Daybreak - WTFinancials is going on at Byju's?

Episode Date: June 6, 2023

Last week, edtech giant Byju's saw its valuation come crumbling down from $22 billion to $8 billion. And June 5, 2023 happened to be the last day for the company to pay off a $40 million instalment on its highest unrated loan.This is, of course, only a part of Byju's problems which range from bad press to a growth slump and a lot more. To say that Byju's is in a precarious position right now would be an understatement. The question to ask is: will it sink or swim?There is one tiny glimmer of hope.Tune in to find out.Recommended reading: Byju’s is looking like a hedge fund  Daybreak 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 Ganesh, 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 Podcasts 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. Fifth of June, it was an important day for byjuice. You know the kind that makes you feel nervous the whole time before it actually arrives? It was the last day for the attack unicorn to pay off a $40 million installment of its highest unrated loan, which by the way amounts to a whopping

$1.2 billion. While we don't know yet whether Bayju's has cleared the payment or not, there is one thing that we know for sure. If it has failed to pay the $40 million, then the loan will count as defaulted. If you're a regular daybreak listener, then you'll remember how we have spoken multiple times about the company being in troubled waters. In April, it saw a raid by the enforcement direct rate and the investigation came at the worst possible time for the company. At the center of most of its problems right now is this billion-plus dollar term loan. And Bajus has been doing almost everything it can to get this particular loan restructured. But its lenders want a prepayment of $200 million and a higher income.

interest rate for it. And all this while the company is dealing with bad press, a growth slump, and of course, thousands and thousands of layoffs. And let's not forget how its own accounting firm Deloitte had raised an alarm over some of its questionable accounting practices last year. And this, dear listeners, is not even the end of Paiju's problems. All of this is like going back to square one for the air tech giant, but also somehow managing to be worse of. Just about a year and a half ago, the same Bayju's had seen its valuation rise from $8 billion to $22 billion. It was a time when it seemed like the sun would never set on the Bayju's empire. But a week ago, Black Rock, which is an American asset management company, cut the fair value of its shares in Bayju's for the second time.

And this time, it was by a staggering 62% to a little bit. little over $8 billion now. So to say that byju's is in a precarious position right now would be an understatement. Welcome to Daybreak, a business podcast from the Ken. I'm your host, Nick Das 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 Wednesday, the 7th of June.

From a valuation of $22 billion to $8 billion now, like Olina Banerjee, a writer with the Ken, very pertinently asked in her latest newsletter, what in the financials is going on. So Olina decided to call up an investor that she's known for a while. Now, because of a conflict of interest and most probably also a sense of deep disappointment in the tech sector, this person did not want to go on record.

But on being asked about their thoughts on this valuation crash, they exasperatedly asked some rhetorical but very revealing questions in response. What were the investors underwriting so far? How is this stuff happening at this level? Byju's isn't a small startup anymore. So Olina very smartly turned these questions around on them because after all, they were the investors. I really do not know. That was the person's response. But they brought up the giant Chinese

ed tech tal as an example to understand what is happening to Bayju's. They said that Bayju's was on the path to being the next Tal. Till regulations hit Chinese ed techs, TAL was one of the many publicly traded education companies in China with a 30 to 40 billion dollar market cap. That could have been Bayju's future. But it had other plans. It got into buying a lot of companies and putting together a large valuation. The Ken had actually reported on this strategy when Bayju's enter the U.S. market with three noteworthy acquisitions. The company had started acting like a mini private equity firm. The only crucial difference being that unlike private equity firms, Bayju's did not have the option to exit these acquisitions. It had to stay and

assemble. So since Bayju's can't do much except hold on to these acquisitions, a question worth asking is, what are they really worth? Stay tuned. If you look at it from the outside, byjuys might have done a far-sighted thing by building a K-12 stack. K-12 basically is kindergarten to class 12 because the value of the company did grow after that. But now, with a fund crunch and reopening of schools, K-12 is fast turning into a wasteland. Maybe now it is time for Bayju's to put all of its businesses under the scanner. The investor in Olina tried to look at some of Bayju's important businesses. The two companies that are actually doing relatively well are Akash, the medical and engineering

coaching giant and Great Learning, another coaching company with physical assets and an online upskilling platform which also has a sizable number of international users. The investor peg Akasha's valuation at $1.5 billion and great learning at $400 to $500 million. Now, if we take into account byju's core and other businesses, we get a figure that is closer to Black Rock's estimate, around $8 billion. And how did it get to this point? Well, White Hat Jr. happens to be the perfect example. The four-year-old coding for kids startup was acquired by Byju's in 2020 for $300 million. The acquisition is gradually becoming quite a burden for the air tech giant. From the time that it was acquired, White Hat Jr. has pulled in over 300 crore rupees in revenue.

But its losses were five times that amount. It contributed around a third to Bayju's consolidated losses in the year that ended in March 2021. Because Bayju's was spending money on White Hat Jr. like water. The Ken had reported how White Hat Jr. was spending as much as $2,000 to acquire a customer in the U.S., which was its second largest market. So will Bayju's sink or will it swim? Coming up next, the tiny glimmer of hope that there is for the attack giant. From what we know about Baiju Ravindran, he's not the kind of person who looks back.

So what, even if Baidu's is not being mentioned all that much within investor circles anymore? The investor that Olina spoke to told her that Ravindran is unable to accept a downround like other startups. Basically, he does not want to raise at a lower valuation. Instead, what Bayju's will likely do is try and fatten up Akash before its IPO. In fact, as I record this, news is coming in that Bayju's has said in a statement that it will launch Akash's IPO by the middle of next year. Bayju's says that Akash's revenue is on track to reach 4,000 crore with an EBITDA of 900 kore rupees. Akash is already opening new centres at breakneck speed. A report by the business

standard from June last year said that Akash, under the leadership of Bayju's, planned to add 50 to 60 new centres by the next academic year to meet the market demand. It already has nearly 300 centers now and is also looking to expand space in 100 of them. It is also hiring new employees by the thousands. So clearly, Akash is a great cash flow business for Bayju's. But the investor that Olina spoke to pointed out something really important. They said that it could also have a breaking point if Bayju's puts in too much pressure on Akash too quickly. Internally, too, there is not much clarity on how the older leadership of Akash is responding to the Bayju's influence. But if you know Bayju's, then you also know that it is very possible that it may come back with a bang.

Right now, all those hopes are latched on to Akash. So the important question is, should Bayjuice put all its eggs into the Akash basket? And also, after seeing its valuation free fall from $22 billion to $8 billion, will it now consider focusing more on value rather than just valuation? 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.