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Revenue mix drives margin miss; recovery expected in FY26

In Q4FY25, FirstCry saw a quarter where core India Multi-Channel business delivered 13.5% YoY GMV growth, impacted by slowdown in offline business and late winter whereas International segment GMV grew 16.4%. GlobalBees revenue growth was robust at 33.4% YoY. Consol. gross margin improved to 37.5%, +80bps / -50bps on YoY /QoQ basis. Furthermore, Adj. EBITDA margin expansion in India multi-channel business was lower at 40bps YoY due to lower operating leverage. Consol. Adj. EBITDA margin improved 20bps YoY (-120bps QoQ) to 5.2%, due to increasing share of lower margin GlobalBees segment in the overall mix. We believe the company retains its deeply-moated position in its category and will be a key beneficiary of tax benefits and any recovery in discretionary spends. Sustained compounding story with cheap valuations (India multi-channel trades at c.27x FY27E Pre IndAS EBITDA) help us retain ‘BUY’ with revised SoTP-based Mar’26 TP of INR 488.

* India Multi-channel (IMC) impacted by lower offline growth: In 4QFY25, IMC segment saw GMV growth of 13.5% YoY (-14.5% QoQ), a miss on JMFe by c.3%. Growth was mainly driven by order volume which improved 13.8% YoY whereas AOV has declined by 0.5% YoY. The moderation in growth was mainly due to 1) slowdown in offline business (which grew only 5% YoY in 4Q) 2) truncated winter resulting in lower winter wear sales 3) closure of 38 COCO stores in Q3FY25. Revenue stood at INR 13.4bn, 11.5% YoY growth. Management continues to focus on multi-channel strategy as 38% of GMV generated in top 20 cities is from cross-channel customers, transacting both online & offline. We also believe that moats for FirstCry remain intact with BabyHug being the largest childcare brand in the country and private labels accounting for c.55% of the GMV. Adjusted EBITDA margin saw a rise of just 40bps YoY to reach 9.3% due to lower operating leverage. Management aims for steady state Adj. EBITDA margin in late-teens though the timeline for this goal is yet not specified.

* Profitable growth the key focus in International segment: International segment saw a GMV growth of 16.4% YoY (-24.5% QoQ), a miss of c.4% on JMFe. Revenue stood at INR 2.1bn, +11.2% YoY (-21.4% QoQ). Higher promotional activity by two new entrants has impacted growth. Management noted that they opted not to match discounts, focusing instead on sustainable growth and margin improvement. Adjusted EBITDA margin declined 100bps YoY (-20bps QoQ) to reach -14.9%. While the near-term competitive environment remains uncertain, management believes its existing moats (brand strength, customer trust, and network effects) will sustain its long-term positioning. Management noted that it will continue to focus on improving profitability by increasing home brands penetration and peak losses are now behind.

* GlobalBees delivers robust growth led by ‘core’ brands: GlobalBees experienced strong revenue growth of 33.4% YoY (-5.6% QoQ) to reach INR 4.0bn. Profitability improved with Adj. EBITDA margin improving 100bps YoY with Adj. EBITDA reaching INR 30mn. Management has deliberately reduced category share of other brands and focuses on core categories (Home improvement & Utilities, Home Appliances, Home & Personal Care, Active, Lifestyle & Accessories), which have grown significantly faster than overall segment. Adj. EBITDA from core brands has been at ~7.5% while other brands are at - 31% in FY25. Others segment, which primarily includes Education, delivered INR 109mn in revenue, 10.1% YoY (+3.7% QoQ) growth. As of 4QFY25, FirstCry has 363 active franchisee pre-schools across 160 cities with ~18.5k students enrolled.

* Margin and profitability: In 4QFY25, gross margin (GM) improved to 37.5%, 80bps YoY (+50bps QoQ) improvement. Growth was supported by an increase in home brands in overall mix, increase in share of Kids & Babies Fashion in GMV and rising home brand and 3 rd party margins due to economies of scale. Adj. EBITDA margin improved 20bps YoY (- 120bps QoQ) to 5.2%. As a result, Adj. EBITDA stood at ~INR 1bn in 4Q (19.9% YoY/- 27.4% QoQ). Margin improvement was lower than GM expansion as revenue mix has shifted towards GlobalBees, which is a lower margin business vs India Multi-channel business. Management noted that India Multi-channel is yet to reach its steady-state EBITDA margin, and margin expansion will continue over the next 4-5 years with aspiration of achieving late-teens margin.

* Maintain ‘BUY’ with reduced Mar’26 TP of INR 488 (INR 510 earlier): We lower revenue estimates marginally (0-1% over FY26-29E) considering drag from International business and lower growth in H2FY25 in IMC business. We expect recovery in India Multi-channel in FY26 with revenue growth of 17.7% (vs 15.3% in FY25). Resulting operating deleverage results in Adj. EBITDA dropping by 1-3%. We reduce margin estimates slightly to account for increased competitive intensity in International business. We expect the company to deliver c.18% revenue growth over FY25-30, while Adj. EBITDA CAGR would be ~41%, driven by sustained margin expansion across segments. We value India Multichannel / GlobalBees Brands / Others at 35x / 30x /20x FY27E Pre Ind AS Adj. EBITDA while lowering International segment multiple to 1.5x FY27E Sales, resulting in reduced Mar’26 TP of INR 488. We recommend ‘BUY’.

* India Multi-Channel remains significantly undervalued for a 20%+ compounding play: While FY25 was undoubtedly a tough year for FirstCry, its IMC segment still managed to deliver Adj. EBITDA growth of 24%. With growth recovery likely in FY26 onwards, we expect the segment to deliver 3-year EBITDA CAGR of c.28%. As shown in Exhibit 1, at CMP, IMC only implies 27.3x Pre IndAS Adj. EBITDA multiple, significantly lower than traditional retailers with lower growth and minimal margin expansion potential. Hence, the slightest hint of growth recovery could be a significant re-rating event for FirstCry.

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