BYJU'S: Cloud Over IPO, Valuation

TROUBLE SEEMS TO BE deepening for India's most celebrated edtech start-up BYJU'S with auditor and three directors representing investors submitting their resignations. On June 22, statutory auditor Deloitte Haskins & Sells wrote a scathing letter over long delay in filing of financial results for FY22. It referred to two earlier letters to Byju Raveendran, managing director, and three to the board, expressing similar concerns.

According to statutory requirement, the results had to be placed before shareholders by September 30, 2022. "We have also not received any communication on resolution of audit report modifications in respect of year-ended March 31, 2021, status of audit readiness of financial statements and underlying books and records for year-ended March 31, 2022, and have not been able to commence the audit as on date," the letter said.

Deloitte was appointed for five years starting April 1, 2020. The day it resigned, BYJU'S announced appointment of MSKA & Associates, audit partner of BDO, in its place. "BDO's experience as an auditor for BYJU'S subsidiaries ensures their familiarity with the organisation's operations, enabling a streamlined completion of the group-level audit anticipated to be finalised in the upcoming quarter," said the announcement. The company had brought in a new CFO, Ajay Goel, in April this year.

Following Deloitte, three key directors representing investors, G.V. Ravishankar of Sequoia (now Peak XV), Russell Dreisenstock of Prosus and Vivian Wu of Chan Zuckerberg Initiative, also quit the board. While the company has not confirmed or denied this, media reports suggest it is trying to convince them to withdraw their resignations. This leaves the board of Think & Learn with three members — Byju Raveendran, his wife Divya Gokulnath and his brother Riju Raveendran.

Byju and the CFO addressed shareholders virtually on June 25 to allay concerns around the company. Days later, Prosus NV, a Netherlands-listed technology investor, slashed BYJU'S valuation again in a matter of less than eight months. Prosus, which holds around 9.6% stake, valued its investment around $493 million, implying valuation of around $5.1 billion. Investors had valued BYJU'S around $6 billion in November 2022, a staggering drop from $22 billion a few quarters ago. In May this year, global asset management company Blackrock had valued BYJU'S at around $8.4 billion.

As clock ticks for BYJU's to resolve financial and corporate governance issues, it is also facing the wrath of lenders, employees who are being laid off and customers feeling cheated by its selling tactics. Recently, in U.S., BYJU'S sued a lender, Redwood Capital Management, over a $1 billion-plus term loan. The company filed a lawsuit in New York SC seeking disqualification of the lender for allegedly using 'predatory tactics' and said it would not pay the dues. Earlier, the lenders had moved against a U.S. entity related to BYJU's in Delaware Chancery Court, saying Byju Raveendran's brother Riju and related companies had moved/hid nearly $500 million.

However, what seems to have become a bigger headache is the prospect of the IPO of its subsidiary, Aakash Education Services (AESL), getting bleak. In early June, BYJU's had said it would launch IPO of AESL by mid next year. "The appointment of merchant bankers for the IPO will be announced soon to ensure a planned and successful listing next year," it said. According to the company, AESL's revenue is on track to reach ₹4,000 crore with EBITDA of ₹900 crore in FY24. But these claims would mean little until group financials are filed with statutory authorities. Also, with Ministry of Corporate Affairs taking cognisance of the issue, regulators will most likely go over the numbers with a fine toothcomb, especially if the company comes out with an IPO. Given the circumstances, has BYJU's valuation bottomed out and how long before investors decide to exercise other available options to salvage the company?