Domestic brokerage firm JM Financial recently initiated coverage on Brainbees Solutions, operating under the FirstCry brand, with a 'buy' rating and a target price of ₹692 per share, citing the company's strong growth opportunities in the childcare platform.
FirstCry India, with its multi-channel approach, accounts for a 20% market share of the organised (online + brick-and-mortar) childcare market in the country, with an online market share of roughly 24%. While consumers still have potential options for children in the ages of 4-5 years, FirstCry has an extremely dominant market position in the 0–4-year age group, the brokerage noted.
It observed that rising incomes are making Indian parents more aspirational, with a growing desire to provide the best for their children. As the basic needs of most Indian urban and semi-urban households are addressed by the current income per capita, the rise in income is increasingly directed towards discretionary spending.
According to the brokerage's channel checks with young parents, childcare is ranked among the top discretionary categories, with a large share of parents even labeling it as a "discretionary necessity."
The company has defined clear drivers for gross margin expansion (6.5% by FY28) since FY24, which include the rising mix of FirstCry home brands, COCO store expansion saving margins shared with franchisees, economies of scale enabling higher manufacturing margins, and better negotiations on take-rates with 3P brand partners.
JM Financial stated that the company has a highly replicable playbook that has been perfected over the past 1.5 decades. In 2019, the company decided to foray internationally by launching in the UAE, followed by expansion into KSA (Kingdom of Saudi Arabia) in 2022.
This opened up a USD 10 billion opportunity by FY29 in these two countries, with FirstCry benefiting from the lack of a specialised childcare platform. While the UAE will remain an online-only operation, KSA is likely to see a replication of the multi-channel approach used in India, with the combined business forecasted to deliver operating profitability by FY27.
Furthermore, Globalbees Brands was incubated in 2021 to cater to the rising consumer affinity towards D2C brands. The company has acquired 21 brands (plus 5 business transfer agreements), reaching an annualised revenue of ₹17.3 billion as of 2QFY25, while also becoming EBITDA profitable since FY24, it noted.
The company's revenue grew at a CAGR of 38% from FY21 to FY24, with the company turning adjusted EBITDA profitable in FY21. JM Financial forecasts it to deliver 20% revenue growth from FY24 to FY29, while it projects the adjusted EBITDA to be at 51%, driven by sharp margin expansion across segments.
This will be supported by a 440 basis points gross margin expansion and the resultant operating leverage, leading to a forecasted FY29 adjusted EBITDA margin of 12.0%. The brokerage valued the India Multi-Channel and Globalbees Brands at 40x and 30x FY27E adjusted EBITDA, respectively, while valuing the international segment at 4x FY27E sales.
This results in a price target of ₹692, indicating an upside potential of 14% from the stock's previous closing price.
Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.
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