FirstCry IPO: CEO Supam Maheshwari sold 6.2 million shares before filing DRHP

FirstCry's founder and managing director, Supam Maheshwari, divested 6.2 million shares in the company within the ten days leading up to the filing of the initial public offer, as outlined in the company's draft red-herring prospectus (DRHP).

At a significant price of ₹487.44 per share, marking the highest rate for a secondary share sale in December, Maheshwari's divested shares would amount to a valuation exceeding ₹300 crore. Notably, the CEO of FirstCry has included himself as a selling shareholder in the upcoming public issue.

Also read: Firstcry IPO: Issue details, objectives, and more - 10 key things to know from DRHP

While Maheshwari originally possessed 35,097,831 shares, equivalent to a 7.46 percent stake in the company, until the draft papers were filed, his ownership had diminished to 28,893,347 shares, representing a 5.95 percent stake on the application filing date.

Some media reports indicate that in a recent share sale round, the founders of FirstCry, in addition to SoftBank, divested their shares at a valuation exceeding ₹23,000 crore. According to the information outlined in the DRHP, secondary sales in December transpired at an approximate valuation of ₹23,700 crore or ₹487.44 per share.

FirstCry is anticipated to set the price of its initial public offering (IPO) with a valuation ranging between $3.5 billion to $3.75 billion. At the higher end of this spectrum, it would represent a 31 percent premium for investors who acquired the shares at ₹487.44 each back in December.

Also read: Ratan Tata to offload all 77,900 shares in FirstCry IPO

The DRHP indicates that Maheshwari divested 9.34 million shares in the six months leading up to the DRHP filing date. At a price of ₹487.44 per share, this transaction would amount to a value exceeding ₹455 crore.

Furthermore, the IPO filing disclosed that a board resolution on December 27, coinciding with FirstCry's application for public listing, resulted in the transfer of 14.9 million shares to the company's Employee Stock Ownership Plan (ESOP) trust at a rate of ₹243 per share.

As per an undisclosed Chief Financial Officer of a unicorn, the transfer of shares to an Employee Stock Ownership Plan (ESOP) trust may be strategically carried out. This strategic move could involve reducing the promoter's shareholding ahead of an Initial Public Offering (IPO) or diluting the stake held by a foreign investor to adhere to foreign direct investment regulations.

Also read: FirstCry IPO: Planning to invest? Know key risks involved in the upcoming issue

As per the DRHP, the founder of FirstCry received a remuneration of ₹200 crore in the fiscal year 2023, ₹29 crore in FY22, and ₹14 crore in FY21. This includes short-term employment benefits and accruals from share-based payments. In the first quarter of FY24, Maheshwari's remuneration amounted to ₹26 crore.

FirstCry witnessed a doubling of ESOP costs or share-based payment expenses from ₹46 crore in FY21 to ₹92 crore in FY22. This figure then surged nearly fourfold from ₹92 crore in FY22 to ₹361 crore in FY23. The ESOP cost for the initial quarter of FY24 stood at ₹45 crore.

Also read: FirstCry IPO: Sachin Tendulkar, Infosy founder and others likely to buy shares of e-commerce company ahead of issue

Despite being backed by SoftBank, the company experienced a widening loss, escalating from ₹79 crore in FY22 to ₹486 crore in FY23.

In its upcoming IPO, FirstCry aims to raise ₹1,816 crore through a primary issue of equity shares. Existing investors such as Mahindra and Mahindra (M&M), SoftBank, Premji Invest, TPG, NewQuest, and others will collectively sell 5.4 crore shares in the offer-for-sale (OFS).