Brainbees Solutions, the parent company of FirstCry, a children’s retail company, is planning to cancel its $500 million IPO within four months of submitting a draft red herring prospectus to the Security Exchange Board of India (SEBI). This decision was made as SEBI questioned the company’s key business metrics that were disclosed to potential investors.
As per a new rule introduced in 2022, companies going public must share all key business metrics from the past three years. The company may resubmit its IPO papers with updated financials from the last three-quarters of FY24 (March 2023 to December 2023).
According to Entrackr report, In its draft red herring prospectus, FirstCry, which is backed by SoftBank, proposed to raise funds through a fresh issuance of equity shares worth Rs 1,816 crore and an offer for sale of up to 54,391,592 equity shares. Along with SoftBank, other major shareholders such as Mahindra & Mahindra, Premji Invest, New Quest Asia, Apricot Investments, Valiant Partners, TIMF Holdings, Think India Opportunities, and Schroders Capital were also planning to sell their shares through the offer for sale.
In the fiscal year ending in March 2023 (FY23), FirstCry saw a significant increase in revenue from operations, reaching Rs 5,632 crore, which was more than double its revenue in FY22. However, the company also reported a six-fold increase in losses, totaling Rs 486 crore in FY23. In the first quarter of FY24, the company reported a revenue of Rs 1,407 crore and a loss of Rs 110 crore. The withdrawal of FirstCry’s IPO due to SEBI’s concerns may set an example for other late-stage startups that have not yet filed their IPO papers. Regulations in India, such as SEBI and RBI, have become stricter when it comes to disclosures and compliance.
Last year, insurance company GoDigit faced a similar situation when SEBI returned its prospectus over employee stock plans. The recent actions taken by RBI in various sectors, such as peer-to-peer lending, short-term loans, and gaming, highlight the consequences of trying to bypass regulations. Other companies like Oyo, Mobikwik, boAt, PharmEasy, and others have also withdrawn their IPO plans in the past. However, Mobikwik refiled its draft red herring prospectus in January of this year after achieving profitability.
