Byju's and shallowness in governance practices

The startup culture of India has evolved in the last few years and Byju Ravindran became the poster boy of the edtech revolution that promised to be the future of education in our new normal. At one point, Byju had topped the CAT entrance examination and decided to provide CAT coaching. His dream of providing education to the mass through a global platform became a reality when the business started to flourish.

Byju’s have been in the news for quite some time owing to the financial due diligence of their auditor. The audited financial statements relating to FY21 were published after a period of scrutiny and a long wait. The institution known for being a pioneer in the education space is now going through a period of crisis. The founder has become the center point of discussion yet again as he tries to appease investors.

Let’s understand what is happening with the promising player and how the tide has turned.

The FY21 financials don’t paint a beautiful picture. The company’s operational revenue on a consolidated basis grew by a meager 4 percent to INR 2,280 Crores. Surprisingly, losses jumped by 20 percent to INR 4,588 Crores.

Revenue growth remains flat

While Ravindran claimed business growth and talked about scalability, the revenue growth stuttered due to revenue recognition policy introduced during the fiscal.

Byju’s started recognising streaming revenue over the period of consumption. This hasn’t been the case earlier. Revenue was considered fully at the time of commencement of the contract.

Credit and EMI will also get recognised after complete collection. This means payment made under deferred payment terms totalling INR 1,156 Crores wasn’t recognised because Byju’s didn’t meet the criteria of accrual accounting stated under IND AS 115.

Change in market share pattern

The vulnerability of the business model got exposed as schools got started and students refrained from online classes domestically. India’s share in Byju’s revenue dropped from 73 percent to 43 percent. At the same time, the Middle East saw a rapid growth of 2x with 22 percent share in revenue compared to 11 percent reported earlier. US markets provided adequate opportunities for the edtech player and the revenue share increased from 16 percent to 35 percent..

It is noticed that in India the cost of one-on-one teaching is higher and it is better to approach foreign markets for growth opportunities.

Finance cost

Byju’s provides interest payment to finance partners who provide loans to customers to buy courses. The interest payment is not recorded in the books.?

In a situation like this, the business reports gross revenue instead of net revenue and inflates the results.This practice is against the corporate governance norms that an organization is expected to adhere to and the management is being questioned on grounds of integrity.

Aggressive inorganic growth

Ravindran has always remained an eternal optimist and focused on acquisitions as a strategy to gain market share. The company didn’t embed all the processes needed to grow inorganically and it seems that Byju’s has bitten up more than it could chew.

Acquisition of WhiteHat Jr has impacted the financials and Ravindran realizes the need to put brakes on slowing down inorganic growth. With a total loss of INR 1,118.25 Cr in FY21, WhiteHat Jr contributed 26.73% to the total loss of INR INR 4,588 Cr.?

WhiteHat Jr struggles with a high customer acquisition cost (CAC) as it tends to build its base in the US market. This comes as no surprise that the business incurs about 32 percent of its total expenses on business promotion.

Word of mouth is tarnishing the image

The sales engine of Byju’s is heavily criticized and this is impacting the brand’s reputation. The business needs to work on its sales policy which is considered aggressive and unfavorable to the customers.

There is a need to involve frontline employees in the setting up of processes while considering customer feedback as a priority.

??????????????????????The future looks uncertain for the edtech segment. It will be interesting to see how things pan out as schools have resumed post pandemic. Moreover, Byju’s have recently acquired Aakash Institute which focuses on entrance examinations for engineering students. The purchase consideration has not yet been fully paid out by Byju’s and a pressure on borrowed funds will now be inevitable.

Disclaimer - The views expressed in this article are of the author and do not represent the firm’s views.