Aakash IPO: Is it a well-timed, smart move for Byju's?

Mrinal Mohit, CEO, Byju's

An initial public offering (IPO) is always an option for any privately held company that has raised loads of venture capital. But for Byju’s—it was born offline in 2011, gradually morphed into an edtech company, and rolled out its app in 2015—getting listed seemed a logical progression when it entered the unicorn club, after being valued at $1.02 billion in July 2017. The IPO talk only gathered steam with every subsequent funding round and steep valuation surges: $3.37 billion in September 2018, $5.47 billion in March 2019, $8.24 billion in January 2020, $11 billion in June 2020, and $16.09 billion in March 2021.
 

Heady funding and staggering valuations whetted the appetite for a global play. Starting with Vidyartha and TutorVista in 2017, Byju’s orchestrated an aggressive acquisition strategy and snapped up companies such as American player Osmo for $120 million in January 2019 and WhiteHat Jr for $300 million in July 2020. The following year, in March 2021, Byju’s valuation pole vaulted to $16.09 billion, and in April, it made its biggest and boldest bet by acquiring test prep major Aakash, reportedly for $1 billion. Byju Raveendran, founder and CEO of the eponymous edtech firm, reiterated his IPO plans. “We are seriously thinking of an 18 to 24 months’ timeline to look at a public offering,” he reportedly said in April 2021.
 
Flush with funds—2021 was the year when the global startup ecosystem was flooded with capital—Byju’s continued its buying spree and bought Great Learning and Epic for $600 million and $500 million, respectively, in July. Now it was the turn of the bankers to woo and nudge the edtech biggie to hit the IPO street. By August 2021, they pegged the valuation at $50 billion. A few months later in December, Byju's was reportedly in talks to go public via a special purpose acquisition company (SPAC) deal at a $48-billion valuation.  


 
Fast forward to April 2023. Byju’s is still talking about its IPO, but this time it’s getting ready to list Aakash. “IPO of Aakash to ho raha hai. [IPO of Aakash is happening],” confirmed Mrinal Mohit, India CEO of Byju’s. But why Aakash, and why not Byju’s, which has always been the original plan? “The macro and micro environments have changed over the last year, and the IPO of Byju’s won’t happen in the present situation,” adds the CEO, one of the six founding members of Byju's, in a free-wheeling conversation with Forbes India. Aakash, he underlines, is profitable, and is a business that people and retail investors in the country understand and can relate to easily. “They appreciate this business. Aakash has legacy, trust and credibility of more than 30 years,” says Mohit, adding that Byju’s is looking to close the IPO in the current fiscal.


 
But does the plan to list mean that K12—the core business of Byju’s—is on shaky grounds after waning of the pandemic, opening of schools, and a strong comeback of offline teaching? Does it also mean that Aakash happens to be the sole or one of the few bets that has paid off for Byju’s when it comes to its long list of acquisitions? The company has reportedly spent over $2.4 billion to buy around 20 companies since 2017. Mohit has a different perspective. “The core is much bigger than Aakash. And it continues to grow,” he claims. But if that be the case, why is Aakash getting listed ahead of Byju’s? “It makes more sense now,” he says.

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Analysts, industry watchers and funders explain why an Aakash IPO makes more sense. First, the resurgence of offline education after the waning of the pandemic has taken the sheen off online teaching, which was the only mode of instruction during the peak of the Covid-19 wave. “Everybody thought that online would kill offline,” says Anil Joshi, founder of Unicorn India Ventures, a venture fund backing early-stage startups. Consequently, brick-and-mortar coaching and teaching was written off. Interestingly, offline rebounded once schools and colleges reopened across the country, and a wave of edtech players started to struggle to find their feet in the old normal of an offline world. Though the K12 wave started to ebb at an alarming pace, the test prep segment—medical and engineering in particular—continued to boom in the online and offline worlds.

Second, a dip in online education coincided with the dawn of a funding winter. Byju’s started to cut costs to stem losses, which had ballooned to Rs 4,564 crore in FY21. It reportedly laid off over 2,500 employees—around 5 percent of its headcount— since last year, started closing down its field sales centres across smaller cities, and paused its acquisition drive. The company also saw a staggering markdown in its valuation by one of its backers. Early this month, US-based asset manager BlackRock, which owns under 1 percent stake in Byju’s, slashed the valuation by nearly 50 percent to $11.5 billion. Last year, Prosus, the Netherlands-based technology investor, valued its 9.67 percent stake in Byju’s at $578 million at the end of the September quarter.


 
Also read: From Khan sir to Ashu Ghai to Vishal Tiwari, star teachers shine despite the shadows of edtech giants

Sources close to Raveendran, though, are not worried. “Why are they not selling and exiting the company if they think Byju’s doesn’t have a future,” says one of the high-ranking officials requesting anonymity as he is not authorised to talk to the media. “We are more than eager to buy their share,” he says, adding that Raveendran has around 25 percent stake in the company.  

There may be more trouble in the offing, though. In November 2021, Byju’s raised a $1.2-billion term loan. Early this month, the lenders reportedly sought up to $200 million in prepayment, along with a higher rate of interest. Mohit claims the company is well capitalised and the loan payment starts in 2026. “There is no cash flow problem,” he contends. But what about the reports of a protracted struggle in raising a new round of funding at a higher valuation? The India CEO claims that the company is in the final stages to close a new round of funding. “It’s not a down round,” he asserts. The edtech biggie, which has raised about $6 billion from a battery of venture capital firms, is most likely to close the new round of funding at a flat valuation by the end of April.




 
Industry players reckon that Aakash still has massive headroom for growth. Since its acquisition in April 2021, Aakash has more than tripled its revenue to over Rs 3,000 crore. The profit, too, has tripled, claims the above-mentioned source. Byju’s has opened 115 centres since April 2021 and has taken the count to 320.

The IPO, a clutch of experts argue, is a smart and well-timed move. “Aakash is Byju's golden goose, the highest revenue-generating and only profitable asset,” contends Shikhar Sachan, co-founder of Civilsdaily, a Delhi-based government test prep platform. While the edtech world was fixated with online learning—focusing on innovative formats, personalisation, and product-led growth—all of them have realised that the offline world was far from obsolete. “Now it’s a much stronger and stable asset than online,” he says, adding that Aakash has helped Byju's dominate the test prep space in the country.

Started in 1988, Aakash took over 32 years to open over 200 centres. In contrast, Byju’s opened 115 in two years. “If they remain hyper aggressive, then Aakash might go the WhiteHat Jr way,” says a venture capitalist on the condition of anonymity. The pandemic egged all players, led by Byju’s, to push coding for kids. WhiteHat Jr, being the biggest, gained the most and suffered the most. “We are optimising costs and cutting burn,” says Mohit.
 
Can Aakash—which filed its DRHP in 2018 and subsequently aborted its IPO plans—solve Byju’s problems as it gets ready to try its luck for the second time? Well, the jury is still out.

With additional inputs from Varsha Meghani