FirstCry’s Twin Engines: GlobalBees And International Revenue Hold The Key To Profits

When FirstCry revealed its plans for a public listing, the biggest concerns for potential investors was around the company’s heavy losses, and the lack of a clear path to profits. 

In the nearly three months since the FirstCry IPO, these concerns persist, especially because of a quarter-on-quarter decline in revenue and increase in losses in Q1FY25. And we can also see a change in FirstCry’s focus areas in the past two quarters. 

Even as FirstCry built an empire around the kidswear proposition, its recent investments have indicated an appetite for diversification. The Supam Maheshwari-led unicorn is increasingly focussing outside the kids and babycare segment, and going for a larger piece of the ecommerce pie — not just in India, but also in the Middle East. 

Ahead of Q2 FY25 results, we are seeing a lot more investments from FirstCry’s parent company Brainbees Solutions Ltd into the brands owned by GlobalBees, as well as the Middle East and international business. 

Soon after the INR 4,194 Cr IPO, GlobalBees increased its stake in consumer appliances brands Frootle and Wellspire, spending more than INR 106 Cr for the two all-cash deals. It also invested an additional INR 8 Cr in the D2C brand The Butternut Co, and acquired an additional stake in Solarista Renewables, the company behind the ‘The Clownfish’ brand, for INR 5.88 Cr. 

Further, the company announced an investment of AED 50 Mn (INR 114.1 Cr) in its UAE subsidiary. 

Incidentally, the only developments related to FirstCry’s India business in Q1 FY25 were for two notices from the Income Tax (IT) Department and fires at its warehouses in West Bengal and Maharashtra that resulted in loss of inventory, property and equipment.

Even when it comes to revenue, the Globalbees brands and the international business for FirstCry have been the growth areas in the past couple of years. So the question we have to ask is how FirstCry’s revenue model is changing and whether this will have a negative impact on the core business of the omnichannel kidswear giant? 

FirstCry’s Diversification Push

Over the past 14 years, besides its marketplace for kidswear and mother care, FirstCry ventured into the physical retail channels through company-owned and franchise stores. 

It also added a child daycare and pre-school chain under the Intellitots brand, and invested heavily into private labels such as BabyHug, CuteWalk, Babyoye (acquired from Mahindra), Mark & Mia as well as Kriti. 

Besides this, Xpressbees, founded in 2015 after being spun off from FirstCry, is currently tailoring its operations to cater to the quick commerce boom, and is likely to go for an IPO by 2025 or 2026 after raising $80 Mn in November 2023. 

Plus, in 2021, FirstCry made headlines for floating GlobalBees as a house of brands and raising funds at a unicorn valuation in a matter of six months. 

As of FY24, more than 11% of FirstCry’s consolidated revenue comes from overseas, up from 8.65% in FY23. Similarly, the share of GlobalBees in consolidated revenue has increased from nearly 16% in FY23 to 18.66% in FY24 (INR 1,209 Cr). 

On the other hand, the share of the consolidated revenue from India has declined from 76% in FY23 to 70.66% in FY24 (INR 4,579 Cr). At FirstCry’s revenue scale, even these seemingly minor drops and bumps have big implications, as we can see below. 

The GlobalBees Factor

GlobalBees, in particular, adds a brand new dimension to FirstCry. The house of brands’ model is centred around acquiring and scaling up digital-first brands across categories. This diversification allows FirstCry to mitigate risks associated with its core kidswear, baby care and mother care business while tapping into new consumer segments and tapping the premiumisation wave in non-fashion categories.

Naturally, FirstCry’s expertise and know-how of running an online marketplace and scaling up retail channels for the kidswear segment is a plus for GlobalBees. Despite being a subsidiary of Brainbees Solution, GlobalBees brands make use of the infrastructure and operational processes set up by FirstCry for the core platform. 

This helps the house of brands operate in a cost efficient manner, and target the various channels that are critical for D2C brands in 2024, including quick commerce platforms and modern retail channels. 

GlobalBees competes with the likes of Mensa Brands, Upscalio, Evenflow among others in the wider house of brands category, however, there are vertical-specific players as well such as 10Club Homes for home decor and interiors, Nykaa with its beauty products or TMRW with its focus on fashion and lifestyle. 

Among these players, Mensa Brands is closest to GlobalBees in terms of revenue scale. Ananth Narayanan-led Mensa is yet to disclose its financials for FY24, but in FY23, it recorded net loss of INR 227 Cr against revenue of INR 499 Cr.  GlobalBees trails Mensa with a standalone revenue of INR 325 Cr as of Q1FY25. 

