Focus on reducing losses, bring in efficiency: Byju's India CFO Golani

Edtech company Byju’s whose losses widened to Rs 8,245.2 crore in 2021-22 (FY22) from Rs 4,564.38 crore in 2020-21 as subsidiaries WhiteHat Jr and Osmo underperformed, is expected to see a see consistent improvement and the losses considerably shrinking in FY23 and FY24, said Nitin Golani, India chief financial officer, Byju’s. In an interview with Peerzada Abrar, Golani said that the company has taken various measures to improve the company’s operating financial conditions including scaling down the underperforming businesses significantly. He is on a mission to quickly close and file the financials for FY23 and focus on FY24. Golani, a chartered accountant and an alumnus of the Indian School of Business has personally taken a mandate to be able to build investor confidence back. Every week he meets investors including over 80 shareholders and keeps them posted on every aspect of the company such as audits and various issues that the company is grappling with. Edited excerpts.

Why was there such a long delay in filing the financials and what are the challenges?

Earlier we had Deloitte Haskins as the statutory auditors for Think & Learn (Byju’s parent). The audit came out after a significant delay. In July-August 2023, we appointed MSKA & Associates, the audit arm of accounting major BDO Global, as our auditor. This was a first-year audit for them. In that period we did our final board meeting and closed on the audit. What I want to say is that from the time the audit was started,  it was completed on time in about 3.5 months. We have already filed the FY22 financials with the Ministry of Corporate Affairs (MCA). Now my immediate priority is to get the FY23 audit to a closure. This had also got delayed and the timeline for it was December 2023. We are proactively engaging and communicating with the shareholders. I have over 80 shareholders on the cap table. We are providing them with regular updates on how the audit is progressing and the numbers that they can expect for FY23. Immediately after that, I am going to pick up on the FY24 financials and be able to get that to closure as well. I can’t reveal the timeline. Unfortunately, we have had a showdown related to the (timeline) committed to FY21 and FY22 and what we delivered. A lot of our shareholders have come out to support to help rebuild the finance function. I'm personally making sure, alongside the shareholders and the founder, we can build the investor confidence back and furnish our audited financial statements (FY24) in time. FY24 is truly when our company will be in the green.

Also Read: Edtech major Byju's to slash $22 bn valuation by 90% to raise fresh funds

Despite the revenue jumping to Rs 5014.60 crore in FY22, the losses of the company almost doubled to Rs 8,245.2 crore. How do you see these numbers?

There was 2.2x growth in overall total income in FY22 (Rs 5298.43 crore) Vs FY21 (Rs 2428.39 crore). Yes, there have been losses, but I would want to draw your attention to the EBITDA (earnings before interest, taxes, depreciation, and amortization) of the company which was Rs -4142.97 crore in FY21 and Rs -6679.11 crore in FY22. But our EBITDA  percentage improved from (171) per cent to (126) per cent.  For FY23, you will see a consistent improvement in EBITDA and for FY24, you will again see a consistent improvement. The company has completely changed its focus to be a growth and profitability company at an all-cost mindset. I'm not saying that we would be profitable in FY24, but you will see a consistent improvement and the losses considerably shrinking in FY23 and FY24.

Byju’s made several acquisitions including Whitehat Jr and Osmo. What kind of impact did they have on the company?

Two of my businesses Whitehat Jr and Osmo are not firing up well and  I'm not shying away from saying that. They are a significant drag on the overall profitability of the company. Underperforming assets were primarily White Hat Jr and Osmo (Tangible Play); which amounts to 45 per cent of the losses (about Rs 3800 crore). WhiteHat Jr’s income decreased from Rs 326.67 crore in FY21 to Rs 295.11 crore in FY22.  Almost Rs 3,000 crore losses came from it. Also, Osmo (Tangible Play) dragged the overall performance significantly. Its income decreased from Rs 600 crore in FY21 to Rs 553 crore in FY22. Its losses ballooned from Rs 221 crore in FY21 to about Rs 946 crore in FY22. In terms of their (WhiteHat Jr and Osmo) revenue contribution, it is only about Rs 800 crore. Excluding WhiteHat Jr and Osmo, there was 3x growth in total income in FY 22 Vs FY 21 and EBITDA percentage improved from (163) per cent to (78 per cent). We grew from Rs 1,501 crore in FY21 to Rs 4450 crore in FY22. We should look at the (growth) excluding WhitehatJr and Osmo. These have been significantly brought down to come up with significant improvements in EBITDA in FY23 and FY24. Byju’s is a house of brands. We as a company acquired 11 firms in the last two years. In FY22 alone, we acquired 9 companies. Of course, not every asset is going to fire up. If you look at assets that are truly working for us, you should look at Aakash and Great Learning. When we acquired Aakash, it was a Rs 1065 crore revenue firm in FY21. In FY22, in the first year of acquisition, under Byju’s umbrella and with the support of the leadership, it grew by 40 per cent (Rs 1491 crore). I was transferred from Byju’s to Aakash and I have seen this asset closely. In FY23, it has grown beyond 40 per cent. In FY23, you will see that this company has significantly fired up. Another such company is Great Learning which was acquired in FY21 had a revenue of Rs 354 crore and this grew 77 per cent to Rs 628 crore in FY22. There is also core Think & Learn (Byju’s parent) which grew by 120 per cent. Also, we appointed BDO (MSKA & Associates) as a new auditor for FY22. They had to do very extensive procedures to be able to take comfort, because they were first-time auditors here.

