#suprioghatak #byjus #deloitte #revenuerecogntion #accountingstandards
Deloitte has not signed Byju's financial statements for 2020-21. They have not submitted the financial reports for 2021-22 also.
While Byju's dismissed concerns, if it fails the acid test, it could horrify the entire $3.5 B Indian edtech industry, seasoned investors, upcoming founders included.
What is the problem with Byju’s finances? Are they inaccurate?
Byju’s is late in filing. Next, its books may reveal several discrepancies. Let's have a look.
Accounting issues, troublesome lending arrangements and a constant need for cash are playing simultaneously.
The reported numbers seem to be distorted for more reasons than one. Bundling hardware like memory cards and tablets in its revenue calculations may have been done to inflate them. They accounted for 63% of its revenue in 2020 with an annual increase of 55%.
Byju’s and its controversial subsidiary WhiteHat Jr draw loans to keep prices affordable and offer a 100% default guarantee to lending partners. This risky practice is disliked.
Byju's says securitization and First Loss Deposit Guarantee (FLDG) are accepted industry practices. If not for FLDG, the majority of consumer parents would not be able to raise personal loans from banks and financial institutions at affordable rates.
Byju’s says that the late filings are not a cause for concern.
Valued at a colossal $22 B, Byju’s has raised over $6 B in its 12-year existence. It has expanded to new countries including the UK, Australia, Brazil, Indonesia, and Mexico. Revenues are not even $1 B. Ideally, the revenue multiples in the edtech space, 19x for larger companies, should be at least $1 B.
It has been on an acquisition splurge since the pandemic, embracing not just e-learning companies but professional skilling and augmented reality start-ups. It is eyeing a public market debut at a massive $48 B valuation soon.
The delay is not a red flag, it said. These numerous acquisitions are being examined thoroughly and the lack of audit bandwidth for the company has scaled up rapidly. Within a few days we can actually see that report.
Byju's made at least 10 acquisitions for a cumulative transaction value of around $2.5 B in 2021.
It has completed the consolidation of businesses and will be filing its pending financial results in June.
This response comes after The Ken reported that Byju's has not filed its financial statements for 2020-21 and 2021-22 as auditor Deloitte is hesitant to put its signature due to problems in refunds, loan guarantees and unusual revenue recognition practices.
Byju's says that they follow the highest standards in all business practices from student success to governance and accounting standards. These practices have been in operation for the last six years, have been audited by Deloitte, and records are submitted to all relevant authorities over these years.
Attributing the delay to a series of acquisitions made by Byju's in 2020 and 2021, they reiterate that multiple acquisitions were made in 2020-21 and each had a different accounting style and year. They have completed the consolidation of businesses and will be filing their financial results this month.
How Byju's records its revenue from sales of hardware (memory cards, tablets etc.) and software (apps and online classes) could have caused a discrepancy in the edtech firm’s financial statements.
Loan guarantees are the second issue highlighted. Byju's offers a 100 percent default guarantee to some lending partners that make loans to its customers. Such guarantees are called First Loss Default Guarantees (FLDG). If the customer fails to repay, Byju’s foots the bill, out of its own books or by raising cash from private investors.
It said that working with lenders that help consumers finance a course lies at the heart of what allows Byju’s to book revenues in advance.
So far, Byju's has raised over $6 B in funding, with the founder Byju Raveendran pumping $400 M in its leading the latest $800 M funding round at a valuation of $22 B in March 2022.
The refund guarantees offered by Byju's and its subsidiaries could create pain points if the actual refunds far exceed the budgeted amount.
Byju's is looking to go for an IPO in the US through the SPAC route. Hence, Deloitte could be taking a cautious stand.
Now the Indian edtech space is reeling under the bad weather of the funding winter, causing at least two start-ups to shut operations - Udayy and Lido Learning.
Edtech unicorns Vedantu and Unacademy have laid off over 600 employees each. At least 800 employees have resigned at Byju's owned White Hat Jr. The total edtech layoffs have crossed 3,500 over the last two months.
Conclusion
With these practices, Byju Ravindran's own standing as a founder is at stake as recently founders like Ankiti Bose and Ashneer Grover were shown the door for false revenue reporting and accounting.
A few million dollar questions remain to be answered
Why has Deloitte signed the previous financial statements and held off this time?
Why have the investors been investing so much money in a start-up like Byju's?
Please read Part-2 and Part-3
About Author
CA Suprio Ghatak
Qualification: The Institute Of Chartered Accountants Of India
Company: J K V S & CO, Chartered Accountants
Location: Kolkata
About Author :
I am a Partner at J K V S & CO. I look after Recruitment, Training and Development. I am working here since May 2017.I also look into all ICAI related matters of the firm.
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