employment benefits and share-based payments. The remuneration of FirstCry co-founder Sanket Hattimattur was Rs 18.5 crore in FY 2023.

Except for Supam Maheshwari, Sampada Maheshwari and Sanket Hattimattur who have transferred 9,343,250 equity shares, 1,007,950 equity shares and 820,614 equity shares respectively, none of the Directors or their relatives have sold or purchased any equity shares or preference shares of the company during the six months immediately preceding the date of this DRHP.

The company may consider a pre-IPO placement of equity shares for cash consideration aggregating up to Rs 363 crore.

In the DRHP, the company has identified about 80 risk factors associated with the public offer.

“We have incurred losses in past periods and may continue to do so in the future, which may adversely impact our business and the value of the Equity Shares,” said the company in the DRHP.

The company reported a loss of Rs 78.6 crore in FY 2022. This jumped to Rs 486 crore in FY 2023. The firm also posted a loss of Rs 110 crore for the three months ended June 30, 2023.

The total income of the firm was Rs 2,516.9 crore in FY 2022. This increased to Rs 5,731.2 crore in FY 2023. The total income for the three months ended June 30, 2023, was Rs 1,426.8 crore.

The outstanding litigation proceedings involving the company and its subsidiaries is Rs 9.8 crore. These litigation proceedings are related to areas such as criminal, tax and regulatory issues.

The firm said that if it is unable to successfully integrate the businesses, technologies, services and products that it acquires or invests in, the business, results of operations, cash flows and financial condition could be adversely affected. The company has acquired and invested in businesses, technologies, services and products in recent years, such as the acquisition of controlling stakes in Globalbees Brands, Swara Baby, Firmroots, Solis Hygiene and the acquisition of Digital Age. It invested Rs 620 crore in Globalbees Brands and holds 50.23 per cent stake on a fully diluted basis in Globalbees Brands, which has acquired controlling stakes in 21 entities and has entered into business transfer agreements with five entities.

Also, the changing regulations in India could lead to new compliance requirements that are uncertain and may adversely impact its business, results of operations or financial condition.

For instance, the Digital Personal Data Protection Act, 2023 deals with the processing of all personal data in digital form. The Data Protection Act requires companies collecting and dealing with high volumes of personal data and who are notified as significant data fiduciaries to fulfil certain additional obligations. It also provides for the establishment of a Data Protection Board of India for taking remedial actions and imposing penalties for breaches of the provisions of the Act. It imposes restrictions and obligations on data fiduciaries, resulting from dealing with personal data and further, provides for levy of penalties for breach of obligations prescribed under the Act.

“If the online commerce industry in India does not further develop and grow and if we are not able to effectively respond to changing customer behavior, our results of operations could be adversely affected,” said the company.

The firm has also incurred certain indebtedness and the lenders have imposed certain restrictive conditions on the firm under our financing arrangements. This may limit its ability to pursue the business and limit the flexibility in planning for, or reacting to, changes in its business or industry.

Interestingly, ahead of FirstCry IPO, family offices of Indian cricketer Sachin Tendulkar, Ravi Modi of ethnic wear brand Manyavar, Infosys co-founder Kris Gopalakrishnan, and the TVS group family, have reportedly invested in the firm.

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