Daybreak - Another knockout punch for Byju's. This time from NBFCs

Episode Date: June 25, 2023

Starting April, major non-banking financial companies (NBFCs), including Avanse Financial Services, Aditya Birla Finance, and Fullerton India, which lend to Byju’s’ customers, suspended loans for the edtech. These play an important role in allowing Byju's to make its sales to its customers via zero-interest EMIs. With sales slowing down, the edtech desperately needs these financing options because its one year courses range from anything between Rs 20,000 to Rs 1.4 lakh. Not all its customers can afford to pay it all in one go. This is why Byju’s tied up with these NBFCs in the first place. But now that the non-banks have left the building, what is the ailing giant doing to survive?Tune in.Recommendations: Byju’s has one escape route  Indian lenders cut off Byju’s air supply by not lending to its usersDaybreak is produced from the newsroom of The Ken, India’s first subscriber-only business news platform. Subscribe for more exclusive, deeply-reported, and analytical business stories.

Hi, this is Rohan Dharma Kumar. If you've heard any of the Ken's podcasts, you've probably heard me, my interruptions, my analogies, and my contrarian takes on most topics. And you might rightly be wondering why am I interrupting this episode too. It's for a special announcement. For the last few months, I and Sita Raman Ganeshan, my colleague and the Ken's deputy editor, have been working on an ambitious new podcast. It's called Intermission.

We want to tell the secret sauce stories of India's greatest companies. Stories of how they were born, how they fought to survive, how they build their organizations and culture, how they manage to innovate and thrive over decades, and most importantly, how they're poised today. To do that, Sita and I have been reading books, poring over reports, going through financial statements, digging up archives, and talking to dozens of people. And if that wasn't enough, we also decided to throw in video into the mix. Yes, you heard that right. Intermission has also had to find its footing in the world of multi-camera shoots in professional studios, laborious editing, and extensive post-production.

Sita and I are still reeling from the intensity of our first studio recording. Intermission launches on March 23rd. To get alert, as soon as we release our first video. episode, please follow intermission on Spotify and Apple Podcast or subscribe to the Ken's YouTube channel. You can find all of the links at the ken.com slash I am. With that, back to your episode. 3,000 crore rupees. That, my dear friends, is the amount worth of loans that people took to buy courses from byju's during the COVID years alone. And it is what fueled the unprecedented growth of the air tech giant, how it grew to having a whopping 150 million students on

its roster. So where did all these loans come from? NBFCs or non-banking financial companies like advanced financial services, Adityabrilla Finance and Fullerton, India. Bayju's needs these financing options because its one-year courses range from anything between $20,000 to $1,000.000. 1.4 lakh rupees. Now obviously, not all its customers can afford to pay it all in one go, which is why Bayju's tied up with these NBFCs to give them EMI options. So you get how Bayju's depends majorly on these NBFCs for its sales. I don't think I need to repeat how much trouble Bayju's is in currently.

I listed all the things that have been coming as a series of knockout punches for Bayju's in the previous episode of Daybreak. Now, here is one more. Starting in April, all these major NBFCs, including Avans, Aditya Beryla and Fullerton India, suspended their loans that helped by Jews make its sales. This whole situation is reminding me of a line from a Bob Dylan song. The carpet, too, is moving under you.

It's all over now, baby blue. Okay, that was a little dramatic, but not all. is lost. There is still some hope for Bayju's, and that is a whole different story, and you need to go read the latest edition of my colleague Praveen Gopal Krishna's newsletter called the Nut Graph to find out about it. It is called Bayju's has one escape route. I'll link it to the show notes of this episode. Now, coming back to the NBC carpet that is moving from under Bayju's feet, what is the air tech giant doing to not fall down? Welcome to Daybreak, a business podcast from the Ken.

I'm your host, Nickda Sharma, and I Don't Chase the News Cycle. Instead, thrice a week on Mondays, Wednesdays and Fridays, I will come to you with one business story that is worth understanding and worth your time. Today is Monday, the 26th of June. It was my colleague and the Ken's deputy editor, Arundhati Ramanathan, who reported about these NBFCs suspending their loans for Bayju's. And she did it a day-based. before all hell broke loose for the AT-Tech giant,

and the news came that Deloitte had resigned as its editor and so had three important board members. Now, this is a very important story because these loans financed by these NBCs were literally the lifeblood that sustained Bayju's products for all these years. And to understand the gravity of the situation better, there is one important piece of information that we need to be aware of. Buyju's has been trying to move away from its door-to-door selling strategy.

