Byju's Is Unravelling With Little Time To Fix Its Balance Sheet

Byju's, once a $22-billion edtech giant with global ambitions, is unravelling bit by bit.

Think & Learn Pvt., parent of the learning company, raised billions of dollars in private equity funding in the last seven years to aggressively acquire businesses and expand its portfolio. The company is now imploding and may ultimately shrink to remain a domestic edtech firm, minus the hype and credibility it has acquired for teaching modern learning techniques.

Breakneck expansion left the balance sheet stretched, and Byju's has delayed its statutory filings by a year and a half. It had promised to file its audited balance sheet for financial year 2022 by Sept. 30. That deadline came and went. The balance sheet for FY23 is still in the air.

Since 2016, Byju's has acquired 11 companies, many of which are either struggling or have been downsized or shut down.

The fair value of these acquisitions, pegged at Rs 29,000 crore, could erode since the group's valuation has halved from $22 billion a few years ago. And while its promoters may have infused equity at the same valuation in the last 12–18 months, the street is yet to see promised Middle East investors bring in capital.

While Byju's was unravelling, the management not only misled investors like Mary Meeker, Yuri Milner, Chan-Zuckerberg Initiative, Tencent, Peak XV Partners, Sequoia Capital, and Tiger Global among shareholders, but also partners, parents and children.

Trouble started when its strategy to become a global edtech firm via a SPAC listing at a $41-billion valuation failed as the edtech boom petered out after the pandemic. Its debt-fueled expansion came back to haunt it, and existing investors refused to participate in new funding rounds. Things started going south as Byju's got embroiled in a legal battle with lenders in the U.S. over repayment of a $1.2-billion term loan.

When shareholder directors resigned, the company first blatantly denied and then confirmed it on the pretext of board reconstitution--that too after private equity investors revealed their resignations.

If that wasn't enough, Deloitte resigned on June 22 as Byju's statutory auditor, citing its inability to conduct the audit due to a lack of communication over modifications and financials. The same day, the company appointed MSKA and Associates, the audit arm of accounting major BDO Global, leaving many baffled.

While releasing FY21 numbers, Byju's had predicted Rs 10,000-crore revenue for FY22. That now appears an unrealistic target. The new auditor and the company were to file the FY22 audited balance sheet by Sept. 30 and the FY23 balance sheet by Dec. 31. The first deadline has passed, and the new auditor will find it difficult to wrap its head around Byju's financials.

The company also faced searches by the Enforcement Directorate at its three premises in Bengaluru, followed by an investigation by the Ministry of Company Affairs over earnings delay.

While the company hired an old-timer, Arjun Mohan, as new CEO from Ronnie Screwvala-promoted rival, UpGrad, that may be too little in the day.

For the edtech company, the only cash flows come from Aakash Educational Services Ltd., a competitive exam coaching service provider. There, too, an intended merger didn't go through, and it now plans an initial public offer for the company, subject to clearing regulatory and legal hurdles.

Its two biggest overseas acquisitions, Great Learning and Tangible Play Inc., are in trouble.

Nearly 67% of the company’s fair value in December 2021 had come from Tangible Play, a Palo Alto-based educational gaming company that Byju’s acquired in 2019, according to filings. Since then, there have been no further filings, and Tangible Play is embroiled in a legal dispute with lenders over $1 billion. And lenders are looking to take control of the assets of Great Learning.

WhiteHat Education Technology Pvt., the operator of WhiteHat Jr online coding-to-coaching classes that Byju's acquired for $500 million, also collapsed gradually.

With all major acquisitions mired in controversy, fund crunch and investor litigation, the proposed IPO of Aakash Education is also under regulatory scrutiny.

The fact that Byju's is not able to get its balance sheet together remains the key problem as it contemplates shutting down unviable businesses and laying off more people.