The auditor's report has indicated that a material uncertainty exists including the litigation related to the $1.2 billion TLB loan that may cast significant doubt on the company’s ability to continue as a going concern. Your comments?

There is an observation that the auditor has put with respect to our ‘going concern’ and it is related to the $1.2 billion TLB loan. Here we are in dispute with the TLB lenders.  But if you look at the auditor’s opinion and who has complete access to my books and the actuals of FY23 and FY24 until January, then they can see that the company has undertaken a lot of measures to narrow down the losses of the company. However, they have also obtained the legal opinion to be of the view that this liability of the TLB loan will not come in the foreseeable future. We need to settle that litigation. Of course, if that litigation results in an unfavourable outcome for the company, it will have to pay $1.2 billion. But there is a legal opinion that this will not happen and the company anyway is now improving the economics of the business and it would not require a lot of cash that it historically needed. The auditor reported that no fraud by the company nor on the company has been noticed or reported during the course of our audit.

The company reported total expenses of Rs 13668.44 crore in FY22, an increase of 94 per cent, compared to Rs 7027.47 crore in FY21. What are the reasons for such an increase in expenses and what is the plan to control the cash burn?

Out of the Rs 8,245.2 crore losses, almost Rs 4,000 crore has come from WhiteHat Jr and Osmo. For these two businesses, we are significantly optimizing the marketing spending. I am talking about FY24 and this may not be reflected in FY23. In FY23, these businesses may again be a drag on the entire group. I am not spending a single rupee on marketing related to these businesses and am trying to bring in synergies and efficiencies. Functions like finance, and content development are being done at the corporate level or the parent level and don’t need teams in those (units). We are increasingly leveraging on cross-selling products from one portfolio to the other to bring in (efficiency). We are significantly right-sizing these companies and stopped marketing spending. We want to be able to bring these businesses significantly down to an extent where there is only an organic demand. You will see a significant improvement in FY23 and FY24.

BlackRock recently reduced the valuation of its share in Byju’s — this time to about $1 billion. This is 95 per cent less than its peak valuation of $22 billion in 2022. Other investors have also made similar markdowns. How worried are you as a CFO of the company?

As far as you know, these valuation markdowns are concerned, we as a company have zero control over some of these things. What we have control over is making sure that we continue improving on where we are. We are sharing all of our data with shareholders and telling them what are the expected FY23 and FY24 numbers. We are showcasing them how we are taking various initiatives to reach breakeven. Certainly, these (markdowns) concern me, but the way I look at it is that markups can also happen quickly. For instance, our revenue has increased to Rs 5014.60 crore in FY22 and there has been improvement in EBITDA and you would see that continuing in FY23 and FY24. So, a company with such revenue deserves a lot more than a $1 billion valuation.

Is securing fresh capital a challenge for the company amid macroeconomic uncertainty and what is your strategy to raise capital?

The company needs funding and there is no denial about that. The way we think about this is that if we put an attractive valuation on the table, which we believe is significantly lower than the true value of the company, it is going to be very easy to raise money at this stage where the firm is right now. We can then (start) building from there. That supports the founders' mindset where he's looking at a possible Rights Issue from existing investors.

There has been a string of senior-level exits at the firm over the past few months including CFO Ajay Goel who quit in November 2023 and general counsel Roshan Thomas who resigned this month. Are you concerned about the talent moving away from the company?

I would not shy away from saying that it is certainly a concern. It is not in the best interest of the company to lose leaders. These are the most difficult times for us as an organization. I think it's truly the people with that founder mindset who would want to stand up and fight in this situation to be able to help the company come back. I respect Rajnish Kumar, former State Bank of India chief and current chairman of BharatPe, and Mohandas Pai, former CFO of Infosys, who became part of our Advisory Council. They're not on the Board anymore, but they supported us and defended the company in a lot of situations. As we demonstrate strong corporate governance by making sure that we have an independent board and we get our audits on time, the business is continuously showing improvements and there are green shoots towards profitability, I'm very confident that the talent will come back. We have a fundamentally pure tech and strong business which inherently has the ability to be able to operate at a significantly high gross margin and consequently a good EBITDA percentage.