Now they are selling via Zoom calls. But convincing people to take loans via e-consultations is not the same as doing it face-to-face. I think we can all agree that it does not have the same kind of persuasive power. So what is Bai Jus doing to contain this situation? It is doing something that it has rarely done before. it is giving out these loans using its own funds from its balance sheets. Now, considering all the questions that surround the company's financials, stuff like how it is yet to file its financial statement for 2022,

the one before that two came 18 months late and also had a lot of issues. And also how Bayju's own projection of getting revenue worth 10,000 crore rupees in the financial year 2022 is most like, incorrectly incorrect, which, by the way, again, was reported by Arundati. So considering all this, using its own money to fund the loans that it gives out to its customers does seem a little dangerous, right? Turns out, Bayju's already had these offerings called Bayju's Assure, Bayju's Advantage and Bayju's direct.

But these were only for funding loans to customers that the NBC's thought were too risky. It would use funds from its balance sheet to allow users to enroll for its courses, costing up to 1 lakh rupees by making a down payment of 25,000 rupees. The rest, it would collect in EMI's with 0% interest rate. But what might come as a surprise to you about this very risky option is that it actually might have some advantages. It saves by-use the 10% interest cost that it's. It paid the NBFCs for issuing these zero-interest loans to its users.

Plus, the process also resolves how Bayju's was calculating its revenue, which was quite messy in the first place. It is what actually landed it in trouble with its auditor Deloitte. But, of course, this path is going to open a whole new can of challenges for the ailing edtech giant. Stay tuned. First of all, a Bayju's executive told. Arundati that the average revenue per user dropped 30 to 40% in moving to this model. And that is because it is hard to sell high ticket items online.

But supposedly, the productivity of sales personnel has also risen to compensate for this drop. Next, the ed tech has no expertise in assessing the creditworthiness of a customer. And it also had to increase its collection. team. These are the things that even seasoned lenders find hard to get right. When asked about this, the company spokesperson said that the down payment itself is a check for creditworthiness. Another challenge is that Bayju's cash flow is under pressure because it does not get the money upfront. It only receives it from parents who decide to pay it back. Plus, Bayju's cannot report delinquencies to credit bureaus such as Sibyl or use that as a stick to get parents to repay.

Why? Because it is not a lender. So if customers choose not to pay back, it is the ed tech's laws. But that is not stopping the company from using this as a scare tactic. And finally, over 30% of Biju's users drop out of its products by returning them. This was told to us by two mid-level employees of the air tech. A former analyst at an investment bank told the Ken that in the short term, this level of return could also raise red flags when the company wants to get more funding. Meanwhile, business at Byju's is slowing down. A sales manager in charge of a region told Arundati that they used to sell 5 crore rupees worth of products in a week.

Now, that is down to 3 crore rupees. Another sales executive noted a 25% drop in his sales. But a by-du spokesperson said that the company's sales have grown by 25% over the last year. This basically means that the ATEX financial results for the year 2024 may get impacted. But hold on, because we are getting ahead of ourselves here. Way ahead. Why? You know it. Because like I told you earlier, Bayju's is yet to file its audited statements for the financial year 2022. This act itself has $1.26 billion riding on it.

To know more about this loan, I recommend that you read Arundati's report, which is linked to the show notes of this episode. And also, listen to my previous episodes on Byju's. That's all for now. Catch you on Wednesday. Daybreak is produced from the newsroom of the Ken, India's first subscriber-focused business news platform. What you're listening to is just a small sample of our subscriber-only offerings. A full subscription unlocks daily long-form feature stories, newsletters, subscriber-only apps and podcast extras. Head to the ken.com and click on the red subscribe button on the top of the website.

I am Snigda Sharma, your host, and today's episode was edited by my colleague Rajiv Sien. Thank you.