Incidentally, both Mensa Brands and GlobalBees were founded in May 2021 within weeks of each other. Mensa entered the unicorn club with its first fundraise, quickly followed by GlobalBees as investors poured millions into the house of brands thesis which was backed by an explosion of D2C brands. 

Three years after that valuation boom and the rush to acquire brands, both companies are struggling to justify the valuation afforded by that funding frenzy. 

Nevertheless, GlobalBees is an important arm for the company. Among FirstCry’s various verticals, GlobalBees saw the biggest quarter-on-quarter jump in revenue in Q1 FY25 at more than 26%. 

Overall, this was about 20% of the company’s total quarterly revenue, and GlobalBees ended the quarter on an adjusted EBITDA of INR 4.6 Cr. This meant an improved EBITDA margin of 1.4% vs 0.2% at the end of FY24. 

So when you compare against the competition, GlobalBees is on course to hit profitability faster than standalone house of brands. How much of this operational efficiency is down to FirstCry’s central infrastructure and operational expertise? 

With more direct control on four owned brands after the IPO, GlobalBees is pushing for more control on the product lineup and the channel mix. In particular, the house of brands is eyeing a bigger piece of the home electronics and appliances category by investing in Frootle and Wellspire. 

International Fuel For FirstCry

When it comes to the international market, FirstCry’s focus is on the Middle East and here it’s looking to grow both — ecommerce and offline presence. 

Although the international business is still in its nascent stage, the company’s reputation and operational expertise in India is said to be a strong foundation for growth in the Middle East. The challenge here will be localising products, targeting the audience outside the Indian diaspora and tailoring marketing strategies for the cultural variances and regulatory environment in the UAE and Saudi Arabia.

As the RHP suggested, the company would also increase its investments in international online businesses.

For FirstCry, the international business represents a key avenue to reduce its reliance on Indian omnichannel operations. In particular, the UAE and Saudi Arabia have higher per capita spending for kidswear and mother care, which will definitely help FirstCry shore up the bottom line if it can scale up the business. 

According to Statista Market Insights, the per capita revenue for children’s apparel in the Indian market is $16.21 as of March 2024, compared to $19.32 in the UAE.

Besides this, FirstCry has to compete with the unorganised market in India, which is practically non-existent in the UAE and Saudi Arabia. 

It must be noted that FirstCry’s international business grew slower than its India business, showing 6.57% growth YoY and reaching INR 183.6 Cr during the quarter. As it looks to grow the business, FirstCry has invested in customer acquisition in the past year, and the number of unique transacting customers jumped 39% to over 400K as of FY24.

In the earnings call after the Q1 FY25 results, FirstCry CEO Maheshwari said that the company has bounced back in the UAE and Saudi Arabia in July and August after a lull till March 2024. The company claims that since Eid was celebrated in April this year, many planned purchases occurred in March or FY24. As a result, FY25 got off to a slow start in UAE and Saudi Arabia.

“We are back on track in terms of our performance from a growth perspective for both UAE and KSA [from August]. I would like to also highlight that average order value for our international segment continues to improve.”  

Maheshwari noted that FirstCry saw 13% QoQ growth in average order value (around INR 8,669 in Q1 FY25), and 12% GMV growth when compared to Q4FY24. 

“If you look at the profitability profile, we have significantly improved our losses since it is a journey which is relatively new. We have been able to improve our adjusted EBITDA losses which has declined 22% in Q1 FY25 from Q1 FY24 and on a percentage basis, it has improved from 16.6% negative from a negative 22.7% in Q1 FY24.”

As highlighted earlier, the company has earmarked $13 Mn for its UAE subsidiary, which handles the Middle East operations. A portion of this will be used to add more than 12 stores in Saudi Arabia in the next 24-30 months, and move away from the online-only model in the international market. 

A key piece of the omnichannel strategy for Saudi Arabia is the assembly service for baby products, nurseries and outdoor toys. Maheshwari claimed this has been well received in the Saudi Arabia market and will help FirstCry build brand equity with the local customer base.

For vertical ecommerce players with FirstCry’s scale and reach, the international market is a big attraction. But in FirstCry’s case, it is also banking on GlobalBees’ slate of D2C brands across categories to bolster its core kidswear and baby care business. 

The GlobalBees house of brands business hitting profitability will be a major milestone for FirstCry as it vindicates the company’s investment in this model. Analysts expect the company to leverage the success of these brands and take them global along with its own lineup of kidswear, toys and nursery products. 

However, now that it’s working under the limelight that comes with being a publicly listed company, FirstCry cannot afford to drag its losses for too many quarters. Will Q2 FY25 show the first signs of FirstCry’s big push outside its core strengths? 

Edited By Nikhil Subramaniam