After 22-Month Financial Silence, Byju’s, Former Unicorn Takes Drastic Measures, Slashes Valuation By 90% In Fundraising Bid

After a 22-month hiatus, Byju’s, once hailed as a unicorn, has finally submitted its FY22 financials to the Ministry of Corporate Affairs (MCA).

Moreover, the troubled edtech startup, Byju’s, is planning to drastically reduce its valuation by over 90% from its previous round to secure fresh funds and address its financial challenges.

Formerly ranked among the world’s most valuable startups, Byju’s aims to raise over $100 million from existing investors through a new share issuance slated for February 2024. 

The proposed valuation places the company at less than $2 billion, marking a stark 90% decrease from its $22 billion valuation in the late 2022 funding round, as reported by Bloomberg, citing individuals familiar with the matter. 

Byju Raveendran, the founder, is set to participate in the share sale to maintain his stake, according to anonymous sources in the report. The funds generated from the share sale are expected to be utilized for vendor payments and business stabilization.

The Fall Of Byju’s

Byju’s has been grappling with a financial crunch for several months, compounded by challenges in venture capital funding and a decline in demand for online learning following the COVID-19 pandemic.

Founder Raveendran has long been confronting difficulties in sustaining the company amidst financial pressures. Byju’s is currently in the process of selling its US-based kids’ digital reading platform for approximately $400 million and is entangled in a legal dispute with creditors over a missed interest payment on a $1.2 billion term loan.

Global investment firm BlackRock has significantly devalued Byju’s to $1 billion, witnessing a substantial drop from the $22 billion valuation in early 2022. 

Likewise, Tech investor Prosus has also reduced the value of its stake in the firm to below $3 billion, an 86% reduction from the previous valuation.

Byju’s, formerly known as Think & Learn Pvt and backed by the Chan Zuckerberg Initiative, General Atlantic, and Prosus NV, had previously raised substantial funds for a global acquisition spree before encountering challenges amid a worldwide tech funding downturn. 

According to the report’s sources, several shareholders are expected to participate in the upcoming share sale.

Byju’s Reveals FY22 Financials After Prolonged Delay

Byju’s finally submitted its financial results for the fiscal year 2022 on Tuesday, marking the end of a nearly 22-month gap since the reporting period concluded. 

The disclosed FY22 financials unveiled a notable surge in consolidated revenue, witnessing a 118% increase from Rs 2,428 crore in FY21 to Rs 5,298 crore in FY22. At the same time, losses experienced a significant spike, rising from Rs 4,564 crore in FY21 to Rs 8,245 crore in FY22.

Revenue Breakdown and Export Insights

The financial data for FY22 showcased that a substantial 69% of Byju’s operating revenue, amounting to Rs 3,464 crore out of Rs 5,014 crore, originated from domestic sales, with the remainder attributed to exports.

In a noteworthy disclosure, the auditor for Byju’s in its FY22 financial report expressed concerns about the company’s ability to continue as a going concern. The auditor highlighted the material uncertainty arising from substantial losses and a looming $1.2 billion loan.

However, despite the challenges outlined by the auditor, Byju’s India Chief Financial Officer Nitin Golani emphasized the company’s proactive measures. 

He pointed to a section in the auditor’s opinion that acknowledged the management’s efforts to enhance the company’s financial condition, secure the necessary funding, and explore asset sales and expressed confidence in the future viability of the firm.

Auditor’s Perspective and Unqualified Report

The auditor, MSKA & Associates, the audit arm of BDO Global, acknowledged the ongoing concerns but concluded that Byju’s continued to be a going concern in FY22. 

The auditor issued an unqualified or unmodified report for the fiscal year, indicating no major issues that would cast doubt on the company’s financial standing.

Legal Opinion and Ongoing Concern Status

Based on a legal opinion and management’s view that the term loan B is unlikely to be required to be paid in the foreseeable future, the auditor deemed Byju’s as an ongoing concern with a disclaimer, according to Jidesh Kumar, Managing Partner at King Stubb & Kasiva Advocates and Attorneys, a corporate law firm.

Auditor’s Assessment and Going Concern Status

The auditor, in an independent evaluation, initially expressed doubt about Byju’s ability to continue as an ongoing concern. However, upon receiving a legal opinion from the company asserting that immediate loan repayments were unnecessary, the auditor issued a report categorizing Byju’s as a going concern, albeit with a disclaimer, according to statements by Kumar. 

The potential impact on the company, as highlighted by Kumar, primarily revolves around its ability to secure debt, influenced by the auditor’s report.

Assessment Criteria and Auditors’ Role

Kumar pointed out that various indicators, including regulatory dues, debt management, repayment schedules, taxes, and salaries, likely factored into the auditors’ assessment. 

He emphasized that if substantial doubt arises based on evidence, management is obligated to present plans addressing the causes of doubt. The auditors, after thorough consideration, then determine the persistence of substantial doubt.

Byju’s Fundraising Efforts and Financial Performance

According to a Bloomberg report, Byju’s has approached existing investors to raise $100 million at a valuation of $2 billion, significantly lower than its peak valuation of $22 billion. 

Byju’s responded, stating efforts to reduce losses and two acquisitions in 2022-23. CFO Nitin Golani highlighted the company’s move away from further investments in underperforming entities like WhiteHat Jr. and Osmo.

Performance of Acquired Entities and Financial Results Outlook

Whitehat Jr., acquired for about $300 million in 2020, reported substantial losses in FY22, contributing significantly to Byju’s overall losses. 

