FirstCry’s IPO: Experts Urge Caution Despite Strong Market Debut of FirstCry Operator Brainbees Solutions Ltd.

Brainbees Solutions Ltd., the operator of the popular e-commerce platform FirstCry, made a striking entrance into the stock market on August 13, with shares listing at a 40% premium on the NSE at Rs 651 per share, significantly higher than the IPO price of Rs 465. Despite this strong market response, experts are advising caution due to the company’s ongoing financial difficulties and elevated valuation.

The company’s Initial Public Offering (IPO), which raised Rs 4,193.7 crore, comprised a fresh issue of 3.6 crore shares worth Rs 1,666 crore and an offer for sale of 5.4 crore shares totaling Rs 2,527.7 crore. As of 11:13 AM on August 13, Brainbees shares were trading at Rs 675.70, marking a 43.8% increase, after reaching an intraday high of Rs 707.7.

However, despite this initial enthusiasm, financial analysts are urging investors to approach it with caution. Akriti Mehrotra, Research Analyst at StoxBox, highlighted the significant challenges that the company faces, including ongoing negative cash flows, regulatory hurdles, and increasing debt levels. “In FY24, FirstCry saw a 15 percent revenue increase to Rs 6,575.1 crore but reported Rs 321.5 crore in losses and a substantial rise in debt from Rs 176.5 crore to Rs 462.7 crore,” Mehrotra pointed out. She also noted that the IPO proceeds are earmarked for operational purposes rather than debt reduction, which raises concerns. “Given these factors, I would advise investors to book profits and exit their positions for the time being. We will revisit our stance if there is a sustained improvement in the company’s financial metrics in the future,” she added.

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Narendra Solanki, Head of Fundamental Research at Anand Rathi Shares and Stock Brokers, echoed these concerns, particularly regarding the company’s valuation. “On the valuation front, we believe that the company is richly priced. Thus, we recommend a ‘Subscribe’ rating to the IPO,” Solanki stated in a note.

Shivani Nyati, Head of Wealth at Swastika Investmart, also expressed reservations despite acknowledging the IPO’s strong performance. “While FirstCry’s market leadership and strong brand position are undeniable, investors should remain cautious about the company’s path to profitability. The reliance on third-party manufacturers and negative cash flows remain areas of concern that require close monitoring,” Nyati said.

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