Mounting troubles at Byju’s: Is the bubble going to burst?

The company, which made a loss of over Rs 4,500 crore in FY2021, is trying to cut costs by laying off employees across various departments and has laid off around 5,000 employees. Its losses for FY22 and FY23 are not available.

What does the auditor say?

Byju’s financial woes are worsening, if the comments made by the auditor are any indication. The financial statements of the company for the year ended March 31, 2022 are long delayed. In accordance with the Companies Act, 2013, the audited financial statements for the year ended March 31, 2022 were due to be laid before shareholders in the annual general meeting by September 30, 2022.

“We have also not received any communication on the resolution of the audit report modifications in respect of the year ended March 31, 2021, status of audit readiness of the financial statements and the underlying books and records for the year ended March 31, 2022 and we have not been able to commence the audit as on date,” according to the auditor.

“As a result, there will be significant impact on our ability to plan, design, perform and complete the audit in accordance with the applicable auditing standards. We are tendering our resignation as statutory auditors of the company with immediate effect,” the auditor said. Deloitte was appointed for a five-year tenure till March 2025. Byju’s has now appointed BDO (MSKA & Associates) as its statutory auditors for the year commencing from FY22 for the next five years.

What’s at stake?

Byju’s has reportedly raised over $5 billion (around Rs 41,000 crore) from various investors. The company recently defaulted on a $1.2 billion loan and is involved in a legal battle with the lenders.

On the other hand, the company’s valuation has crashed from around $24 billion to $8.4 billion, according to the valuation made by US investment firm BlackRock. Many venture funds, angel investors, and tech investors who have invested in Byju’s can’t afford the company to possibly collapse as billions of dollars are at stake.

Further, it will send a wrong message to the Indian startup space at a time when many startups are scouting for financiers and lenders for growth. Moreover, it has enrolled thousands of students for its programmes who will be left in the lurch. “It has been the star amongst the startups. I sincerely hope we don’t have to say Bye-ju’s!” tweeted RPG group chief Harsh Goenka.

Why is Byju’s clashing with lenders?

Byju’s failed to pay interest of $40 million on its term loan B of $1.2 billion on June 5, and the next day, it initiated legal action against the lenders, calling their tactics “high handed” and “predatory”. In November 2021, the firm raised $1.2 billion through a term loan B (TLB) – loan made by institutional investors whose primary goals are maximising the long-term total returns on their investments – from the overseas market. It raised the amount to fund general corporate purposes offshore, including supporting business growth in the North American market, which is a key to the firm’s global aspirations.

The financial result for FY2021 was filed after a delay of 18 months. The numbers were dismal, signalling a cash crunch at the company, later compounded by a weak market owing to geopolitical tensions and rate increases.

Byju’s said that on March 3, the lenders “unlawfully” accelerated the TLB on account of certain alleged non-monetary and technical defaults. “On the back of this unconscionable acceleration of the TLB, the TLB lenders undertook unwarranted enforcement measures including seizing control of Byju’s Alpha and appointing its own management. Not resting content with this, the TLB lenders (acting through their agent, GLAS Trust Company) commenced litigation in Delaware in an attempt to lend credence to these actions,” the company said.

Byju’s claimed that the lenders continued to conduct themselves in a “high-handed manner”. It said that they issued a notice demanding immediate payment of the entire amount under the TLB, “despite knowing that this purported acceleration was under challenge before the court”.

The significance of Byju’s in India’s startup ecosystem

Byju’s is India’s most valued start-up and was last valued at $22 billion, and therefore a flagbearer of India’s startup ecosystem – both for firms and investors. According to a Credit Suisse Research Institute report from last month, the ed-tech firm was the twelfth most valuable start-up globally at the end of 2022. Byju’s has recently held talks with investors including private equity major TPG to raise more than $500 million as it tried to stave off potential debt issues.

In October 2022, the firm had fired 5 per cent of its workforce after it had cut hundreds of jobs in June amid a global funding winter that impacted companies across sectors, setting back their plans — including Byju’s — to go public last year. The firm had framed the layoffs as a way to improve its finances and achieve profitability.

Its FY21 results, which the firm had filed following an 18-month delay, had shown that Byju’s lost more than Rs 12 crore everyday. It posted a revenue of Rs 2,428 crore as its losses in the fiscal rose 17-fold to over Rs 4,500 crore, the highest-ever posted by an Indian start-up.