Byju’s financials are to get probed by ICAI as requested by Karti P Chidambaram.
Nearly 81% of Byju’s operating revenue for FY2021 is derived from selling products such as tablets, SD cards, and laptops, which is a blatant misrepresentation of facts to classify the hardware as edutech.
Karti P Chidambaram, a Member of Parliament, said on Friday that he had written a letter to the Institute of Chartered Accountants of India (ICAI) urging it to investigate the edtech giant Byju’s financial statements.
Chidambaram stated in a letter to ICAI President Dr. Debashis Mitra that Byju’s released FY21 results after an 18-month delay, nearly missing four deadlines. Under ICAI, the Financial Reporting Review Board (FRRB) has the authority to review general-purpose financial statements of enterprises and auditor’s reports on which media reports have highlighted serious accounting irregularities.
“I’d like to draw your attention to a few red flags in Byju’s financials for FY2021. It’s perplexing to figure out how Byju’s makes money and where it spends it. “Sale of edtech products” accounts for nearly 81% of its operating revenue for FY2021, according to Chidambaram’s letter, which he posted on Twitter. “This includes tablet, SD card, and laptop sales.” Isn’t it a blatant misrepresentation of facts for an edtech company to classify the hardware as edutech?”
They recently announced plans to lay off nearly 2,500 employees, or 5% of its 50,000 workforce, as part of an “optimization” plan.
“In light of the issues mentioned earlier, it is clear that this company is not in good financial health,” Chidambaram said. “I urge ICAI to review it’s financial statements in the interest of consumers and employees.”
On the expense front, Chidambaram stated that 60% of employee costs had been recognized as capital expenses rather than operational costs. He claimed that if these costs had been counted as a direct expense rather than a capital expense, It’s total loss for FY 2021 would have exceeded Rs 5,000 crore. “Such irregular accounting practices do not provide a clear picture of the income, expenses, and losses,” Chidambaram claimed.
According to the firm’s latest financial report, which was released last month, It recorded a loss of Rs 4,588 crore for the fiscal year that ended March 31, 2021, which was 19 times greater than the previous year. In FY21, the edtech behemoth, which was last valued at $22 billion, earned Rs 2,428 crore in revenue. In FY20, its adjusted revenue was Rs 2,511 crore, and its adjusted loss was Rs 300 crore.
Chidambaram stated that previously, it recognized revenues from streaming services’ in full and upfront at the start of a contract. However, according to him, it is standard practice that subscription revenues cannot be recognized upfront and must be recognized throughout the service’s delivery. “It justifies opening up it’s previous financial statements as well,” Chidambaram said.
However, the company had stated that it did not meet three or four self-imposed deadlines for announcing its results, allegedly because its auditor was not signing off on the accounts. In addition, it stated that the audit firm, Deloitte Haskins & Sells, had issued an unqualified report on the FY21 figures.
Even as the company prepares to lay off nearly 2,500 employees, or 5% of its workforce, as part of a “optimization” plan, the company has announced a hiring spree. It intends to hire 10,000 additional teachers in the next six months, bringing the total number of teachers to 20,000.
Byju Raveendran, founder, and CEO of the company, recently informed employees that the company has begun to shift its focus toward profitable growth. He stated that the firm’s FY22 revenue was nearly Rs 10,000 crore, or $1.3 billion, and that revenue of $2 billion was within sight. “This means we are now a billion-dollar-plus revenue company,” Raveendran wrote in a letter to employees.
Concerns about the costs of Byju’s
The letter also expressed concern about Byju’s expenses, where the company classified 60% of employee costs as capital rather than operational costs. “If their costs had been treated as a direct expense rather than a capital expense, Byju’s total loss for FY2021 would have exceeded 5,000 crore.” Such erratic accounting practices fail to provide a clear picture of Byju’s income, expenses, and losses,” Chidambaram wrote.
Byju’s stated in its FY21 financials that it previously recognized revenues from streaming services upfront and in full, at the start of a contract. According to Chidambaram’s letter, this is a reason to open Byju’s old financials as well.
“It is standard accounting practice that subscription revenue cannot be recognized upfront and must be recognized over the course of service delivery.” It justifies the release of Byju’s previous financial statements as well,” he said.
Byju’s announced earlier this week that it will lay off nearly 2,500 employees as it merges four of its acquired companies, including Toppr, Meritnation, TutorVista, Scholar, and HashLearn. Mrinal Mohit, CEO of BYJU’s India business, stated that these measures will assist the company in achieving profitability by March 2023.
“Given the aforementioned issues, it is clear that the company is not in good financial health.” In the best interests of the customers and the employees of the company. “I request that the ICAI review Byju’s financial statement,” Chidambaram concluded.
In June, Byju’s laid off approximately 500 people across Whitehat Jr. and Toppr in order to realign its business priorities and accelerate long-term growth. Byju’s reported a 20x increase in losses in FY21 in September. Byju’s did not respond to this story until the time of publication.
Byju’s expands its funding round by $250 million.
Byju’s, an edtech unicorn, has announced a new $250 million fundraising round from existing investors, including Qatar’s sovereign wealth fund, Qatar Investment Authority (QIA).
According to a source close to the situation, the round was completed at the company’s previous valuation of $22 billion. Byju Raveendran, Founder and CEO of Byju’s, commented on the development, saying, “Byju’s is now at that sweet spot of its growth story where the unit economics and economies of scale both favor it.” This means that the capital we are now investing in our company will result in profitable growth and long-term social impact.”
Regardless of the adverse macroeconomic conditions, he believes that 2022-23 will be Byju’s best year in terms of revenue, growth, and profitability. The company previously stated that its gross unaudited revenue for FY22 is close to 10,000 crore, but it is now projecting 15,000 crore revenue in FY23, along with improved margins.
Byju’s reported gross revenue of 2,428 crores in FY21, but losses ballooned to 4,588 crores, nearly 20 times the 231 crore loss reported in FY20. The increase in losses was attributed to changes in revenue recognition at the company.
Byju’s intends to achieve group-level profitability by March 2023 through a three-pronged strategy. It combines all of its K10 India subsidiaries into a single entity to capitalize on synergies. Aakash Education and Great Learning will continue to operate as independent test prep and upskilling units. Furthermore, Byju’s marketing budget will be redirected to its international markets. The organization is also beefing up its inside sales team.
Byju’s will lay off 2,500 workers as a result of a greater emphasis on profitability. Byju’s also laid off around 500 people in June across Whitehat Jr. and Toppr to realign its business priorities and accelerate long-term growth.
Byju’s launched its hybrid learning offering Byju’s Tuition Centre (BTC) in 2022, in accordance with its long-term strategic plan. There are currently 250+ active BTCs across India, and the company plans to expand to 500 centers by the end of this fiscal year. The Chan-Zuckerberg Initiative, Naspers, CPPIB, General Atlantic, Tencent, Sequoia Capital, Sofina, Verlinvest, IFC, Aarin Capital, TimesInternet, Lightspeed Ventures, Tiger Global, Owl Ventures, and Qatar Investment Authority have all backed Byju’s.
edited and proofread by nikita sharma
