Under scrutiny from investors and regulators, Byju Raveendran, co-founder and chief executive of edtech firm Byju’s, appeared confident on Wednesday as he shared his company’s financials for FY21 after an 18-month delay. In an interview, Raveendran spoke about the delay in filing financials, the accounting changes that led to a drop in FY21 revenue, allegations of mis-selling of products, the company’s fundraising plan, and its aggressive acquisition strategy. Edited excerpts:
How would you sum up your FY21 earnings?
Though there has been good business growth from FY20 to FY21, almost 40% of that revenue got deferred on account of recognition change. Because of this recognition change, you won’t see any growth coming from FY21. The revenue got pushed out from FY21 to subsequent years even as we have already accounted for the entire cost for businesses. Though our business was profitable from FY20 onwards, last year, and (for the) last two years, we have made fast-growing but loss-making acquisitions that have affected revenue. This, combined with revenue getting pushed out, has increased the losses to ₹4,500 crore. I just want you to understand, you know, that there has been a 40% downward revision.
What about FY22? And what about the revenue run rate as of date?
We have (seen) huge growth from FY21 to FY22. So, there is no covid pullback in any of our businesses. Byju’s has grown 150%, and Aakash and Great Learning have doubled since their acquisitions. Great Learning is less talked about, but it’s silently growing. WhitehatJr has underperformed, although the product is very strong. And like all the customer research, we see a very high NPS (net promoter score) provider in it. But we have to solve for (the high) cost of acquisition.
But what caused this inordinate delay in declaring your results?
It is a tough question to answer, but without blaming anyone for it, I’ll say the first initial one to three months was on account of covid. The second reason, and I’m talking in terms of timeline, not necessarily in terms of the time, was because of the added acquisitions, both pre-pandemic and post-pandemic. Even that has added some delay. Last eight, or nine months, it was delayed because of this revenue recognition change, streaming revenue and credit sales revenue getting accounted for during the consumption of the product or during the significant collection of the EMI sales. That took a lot of time because it was such a big recognition change. So, they did additional work. But now, we have an unqualified report (by the auditors) that puts all anxiety to rest.
But we hear there were two noteworthy remarks from the auditor.
Audit qualification is a very scary thing. So, there is no qualification. It is an unqualified report. What is there is an opinion on controls and another on revenue recognition.
Can you specify what internal controls mean?
There is an adverse opinion on controls. But that is very common. Because when there is so much delay, that’s only because of these credit sales (sales made through loans). On these things controls and the finance function have to improve, and we have already started improving. We actually now have a global CFO (chief financial officer). As and when we get ready to go public, we will also strengthen our finance function significantly.
Can you clarify what the management’s revenue projections were for FY21?
Around 40% of the total revenue got pushed out.
What is the current revenue run rate?
Up to July 2022, we did ₹4,500 crore in revenue this financial year. And last year, that number was approximately ₹.10,000 crore.
What are your fundraising plans?
There are two rounds which we are looking at, which anyway we’ll announce once we close. So, there is a straight equity round at the same value, which is $22 billion. And there is also a converter we are looking at, which will convert at IPO at a 20% discount. So, these two discussions we are having with many investors. While some investors would prefer to convert, there are investors who like to come in for straight equity.
Can you talk about unit economics? By when will you be profitable?
At the consolidated level, we will be cashflow-positive by either the fourth quarter of this year or by the first quarter of next year. And at the consolidated level, I’m talking about cashflow-positive. The business will be Ebitda-positive even before that.
What caused the delay in payment for the Aakash acquisition?
There was no delay. It is based on an RBI pricing guideline. As per the mutual agreement between buyer and seller, we have to do it very conservatively. The actual reason is that the pricing guidelines have to be met because in a transaction with a non-resident, you can’t use that fair market value. The FMV has to move up; otherwise, paying more than FMV (fair market value) is not possible. We initially thought a two-month delta would be enough to reach the FMV. But to be even more conservative, we kept a three-month buffer, and so now, if you ask me, it’s like if Blackstone decides that okay, let’s be even more conservative and pay later. Because we have to get a valuation report and FMV has to go up. That’s the real reason.
What exactly are your plans for inorganic growth?
We’ve made so many acquisitions in the last 18 months; we are focusing on integrating them well. Currently, we are taking a measured approach in terms of looking at new acquisitions because there’s so much to be done in terms of integrating the previous ones. But opportunities are going to be a lot more in this segment, and we’ll see more consolidation over the next 12 months. And it’s almost like this- if you can acquire a US company, you can always make them more profitable by bringing part of the cost centre back to India, and not just that, most of these products will also have India as a revenue centre. So if you have strong distribution in India, some of the special products, if you bring here that adds as a revenue centre. So, there is a double advantage. And that’s why acquisitions work.