FirstCry halts IPO plans as volatility continues

FirstCry halts IPO plans as volatility continues
Ecommerce firm FirstCry will delay its planned $1 billion initial public offering (IPO) by a few months, according to people in the know who said the cautious approach by the SoftBank-backed etailer follows the muted response last week to new economy issues, like that of logistics player Delhivery, as well as the broader headwinds in global markets. 
The Pune-based etailer had finalised plans to file its draft IPO papers this month but is pulling back on the advice of its investors and bankers, sources said. FirstCry, which also runs offline stores, is also thinking of ‘recalibrating’ its overall issue size and the valuation it would seek compared to its initial plans earlier this year, they added. 
FirstCry was aiming for a valuation of close to $7 billion for an issue size of $1 billion with an offer for sale (OFS) component of around $700 million, ET had reported last month. 
“Everything changes when a company has to resize the issue and pricing,” said one person cited above. 
Too many headwinds 
“There are too many headwinds out there now and based on multiple conversations with key stakeholders, they (FirstCry) are delaying filing the draft red herring prospectus (DRHP) by at least a month or two.” 
How the recent Delhivery IPO subscriptions were received was something that also played a role in hitting the pause button,” the person said. 
A spokesperson for FirstCry declined to comment on the matter. 
Led by changes in macroeconomic conditions and the current Ukraine-Russia crisis, public markets have been choppy, forcing even the country’s largest insurer Life Insurance Corporation of India (LIC) to postpone its public offering and cut its overall issue size. 
The LIC scrip is expected to start trading on bourses on Tuesday. Delhivery too had to delay its IPO and reduce the size to Rs 5,235 crore from its earlier plan to raise Rs 7,460 crore. 
“Even LIC’s offering was not really oversubscribe hugely. In these circumstances, it makes sense to avoid a mess after filing the DRHP and it's better to wait it out to see how this settles,” people aware of the thinking within the babycare products retailer said . 
Last week, only 24% of Delhivery’s IPO was subscribed on the second day of its issue, signalling lack of excitement from retail and high net worth investors, leaving company insiders on tenterhooks until the IPO was eventually subscribed on the final day. 
Global market turmoil 
FirstCry discarding its IPO cart comes soon after its biggest investor SoftBank said it will cut down new investments drastically this year after reporting record losses in its Vision Fund units. “Compared to the amount of investment made last year, I would say the amount of new investment will be half or could be as small as a quarter,” SoftBank chief executive Masayoshi Son said on May 12. He also later added that public markets globally will take another year or two for a recovery. 
Market analysts point to the correlation between the secondary market and the primary market that is leading to postponement of planned public issues by startups. 
“During the boom, companies were raising money and IPO prices were also very high. That is why we had Paytm, Zomato, Nykaa raising a huge amount of money,” said VK Vijayakumar, chief investment strategist, Geojit Financial Services. 
“ The correction in the market has dampened the spirit hugely and that is why startups have started postponing (planned issues), they will come back and will get a good valuation when the markets bounce back ( but) that is not likely to happen in the near term,” he added. 
Share prices of the new economy companies mentioned above are trading well below their previous highs and recently Zomato went below its issue price of Rs 76 per share hitting new lows. It settled at Rs 56.75 on Friday after making a nearly 10% recovery on BSE. Paytm has lost over 70% of its share value compared to its issue price of Rs 2,150 per scrip. 
According to Vijayakumar, for any IPO to go through in the current environment, the pricing or valuation has to be really attractive, “That’s why LIC brought down its valuation substantially,” he noted. 
For FirstCry, the changes in market sentiments are of significance even as it turned profitable in financial year 2021 with a bottom line of Rs 216 crore as against a loss of Rs 191 crore in the previous financial year. Public markets have been complaining about lack of profits in new-age companies. 
PharmEasy, which has received the regulatory clearance for its Rs 6,250 crore IPO, Snapdeal, Oyo Hotels & Homes and Boat are among other new-age firm that are going slow on their IPO plans after having filed their DRHPs. 
Confidential filing? 
Sources said FirstCry is still aiming to hit the market later this year but may look at the option of confidential filing first with the Securities and Exchange Board of India (Sebi) after the regulator proposed the idea last week for which public comments have been invited. Sebi on May 12 proposed to allow companies targeting IPOs to submit a confidential “pre-filing” document, to enable companies to protect sensitive business information. As per the proposal, pre-filing documents only need to be filed with the regulator and the stock exchanges and the company can decide to go for the IPO after receiving observations from Sebi. 
This is a common practice in countries like the United States where top tech startups like Uber, Lyft, Spotify, Slack and Palantir, among others have filed for their IPOs confidentially first. In India, currently, companies need to file their DRHP with Sebi which is also made public. 
“If this is finalised, there is a likelihood FirstCry may go for a confidential filing. It helps in understanding what the regulator has to say about the proposal without making any company data or information public,” one of the sources mentioned above added.