BENGALURU: The year 2023 has not turned up well for Indian start-ups – none more so than Byju’s, the marquee name in the Indian start-up and Unicorn space. The edtech company, which was not so long ago seen as a testament to the success of India’s start-up ecosystem, has seen it all during the year –investigation for FEMA violation, large-scale layoffs, defaults and mass exodus at the top.
And as the year draws to a close, the Byju Raveendran-founded firm is now facing a new challenge – the Board of Control for Cricket in India (BCCI) filing an insolvency petition against the erstwhile sponsor of Indian cricket team. Though every now and then founder Byju Raveendran held shareholders meetings and took steps to keep employee morale up, edtech experts and analysts say these challenges show sheer inability in reading the situation and taking timely corrective action and cutting the cash drain.
On December 5, about 50 leaders attended an interactive leadership huddle and Byju Raveendran himself discussed five challenges that the company faced in 2023. We list here the five challenges faced by the company.
Litigation over Term Loan B
The firm secured a $1.2 billion term loan in November 2021. It went on an acquisition spree and lenders have been demanding for a full refund. This challenge, according to Byju Raveendran, could be resolved post the sale of Epic, a subsidiary of Byju’s in the US.
Byju’s has been trying to sell US-based digital reading platform Epic that it acquired in July 2021 for $500 million. Previously the company had acquired Osmo for $120 million, WhiteHat Jr for $300 million, Aakash for about $1 billion. It also plans to sell Great Learning, a professional learning platform that it acquired for about $600 million. According to Tracxn, the company has made 19 acquisitions so far and nine acquisitions in 2021 alone.
“As a keen observer of Byju’s, I was unable to understand the strategic intent behind their acquisitions. For example, the company was built for disrupting classroom teaching and making high quality coaching possible to a wider audience through online. If this was the core business purpose, it baffles me when Byju’s buys out Aakash,” says Ganesh Mahadevan, Partner, Thinksynq.
This exact business is what Byju’s was going after originally. Did they do it because their core business was not gaining traction or they just wanted to build a topline quickly by buying out the large legacy player. If it is the former then the very purpose for which Byju’s was built is shaking and if it is the latter, lazy short-term thinking,” adds Mahadevan.
Delay in FY22 financials
After repeated delays in filings its FY22 results with the Ministry of Corporate Affairs (MCA), edtech company Byju’s last month reported an EBITDA loss of the core business to Rs 2,253 crore y-o-y in FY22, about 6% lower than Rs 2,406 crore loss it posted in the previous year. However, only during the recent Annual General Meeting, its FY22 earnings were approved. BDO was reappointed as the statutory auditors of the company.
In June, its auditor- Deloitte Haskins & Sells, the biggest audit firm, exited with immediate effect due to the delay in the filing of FY22 financial results. Byju’s immediately announced the appointment of BDO (MSKA & Associates) as statutory auditors for the year commencing from FY22 for the next five years.
Byju Raveendran pledged his properties to raise funds to pay staff salaries.
Anil Joshi, Managing Partner, Unicorn India Ventures, says, the edtech sector is currently going through a challenging phase mainly due to the drop in online adoption model and revenue. “Low interest from investors is resulting in cash flow issues for growing companies with higher burn. Though there is potential in the model but needs to evolve post normalcy in the education sector post pandemic,” Joshi adds.
ED notice
Recently, the Enforcement Directorate (ED) issued a show-cause notice to Byju’s in relation to FEMA (Foreign Exchange Management Act) violations. According to Byju’s, the notice was related to procedural deficiencies under FEMA and that most of these issues have already been addressed.The federal probe agency had initiated investigation on the basis of various complaints regarding the foreign investment received by the company Think and Learn Private Limited and the business conduct of the company.
Davidson Kempner loan
The family office of Ranjan Pai, Manipal Education and Medical Group Chairman, invested Rs 1,400 crore in the edtech firm’s subsidiary Aakash Education Services to clear its debt to Davidson Kempner. In structured debt in May, Kempner had provided the edtech company with $250 million, but it withheld about $100 million due to the crisis in Byju’s. Byju Raveendran said Aakash is now set for a record-breaking admissions season.
In June, Byju’s announced that it will launch the Initial Public Offering (IPO) of its subsidiary, Aakash Education Services Limited (AESL) mid next year. It had said that AESL’s revenue was on track to reach Rs 4,000 crore with an EBITDA of Rs 900 crore in the fiscal year 2023-24. With over 325 centres, Aakash serves over 400,000 students across the country.
Resource optimisation
One of the challenges of the edtech company is the need to tackle resource optimisations to achieve profitability at the group level. After taking over as the India CEO of the edtech firm in September, Arjun Mohan started a business restructuring exercise to simplify operating structures, reduce the cost base and better cash flow management.
The edtech firm is now focusing on Byju’s 3.0, which is about deep tech driven personalisation with the right approach and accountability to sales. The company has been laying off many employees, and in September, as part of its restructuring exercise under Arjun Mohan, it started firing about 4,000 employees. Gaurav VK Singhvi, co-founder of We Founder Circle, says the next two quarters might still be bit bumpy for edtech sector. “However, come April 2024, we are gearing up for a positive turnaround in the world of edtech. While we brace ourselves for a short-term dip, the horizon is painted with the colours of growth and resurgence,”he adds.
Not yet out of the wood