Firstcry IPO: Why SEBI is Getting Stricter with New Age IPOs Amidst Market Euphoria

E-commerce platform FirstCry, which sells infant and kids products, is all set to file its final papers for its initial public offering (IPO), this week. This is as per an Economic Times report.  

The company reportedly plans to release the anchor book for its initial public offering (IPO) on August 5. The speculative date for the issue to go up for public subscription is between August 6 and August 8.  

The size of FirstCry’s offering remains the same as mentioned in its draft IPO documents, with a primary fundraise of Rs 1,816 crore. Additionally, the valuation of the company is at $3-3.5 billion, adds the report. Existing investors aim to sell $54 million in shares that were held by them through the IPO.  

FirstCry mentioned in its DRHP that was filed in December last year that it would utilize the money raised from the IPO to set up new stores and warehouses. It also plans to open overseas stores in Saudi Arabia, invest in sales and technology initiatives, and others.  

What is interesting to note is that FirstCry’s IPO journey has been going on for a while. Let’s have a look at it.  

FirstCry Refiles IPO Papers  

The e-commerce platform re-filed its Initial Public Offering, IPO, in April this year. This was after the Securities and Exchange Board of India, SEBI, reportedly cited a lack of disclosure of key performance indicators by the company.  

Average order value, annual transacting customers, and number of orders are some of the Key Performance Indicators (KPIs) that include metrics of FirstCry. As per Moneycontrol, SEBI requested 25 KPIs, but FirstCry provided only 5-6 in its initial filings.  

Along with asking for a more detailed set of KPIs, SEBI also reportedly requested updated financial statements. In December 2023, FirstCry filed its DRHP for the first time, where it gave its financial results until September 2023.  

When the company refiled its papers again, it reported its December financials as well. The e-commerce platform reported an operational revenue of Rs 4,814 crore with a net loss of Rs 278 crore. This was for the nine months ending December 2023.  

Refile by Several IPOs  

This is not the first time a company had to refile its papers. Go Digit is one such example where the company had to refile its draft IPO papers again. This was after the market regulator returned the prospectus in February 2023 due to concerns related to share issuance. Eventually, Go Digit filed for its IPO in March 2023, and it was approved by the market regulator.  

The market regulator has returned the IPO papers of several companies, including Vishal Mega Mart and Avanse Financial Services, on technical grounds. 

SEBI Becomes Stricter with KPI Disclosures 

The market regulator is becoming more stringent with its IPO regulations. To ensure fair market valuations, SEBI became stricter with KPI disclosures for new age companies, start-ups, and digital majors as per a Moneycontrol report.  

The report adds that a thorough explanation regarding the changes in key performance indicators (KPIs) in relation to the company's recent fundraising efforts is being asked by SEBI. With this regulation, the market watchdog wants to determine if these changes justify the valuation being pursued in the upcoming public offering.

Read: SEBI's Insider Trading Rule Changes: Everything You Need to Know About the New 'Relative' Definition

“There's been a noticeable tightening of SEBI's rules for new-age IPOs. The market regulator has indeed become more stringent in its evaluation process, particularly focusing on key performance indicators such as profitability, revenue sustainability, and business models,” says Amit Goel, Co-Founder & Chief Global Strategist, Pace 360.  

SEBI is also planning to tighten rules for small businesses that are looking for listings, as per a Reuters report. The regulator might increase the minimum size of these public offers to between Rs 300 million and Rs 500 million.  

Performance of New Age IPOs  

This increased diligence is a direct response to the performance of some recent new-age IPOs, which have significantly underperformed post-listing, adds Goel. This comes at a time when the stock market is doing really well. The return of Nifty 50 in the last one year has been twenty five per cent.

To give an example, new-age company Nykaa, which made its market debut in November 2021, made a strong debut in the market at a market price of Rs 1,125. On the final day of the public share sale, the IPO was oversubscribed 82.42 times. Following this, the company’s market regulation crossed Rs 1 lakh crore. As of July 30, 3 pm, the stock is trading at Rs 199.80.  

Paytm is another example that was oversubscribed nearly two times. The company got listed in November 2021 with a price band of Rs 2,080-2,150 per share. As against the offer size of 4.83 crore shares, the company received bids for 9.14 crore equity shares. Today, the share price of Paytm as per NSE at 3 pm is Rs 497.25.

Read: Ola Electric IPO: Here's Why Bhavish Aggarwal Lowered the IPO Price

“In the euphoria surrounding new-age businesses, IPO valuations often tend to be inflated. They are priced too high relative to their earnings or growth prospects. Additionally, the market’s enthusiasm might wane quickly if broader market conditions deteriorate,” says Goel. Moreover, many new-age companies are not profitable at the time of their IPOs, which can lead to skepticism about their long-term viability, he adds.  

Several companies, such as Ola Electric, Swiggy, and Oyo, are all set to go public this year. The latest is that of Ola Electric, which opens for subscription on August 2.  

“High profile companies like Swiggy, Ola Electric, FirstCry, Ola Cabs, PayU, and MobiKwik are expected to generate significant buzz. These IPOs are crucial as they inject liquidity into the market, provide investors with new opportunities, and reflect the growth potential of India’s startup ecosystem,” says Narinder Wadhwa, Managing Director of SKI Capital.  

Their successful listing can enhance market dynamism and attract more global investment into the Indian economy, adds Wadhwa.