BYJU's Charts a New Course with Aakash IPO Amidst Financial Turmoil

After facing lot of negative media attention recently, the edtech giant BYJU's has announced plans to launch the Initial Public Offering (IPO) of its subsidiary, Aakash Education Services Limited (AESL), in the middle of next year. The IPO aims to provide a much-needed boost to AESL's infrastructure and expand its reach, offering high-quality test preparation education to a larger student population across the country.

This is not the only development for which Byju’s is in the news today. Amidst these positive developments, BYJU's is also facing financial challenges. The company is expected to make a quarterly interest payment of around USD 40 million on a loan, due on June 5. Failure to meet this payment would result in defaulting on the USD 1.2 billion loan, which stands as the largest unrated loan ever by a startup.

How Is The Outlook for the Test-Preparation Market in FY 2023-24?

Aakash Education Services Limited (AESL) has been performing well, with its revenue projected to reach Rs 4,000 crore and an operational profit (EBITDA) of Rs 900 crore in the fiscal year 2023-24. BYJU's, which acquired AESL for approximately USD 950 million in April 2021, has witnessed a three-fold increase in revenue since the acquisition.

The test-preparation market is expected to experience significant growth, with revenues predicted to increase at a compound annual growth rate (CAGR) of 9.3% from 2020 to 2025. The online test preparation segment, in particular, is projected to grow at a CAGR of 42.3% during the same period. AESL is well-positioned to capitalize on this growth, offering a comprehensive range of offerings that combine classroom-based learning with cutting-edge digital products and services tailored for engineering and medical entrance exams.

How Will The Upcoming IPO Help AESL?

Currently, Aakash operates over 325 centres across the country, serving more than 400,000 students. The upcoming IPO is expected to provide AESL with a significant capital infusion, enabling the enhancement of its infrastructure and the expansion of its services to reach a larger student population. The IPO has received official sanction from the board of BYJU's, and the appointment of merchant bankers will be announced soon to ensure a successful listing next year.

Financial Troubles and Loan Repayment

In the recent times Byju’s has been in the news for all the wrong reasons. After raids by Enforcement Directorate, Mass Layoffs, Valuation Markdown by Investors BYJU's is now also in news for facing financial challenges. The company is expected to make a quarterly interest payment of around USD 40 million on a loan, due on June 5. Failure to meet this payment would result in defaulting on the USD 1.2 billion loan, which stands as the largest unrated loan ever by a startup. BYJU's has missed deadlines to file its financial accounts for the year ending March 31, further highlighting its current financial situation.

While BYJU's faces these challenges, the company remains optimistic about its growth potential in the edtech sector. The IPO for Aakash Education Services Limited is seen as a strategic move to leverage the test-preparation market's growth and provide a strong foundation for the subsidiary's expansion and success.

BYJU's Valuation in April 2023 Vs Valuation in March 2023

In a significant development for the edtech industry, BlackRock, the world's largest asset management company (AMC), last week announced a 62% reduction in the fair value of Byju's, the world's most-valued edtech startup.

This markdown marks the second time BlackRock has downgraded Byju's fair value since October 2022.

BlackRock, which holds less than 1% of Byju's shares, has estimated the value of its 2,279 shares at USD 4,043,471. This valuation suggests Byju's fair value to be approximately USD 8.4 billion as of March 31, 2023. In contrast, the AMC's filings with the Securities and Exchange Commission (SEC) indicated that Byju's valuation was over USD 22 billion in April of last year.