Inviting a storm of criticism and even rebuke from the government due to a delay in reporting its results, India’s most-valuable unlisted start-up, BYJU’S, finally declared its audited results for FY21 after an 18-month delay, on September 14, 2022. What followed was an eventful week of scrutiny of its financials and corporate governance practices.
BYJU’S parent, Think & Learn Pvt. Ltd, saw its consolidated losses widen by nearly 20 times to Rs 4,588.75 crore in FY21 from Rs 231.69 crore in FY20. Revenues from operations grew marginally to Rs 2,280.26 crore in FY21 from Rs 2,189 crore in FY20. The firm attributed the subdued growth to a change in the way it recognises revenue, as advised by its audit firm Deloitte Haskins & Sells. Earlier, it used to recognise total revenues of streaming services at the beginning of multi-year subscriptions, which is now being booked over the period of consumption. Also, it now accounts for payment of instalments for loans availed by its customers after they have been made. As per the auditor’s note, these changes prevented the company from booking Rs 1,156 crore (of deferred payment) as revenue in FY21. BYJU’S came under criticism following revelations of its unusual accounting practices, with some expert saying that it reflects their lackadaisical commitment to strong governance standards. “The reason there is a governance gap is because companies define their own metrics, which makes it difficult for stakeholders to determine how well the company is doing. Financial metrics should help the stakeholders do an apple-to-apple comparison. BYJU’S needs to show that it is serious about corporate governance,” says Shriram Subramanian, Founder & MD of InGovern Research Services. For now, all eyes are on its FY22 results, the deadline for which is September 30. The Bengaluru-based start-up had recently teased its top line numbers, saying that it has accrued gross revenues of Rs 10,000 crore in FY22.
Though audited results are not out yet, the figure is a massive jump from its FY21 numbers. But, a majority of its gross revenues may come from acquisitions—like Aakash Educational Services, Great Learning, Epic and Toppr—that were closed in FY22. “In FY21, not much of the revenues from acquisitions have come in. I would estimate that they [BYJU’S] would do about Rs 6,500-7,500 crore next year [FY22] because some of the revenue would get referred to FY23. About 40-50 per cent of it will be from acquisitions,” says an edtech entrepreneur who wishes to remain anonymous. The company has made 11 acquisitions worth over $2.5 billion in CY21, of which the largest deal—of tutorial chain Aakash—had run into a controversy. The reason was the deferment of the payment of the final tranche of Rs 1,983 crore to Aakash’s investor Blackstone to September 23, 2022, from June 2022. Putting an end to speculations of further delay, BYJU’S cleared the dues on the day of the deadline. Though Founder and CEO Byju Raveendran had maintained that the company has enough money and the delay was merely procedural, industry observers had cited the tight cash situation at the company as the reason. “They sure have cash in the bank, but you also have to ensure a healthy runway these days. Also, the pending amount was not insignificant,” says an investor who wishes to remain anonymous.
Compounding the cash crunch is a missing $250-million investment, part of the $800-million funding round it had announced in March this year. While Raveendran had in fused $400 million in the round, a commitment of $250 million from Sumeru Ventures and Oxshott Capi tal has not materialised yet. BYJU’S had earlier said that the delay is due to “macroeconomic reasons”, but as per sources, there is no visibility yet on when the amount might turn up. That brings the focus back to fresh fundraising at a time when start-ups across the world are dealing with subdued investor appetite. And BYJU’S broadcast to investors has not been received well. As per sources BT spoke to, BYJU’S has held several rounds of talks with a number of investors from the Middle-East, including Abu Dhabi Investment Authority and Qatar Investment Authority, without much headway. Sources also say that earlier this year, it turned down an offer from one of the sovereign funds that offered to invest at a lower valuation than what it was valued at in its previous round.
It would be an uphill task for BYJU’S to raise a straight round (at the same valuation) in the current market as private investors are looking for greater downside protection. “If the company wants a mark-up on valuation in this market, it will have to take a structured round. Investors would ask for a 2-3x liquidation preference, or a guaranteed IRR. These are structures where the headline valuation is meaningless,” says a VC investor who wishes to remain anonymous. Moreover, at a recent media interaction, Raveendran said that the company would do a flat round, and then a converter round to give investors a 20 per cent IPO discount. In a convertible round, a company issues convertible notes for shortterm loans, which convert into equity during its next financial event. K. Ganesh, serial entrepreneur and promoter of start-ups such as bigbasket, Portea Medical, HomeLane and Bluestone, says that any form of funding is fine in this market, and BYJU’S has all the potential to address these issues. “Flat, down or convertible round, all of it is fine. Most companies go through such swings in valuations. Other than the last round’s investors who will see a temporary markdown, it bothers no one, just as the recent public market meltdown does not bother the company or damage its prospects,” he adds.
He goes on to say that BYJU’S is a great achievement not just for edtech but also for the Indian start-up sector and its scale, execution, impact, funding and valuation have been astounding. However, there are areas it needs to improve on so that the brand and growth do not get adversely impacted. He further says that given BYJU’S current scale and size, quality of investors, and past track record of execution, it will again come out on top after addressing these issues. BYJU’S, which saw its valuation rise to $22 billion in March 2022 from $8 billion in January 2020, seems to be taking a moment to breathe and reorient itself. As per Raveendran’s recent email to staff, the company is shifting its growth-at-all-cost strategy to focus more on profitability, something that a lot of start-ups are now beginning to work on. “Going forward in FY23 and beyond, we will combine growth with efficiency to ensure sustainability. The overall idea is to allocate resources effectively in order to maximise impact,” he wrote to employees. Is this a sign of the calm after a storm, or the beginning of a voyage into more choppy waters? With BYJU’S, one can never tell.
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