BYJU’S hoping to finalise up to $500 million round in April, plans Aakash IPO in 12 months to ride out storm (2024)

Edtech major BYJU’S is in final talks to raise $250 to $500 million in funding at a flat valuation of $22 billion, amid pressure to put a lid on rising costs, turn profitable and repay its $1.2 billion term loan.

While there are big concerns around the valuation of the edtech giant, an insider tells CNBC-TV18 that the company will close the round by the end of this month and this would not be a “down round”, indicating that valuations will hold even though there are significant headwinds facing the company and the sector.

Sources also told CNBC-TV18, BYJU’S is in talks with three investors. While two investors are looking for a straight equity round, the third would like to explore a convertible round.

Generally, no specific valuation is assigned to a company when funds are raised through convertible notes. Instead, participating investors receive a discount on the valuation when the company conducts its next equity funding round or experiences a liquidity event, such as an initial public offering.

Remember, according to multiple reports BYJU’S was seeking to refinance its $1.2 billion loan at a higher rate, a development linked to the delays in publishing FY21 and FY22 results, which led lenders to recall the loans. The company refused to comment on the loan claiming, “The $1.2 billion loan matures in 2026 and we have a healthy cash flow to be able to meet all our interest obligations in a timely manner.”

The firm which has about a billion dollars in cash, claims it will turn net cash positive with this round, a source told CNBC-TV18.

Who Has The Money?

As the company races to close its new funding round, here’s a quick look at BYJU’S investors.

The company boasts a marquee roster of over 70 investors. From the Chan- Zuckerberg Initiative to Sequoia Capital India, General Atlantic, BOND, Silverlake, Blackrock, Verlinvest, Naspers, Tencent, CPPIB, Tiger Global, Qatar Investment Authority and Lightspeed Ventures amongst others. These investors have pumped almost $6 billion into BYJU’S.

Asset manager, BlackRock, which has a stake of less than 1% in BYJU'S, reduced its investment value by almost 50%, as per reports.

BlackRock's per-share value estimation for BYJU'S stood at $2,400 at the end of December 2022, down from $4,600 in April 2021. As a result, the company's valuation currently stands at just over $11 billion.

Also remember, while BYJU'S still claims it is valued at $22 billion, Naspers last year in November valued the company at $578 million.

Interestingly, BYJU’S has claimed that not one of its over 70 investors has sought an exit. Byju Raveendran says he has infused $650 million so far to increase ownership and is the company’s largest shareholder.

Each time CNBC-TV18 has reached out to BYJU’S investors they have refrained from commenting.

The edtech industry is nervous. “(If BYJU’S fails) the industry will go back by 10 years and can forget funding for the next three years,” says one edtech executive, requesting anonymity.

Aakash IPO On The Anvil?

A BYJU'S insider also revealed that Aakash Educational Services would hit the public markets in the next 12 months. The company has received board approval and is in the process of finalising bankers for the public offer.

A source close to the board told CNBC-TV18, they are confident of the prospects, “Not worried about the environment for Aakash IPO as it is a market leader and has proven credentials. We are seeing 55% YoY growth and have seen 3X growth in margins, revenue and profit.”

BYJU'S acquired Aakash Educational Services in April 2020 for nearly $1 billion in a cash and stock deal. Aakash is the market leader in test preparation in India. The acquisition sought to expand BYJU'S presence in the test preparation market and provide a wider range of services to students.

However, the market is not as confident. An investor who did not want to be named told CNBC-TV18 that “the word on the street is that there is a lack of credibility.”

According to a Bloomberg report in November last year, BYJU’S was looking to raise a billion dollars when it takes Akash public, valuing the firm at $3.5 billion to $4 billion. The company refused to share the current valuation of Aakash or comment on the size of the IPO.

CNBC-TV18 has also learnt that the parent company Think & Learn could list in India or abroad, but that IPO will only be planned after Aakash goes public and not before FY25.

When we reached out to BYJU’S, a company spokesperson told us, “In keeping with our commitment to transparency, we can tell you that we are actively working on taking Aakash public. We believe that the listing will not only offer an opportunity for investors to participate in the growth story of Aakash and BYJU'S but will also score a big win for India’s education ecosystem.”

Setting The House In Order

In what can be seen as preparing BYJU’S for its next level of growth, earlier this week, BYJU'S announced a new CFO at the group level. The company so far did not have a Chief Financial Officer, finance heads were in charge of various verticals.

Former Vedanta executive, Ajay Goel has joined as Chief Financial Officer. “As CFO, Goel will be responsible for overseeing financial strategy and management for BYJU’S. He will work closely with the founders and the senior leadership on strategy development, capital planning, and financial analysis,” the company said in a statement.

Ajay Goel surely has his work cut out for him, and it's for all to see how he takes BYJU’S on the path to profitability.

Talking about financials, while FY22 earnings are still awaited, BYJU'S had reported a net loss of Rs 2,702.14 crore in FY21 on a standalone basis, against a profit of Rs 7.39 crore a year earlier, as per Ministry of Corporate Affairs (MCA) flings. Revenue from operations dropped to Rs 1,378.51 crore from Rs 1,918.25 crore a year earlier, the filings showed.