Osmo, acquired in 2019 for around $120 million, experienced a drop in revenue and a substantial increase in pre-tax losses in FY22. 

Golani anticipates improved margins in the upcoming FY22-23 results, emphasizing the company’s focus on profitability.

Challenges Faced and Ongoing Struggles

The financial filings come amid a prolonged dispute with lenders following technical defaults; Byju’s ceased interest payments on loans since June, attempting negotiations for repayments. 

The company, once India’s most-valued startup, is now grappling with challenges such as fundraising difficulties, payroll obligations, and managing a debt exceeding a billion dollars.

Management Changes and Investor Criticisms

Key personnel changes, including the departure of CFO Ajay Goel, the exit of auditor Deloitte, and the departure of board members, have marked Byju’s recent challenges. 

Public criticism from investor Prosus in July cited inadequate disclosures and a disregard for investor advice; moreover, asset manager BlackRock recently reduced its valuation of Byju’s by approximately 95% to $1 billion.

Delayed Financial Disclosure and Financial Struggles

Almost two years after the FY22 reporting period, Byju’s finally discloses its financial situation for that fiscal year. 

Despite losses nearing $1 billion in FY22, amounting to INR 8,245 crore, the company has faced even more challenging times, emphasizing the gravity of its financial struggles.

Overview of BYJU’S Challenges in the Past 24 Months

Over the past nearly 24 months, we have observed and reported on a series of challenges faced by BYJU’S, including-

1. Financial Disputes and Resignations-

• A significant dispute with lenders over the $1.2 billion Term Loan B obtained by Byju’s Alpha Inc, a US-based subsidiary.
• Representatives from three key investors stepping down from the company’s board.
• Deloitte resigning as the auditor before the completion of its term.

2. Regulatory Issues and Violations-

• Show cause notices from the Enforcement Directorate for violations amounting to INR 9,300 crore+.
• Dispute over the $1 billion acquisition of Aakash Educational Services, resulting in public conflicts and discussions about a potential sale to settle dues.

3. Legal Challenges and Leadership Changes –

• High-profile insolvency court case filed by BCCI for INR 158 crore in overdue payments.
• Exodus of top-level personnel and restructuring of the India business under the leadership of new CEO Arjun Mohan.
• Pressure on co-founder and group CEO Byju Raveendran to step down and relinquish control.

4. FY22 Financials and Auditor’s Concerns –

• The opening pages of FY22 financials and auditor notes reveal a multitude of red flags.
• Five separate violations of sections of the Companies Act, 2013, and instances of statutory dues and bad loans to subsidiaries.

Auditor’s Assessment and Going Concern Status –

• The auditor highlights key adverse financial parameters as of March 2022, including continuing net losses, accumulated losses, and uncertainty related to litigation with Term Loan B lenders.
• The auditor expresses concern about the group’s ability to continue as a going concern, citing material uncertainty.

Challenges and Survival Concerns –

• Despite management’s measures to improve financial conditions and explore funding and asset sales, doubts persist about BYJU’S sustained survival based on the pace set in FY22.

Complexities with Dues and Receivables –

• BYJU’S faces complexities in recovering dues, with a substantial amount (nearly INR 3,800 crore) pending at the end of FY22.
• Dues primarily from subsidiaries, such as Toppr and WhiteHat Jr., raise concerns due to their significant borrowings from the parent.

Statutory Dues and Compliance Issues –

• Potential statutory dues owed to tax authorities and for provident fund payments.
• Possibility of dues for violations of sections of the Companies Act, 2013, adds to the regulatory challenges faced by the company

BYJU’S Faces Challenges Due to Loss-Making Subsidiaries

Commencing with the smallest loan repayment obligation from a subsidiary, BYJU’S parent company, Think & Learn Private Limited, acquired Mumbai-based Toppr for a reported $150 million in July 2021. 

Since the acquisition, Toppr has borrowed over INR 280 crore from Think & Learn. As of March 31, 2022, an amount of INR 53.13 crore, comprising the principal and interest, remains unpaid by Toppr for 204 days. 

The auditor notes non-compliance with repayment terms and irregular interest payments from Toppr to the parent company; Toppr is in arrears of over INR 50 crore.

In addition to this, Think & Learn extended a loan of INR 233 crore to Toppr, violating Section 185 of the Companies Act, 2013, which necessitates the passing of a shareholders’ resolution before loan disbursement. 

However, the requisite resolution was only passed in July 2022, almost a year after the acquisition of Toppr.

BYJU’S, in an expansive acquisition phase in 2021, procured 10 companies, the majority of which continue to operate at a loss.

Section 185 violations were also identified in loans provided to WhiteHat Jr and Grade Stack Learning Private Limited, the parent company of GradeUp.

In the fiscal year 2022, BYJU’S extended a loan of INR 2,526.40 crore to WhiteHat Jr, with an outstanding amount of INR 1,735.05 crore as of March 31, 2022. 

GradeUp borrowed INR 96 crore from BYJU’S during the fiscal year, with the entire sum due at the conclusion of FY22.

The Last Bit, As BYJU’S manages financial challenges, the strain imposed by loss-making subsidiaries becomes increasingly evident. 

The outstanding loans, violations of regulatory frameworks, and delayed resolutions paint a complex picture for the edtech giant. 

The lingering uncertainties about the group’s ability to sustain itself as a going concern pose substantial hurdles – financial intricacies, as revealed by auditors, stress the need for strategic decisions and comprehensive solutions to ensure BYJU’S can overcome its financial woes and regain stability in the ed-tech sector.