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April 26, 2024

FirstCry Faces Regulatory Hurdles: Withdraws $500 Million IPO Papers Amid SEBI Scrutiny

Indian retailer FirstCry, backed by investors like SoftBank, TPG, and Mahindra and Mahindra, is facing regulatory hurdles as it seeks to go public with a $500 million IPO. The company, known for selling baby products, including clothes, diapers, and toys, is set to withdraw its IPO papers amid scrutiny from India’s market regulator, the Securities and Exchange Board of India (SEBI).

SEBI raised questions over key metrics disclosed by FirstCry to investors, prompting the company to reconsider its IPO plans. According to sources familiar with the matter, FirstCry’s parent company, BrainBees, had filed papers with SEBI last December, aiming for one of the country’s biggest IPOs. While the initial plan was to raise about $215 million through fresh shares, an additional $300 million was to be raised via the sale of existing shares.

However, SEBI’s recent communication with the company revealed that it had not complied with Indian regulations mandating the disclosure of all key business metrics shared with prospective investors over the last three years. FirstCry’s Key Performance Indicators (KPIs), including average order value, annual transacting customers, and number of orders, were among the metrics under scrutiny.

This setback comes amidst SEBI’s tightening of regulations in 2022, aimed at scrutinizing companies seeking to list, especially those with substantial losses and high valuations. FirstCry’s IPO delay reflects the broader shift towards stricter oversight in India’s capital markets.

For FirstCry, the withdrawal of IPO papers means revising its disclosures and re-filing them in the coming months. This process will inevitably delay the sale of shares, affecting investors, some of whom have been with the company for a decade.

In its draft papers, FirstCry reported significant losses, with a six-fold jump to $57.6 million for the year ending March 31, 2023. Despite this, its total income more than doubled to $684 million during the same period, reflecting the company’s aggressive expansion in the highly competitive baby products market.

The withdrawal of its IPO papers underscores the challenges faced by companies navigating India’s regulatory landscape, particularly in the wake of heightened scrutiny over financial disclosures. As FirstCry prepares to address SEBI’s concerns and move forward with its IPO plans, it will need to ensure compliance with regulatory requirements while maintaining investor confidence in its growth prospects.

Jhumpa Lahiri

Jhumpa Lahiri

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