On a consolidated basis, the company readjusted its standalone numbers due to a change in its revenue recognition system as advised by auditor Deloitte. According to the company’s FY20 filings accessed by Moneycontrol, the company had generated revenue from operations of Rs 2,110 crore in FY20. It was adjusted to Rs 1,918.25 crore. Profit for FY20 according to its FY20 filings was Rs 50.76 crore, which was adjusted to Rs 7.39 crore.

The Cost Of Glamour, Has It Paid Off?

Losses add up as mega marketing and branding campaigns have clearly come at a cost!

As per regulatory filings, the company spent more than Rs 2,500 crore on advertising and marketing in FY21. In 2022, as per media reports, they spent $40 million (Rs 330 crores) to become the official sponsor of the FIFA World Cup and signed star footballer Lionel Messi as its global brand ambassador.

On top of all this, BYJU’S also backed India’s men’s and women’s cricket world cup tournaments and its logo is on the national cricket team’s jerseys. The venture also spent over $40 million for a foothold in developing markets like Mexico & Brazil.

There is no proof today that it worked!

Byju Raveendran in January told CNBC-TV18 that it has cut down on branding initiatives and will not renew further contracts. The company also said, 60% of marketing costs were spent on branding.

The company now seems confident that the worst is over, an insider told CNBC-TV18 that the core business is close to break-even and the company’s subsidiaries are also nearing net positive revenues.

As per a company insider, BYJU’S is growing at 35%-40% YoY, Aakash at 55%-60% YoY and Great Learning growing 40-45% YoY and claimed that unique visitors are far ahead of the competition.

BYJU’S 2.0

While the pandemic was a period of hypergrowth, 2022 asked for course correction.

As for BYJU'S 2.0, the venture claims it had made several changes to its business model, including addressing mis-selling and improving the user experience. The firm says, it has optimised loss-making businesses like White Hat Junior and even trimmed 5% of its workforce.

“This phase will see BYJU’S expand its business in a sustainable way, while also improving its profitability and competitive positioning,” the firm said.

The company now seeks to, “prioritise the hybrid learning model by utilising advanced AI technology, investing in efficient growth, introducing new products for both current and potential customers, and automating sales processes. This will also include implementing sales audits to eliminate instances of mis-selling entirely.”

Amid rising criticism over the edtech giant's aggressive sales strategies, the company said it has revamped its sales model, “implementing a four-tier internal sales process that is entirely remote and includes a centralised tech-driven audit system. This process ensures that all sales are triple-checked, replacing our previous direct sales program.”

The Achilles Heel

Coding platform WhiteHat Jr remains the Achilles heel of the BYJU’S empire.

Acquired in 2020 for $300 million, the once promising coding business quickly turned into its biggest problem. WhiteHat Jr posted Rs 1,690 cr loss in FY21.

As BYJU’S optimises WhiteHat Jr for organic and efficient growth, the company says it has no plans to shut down the company, it clarified, “WhiteHat Jr is not being shut down, nor is it a ‘collateral’ in our loan arrangement.”

In fact, the insider told us that all new users in WhiteHat Jr are being acquired at net unit economic positive.

Family Jewels Not For Sale?

CNBC-TV18 had picked up chatter from the street that BYJU’S was looking to sell Great Learning, its global edtech company for higher and professional education, and US-based, kid's digital reading platform, Epic.

The company has denied the rumours, saying, “BYJU'S is not holding active discussions for the sale of any of its subsidiaries. Our subsidiaries play a key role in this strategy, and we remain fully committed to their success. While we remain open to exploring potential partnerships and collaborations that could further enhance our business, any suggestion that we are actively considering the sale of our subsidiaries is simply not accurate.”

Firing & Hiring

In February this year, BYJU'S reportedly laid off over 1,000 employees, the second layoff in the edtech major in less than six months. The downsizing affected employees from the design, production and engineering departments.

Over 2,500 employees, or about 5 percent of the company's staff across departments, were let go in October of last year in an effort to cut "redundancies" and achieve profitability for the current fiscal year FY23 (2022-23).

CNBC-TV18 learns that BYJU’S in the last 2-3 months has hired 2,500 people and will continue to hire in growth businesses. The company insider also tells us there will be no more layoffs.

BYJU'S is not the only edtech that has laid off its workforce.

Last week edtech giant Unacademy sacked 12% of its workforce citing cost pressures. Remember, the company had trimmed 10% of its employees in November.

“We have taken every step in the right direction to make our core business profitable, yet it’s not enough. We have to go further, we have to go deeper. Unfortunately, this has led me to take another difficult decision. We will be reducing the size of our team by 12% to ensure that we can meet the goals we are chasing in the current realities we face. I did not anticipate I would have to do this again, and I’m very sorry,” Co-founder, Gaurav Munjal said in an email to his team.

It is clear that the current slowdown in funding has made it difficult for companies to scale up their operations, develop new products, and expand their reach especially as the era of easy money is over!

The Road Ahead

So, what lies ahead for India’s most valued edtech startup? It’s the US business where the company’s energies are now focused on, as it is the second largest market for the edtech giant. As the current global market environment pares valuations for startups, the source claimed, BYJU’S will scout for interesting consolidation opportunities in the US in the next 12 months.

Even as BYJU’S turns its attention to the global arena, the market back home is keenly waiting for it to release its financial report that could, as the company claims, put all rumours to rest.