First Cry - The Start of a New Journey

Happy Weekend to you!

The 2024 Paris Olympics has been a mixed bag of emotions for India. While our champions shone at shooting, hockey, wrestling, javelin throw; fourth place disappointments and Vinesh Phogat’s disqualification remained talk of the town. But as someone once said – “Every child is gifted, they just unwrap their packages at different times.”

And as brands like FirstCry might tell you – there’s no reason for those packages to not be pretty and of good quality.

FirstCry – a one-stop destination for childcare and parenting needs – is all set to list on the Indian stock exchanges. And to think, if this listing were to happen last week, (teddy) bears may have come clawing down on it. That’s probably what Ola Electric would have been worried about right before listing day, but hey that’s just how fast the night changes when it comes to stock markets. Ofcourse, as I write this, it remains to be seen whether the market rewards or punishes FirstCry on listing.

Aside from the fact that its shares are soon going to be up for grabs for you and me, what got me interested in FirstCry is that its filings mention it not having any true comparable, domestically or globally. Truly one of a kind, huh?

To get to the bottom of it, let’s understand FirstCry’s business. Here’s a quick snapshot –

“We are India’s largest multi-channel retailing platform for Mothers’, Babies’ and Kids’ products, in terms of GMV, for the Financial Year 2024” – reads FirstCry’s offer document. FirstCry’s company presentation offers a detailed chart on the company’s breadth of SKUs –

But you see, there’s more to it. GlobalBees – House of Brands (think -Thrasio model) + Pre-schools (own & franchise).

As you can imagine, finding a peer that is into exactly such diversified businesses is far from practical. Thus, for the sake of benchmarking, let’s simplify it to a multi-channel business offering mothers’, babies’, and kids’ products across home and 3P brands (based on FY24 revenue contribution).

A few names that could be considered close comparables are listed below, alongwith a business model vs. business breakdown –

You see, it is a Business vs. Business Model conundrum. No player is an exact match in either category. At least now I understand why the filings do not list a single peer and why investors think Nykaa and MamaEarth could be close comparables.

The IPO is set at a US$ 2.9Bn valuation but the question is – does this valuation make sense? Will the company grow?

To evaluate growth prospects for the company, one must look at industry growth as well as company growth. The company’s offer documents have really nice charts on industry growth – spend per child on childcare (13-15% CAGR expected over FY24-29) benchmarked with global markets, market size for childcare products (INR 2900 Bn, 12-14% CAGR expected over FY24-29), with key growth drivers for each.

For this piece, let me bring your attention to company level growth. Let’s take a look at the segment level revenues and earnings.

The Globalbees house of brands segment is gradually picking pace and forms a relatively smaller part of FirstCry’s overall revenues. The international businesses in the UAE and KSA were launched in 2019 and 2022 respectively, implying that the KSA market is in early stages of being set up, implying that the initial set-up costs are seemingly creating a drag on the segment profitability.

Which brings us to the India multi-channel business. This is broadly categorized into online (~77% of GMV) and offline (~23% of GMV) businesses. The offline business is further categorized into –

• Company Owned Company Operated (COCO) stores

• Franchise Owned Franchise Operated (FOFO) stores

It may be pertinent to note that the company has not reported profitability for the online or offline channels. However, the % to GMV for online and offline channels has remained stable over the previous 3 years. And yet we see an improving trend in margins for the last 3 years. Let’s take a look at the trends in number of COCO and FOFO stores –

You see that? While the number of FOFO stores exceeds the number of COCO stores across the three years, the company has started focusing on increasing the number of COCO stores. Like everything else in life, businesses also go through the stages of constant learning and improvement. The company probably realized that while FOFO stores are an asset-light model, they do not leave much in the hands of the company. Thus, COCO stores and private labels would be the margin drivers and should be the key focus area. This is supported by the ‘Utilization of Net Proceeds’ section of the RHP which states that a sizeable amount of proceeds is to be utilized towards expansion of COCO stores.

THE GIST –

Industry – Research suggests that recent first-time parents are increasingly spending on childcare. Given that FirstCry is currently the only organized one-stop-shop for childcare and parenting needs, the company’s outlook looks promising.

Growth – Focus on increasing the number of COCO stores is the path that FirstCry is taking towards expansion and profitability. Maintaining brand image and assuring quality of products and services would be the key monitorable.

Well, that’s it for now! Would love to hear your thoughts as well. And if you have been a FirstCry customer and have any tidbits to share, I’m all ears!

3 Weekend Recommendations by Yours Truly –

Cat Café Studio

This is a cozy café situated in Andheri, Mumbai. You’ll find a host of rescued cats there up for adoption. Even if you cannot adopt, you can have a great time munching there with the super friendly cats to keep you company. Happy International Cat Day (belated)!

Exercise!

Back-aches are a common problem these days, so here are a few simple exercises for a healthy back –

1. Bent over Y-raises (no weights) (https://www.youtube.com/watch?v=yn2Hlm5aFiA)

2. Super(wo)man (https://www.youtube.com/watch?v=ATly_pW0i6g)

3. Bird-dog (https://www.youtube.com/watch?v=wiFNA3sqjCA)

Watch a Movie!

Keeping up with the theme of today’s piece, it might be a good time to sit in and watch Baby’s Day Out (streaming on Disney Hotstar).

Posing as children's photographers, three crooks (Adam Robert Worton, Joe Mantegna, Lara Flynn Boyle) scheme their way into a mansion to kidnap an infant (Brigid Duffy, Eddie Bracken). Their hostage proves quite resourceful, however, escaping their hideout and making his way into downtown Chicago. Now the con men have to find their abductee, who believes that in order to return home he must reenact scenes from his favorite storybook, including trips to the zoo and a construction site.