In a significant turn of events, Gradeup, an edtech startup under the BYJU’S umbrella, has reported commendable financial performance, turning profitable in the fiscal year ending March 31, 2023. However, a deeper analysis of the financial data reveals a complex picture, shedding light on the challenges faced by the company and its dependence on the larger BYJU’S group.
Credits: Inc42
Financial Turnaround: A Closer Look:
Gradeup’s FY23 Financial Performance
The fiscal year 2022–2023 financial statements of Gradeup demonstrate an impressive reversal. With a net profit of INR 15.2 Cr for the year, the previous fiscal year’s INR 133 Cr net deficit was much improved. Alongside this achievement, operating revenue had an incredible spike, rising from INR 49.1 Cr in FY22 to INR 154.1 Cr, a 214% increase.
Revenue Breakdown: A Dependency Dilemma:
Majority Revenue from Business Support Services
Despite the impressive operating revenue, a closer examination of Gradeup’s income sources raises concerns. The lion’s share of revenue, totaling INR 119.3 Cr, is attributed to “business support services” provided to BYJU’S, the parent company. This revenue stream witnessed a significant increase from nil in FY22. However, revenue from education and related activities decreased by 29% to INR 34.7 Cr.
Dependency on BYJU’S:
There are concerns about Gradeup’s independent viability given that a sizable amount of its income comes from BYJU’S. In the absence of revenue from offering business support services, Gradeup experienced a significant loss of INR 104 Cr in the year.
Auditor’s Concerns: The Going Concern Basis:
Challenges to Sustainable Operations
The auditor, Lodha & Co, expressed apprehensions about Gradeup’s ability to operate as a going concern. Accumulated losses leading to the erosion of net worth and a situation where current liabilities exceed current assets by INR 11,117.74 Lakhs cast doubt on the company’s continuity. The auditor’s report suggests a material uncertainty, indicating that Gradeup’s ability to continue as a going concern depends on the generation of expected cash flows.
BYJU’S Group Dynamics:
Acquisition and Integration
In 2021, Gradeup joined the BYJU group, becoming the ninth purchase made by the company during its $2 billion acquisition binge. According to reports, BYJU’S paid between $40 and $50 million for the acquisition of Gradeup, which was later renamed as BYJU’S Exam Prep.
Debt and Financial Support
As of March 31, 2023, Gradeup owed INR 99 Cr to BYJU’S, a significant amount exceeding six times its reported net profit for the year. The financial statement highlights continued financial support from BYJU’S, playing a crucial role in Gradeup’s ability to prepare financial statements on a going concern basis.
Expense Analysis: Employee Benefits and Advertising:
Key Expenditure Areas
Employee benefit expenses form the largest chunk of Gradeup’s costs, increasing by 19% to INR 89.4 Cr in FY23. This emphasizes the significance of human resources in the startup’s operations. On the other hand, advertising expenses, a substantial cost for any edtech platform, witnessed a significant decline of 64% to INR 19 Cr from INR 53.2 Cr in FY22.
The Broader BYJU’S Financial Landscape:
Challenges Faced by BYJU’S Group
For the BYJU’S group, this financial disclosure from Gradeup comes at a difficult moment. The larger parent firm is facing a number of problems, such as difficulties repaying debt, delays in reporting financial statements, an ongoing Enforcement Directorate (ED) inquiry, and court cases. Great Learning, another business in the BYJU’S group, had a net loss of INR 357.3 Cr in FY23, according to its financial statements.
Possible Impact and Future Prospects:
Navigating Uncertainties
The financial numbers and auditor’s concerns indicate that Gradeup, despite achieving profitability, faces uncertainties that necessitate a careful strategic approach. The dependence on BYJU’S for a significant portion of revenue and continued financial support raises questions about Gradeup’s ability to stand independently in the long run.
Strategic Considerations:
For Gradeup, strategic decisions in terms of diversifying revenue streams, reducing dependence on BYJU’S, and optimizing expenses become crucial. The ongoing merger application with Think & Learn Pvt Ltd, along with the financial support from BYJU’S, might provide a lifeline, but the startup needs to address the concerns raised by auditors and ensure sustainable operations.
Conclusion:
Gradeup’s journey to profitability in FY23 is a noteworthy achievement, but the complexities surrounding its financials and the challenges faced by the larger BYJU’S group underscore the dynamic nature of the edtech landscape. The startup must navigate these challenges strategically, fostering independence while leveraging the support and resources of its parent company for sustainable growth in the competitive education technology sector.
