The Humpty Dumpty Byjus

Humpty Dumpty sat on a wall
Humpty Dumpty had a great fall
All the king’s horses and all the king’s men
Couldn’t put Humpty together again

All eyes are on the February 23, 2024 Extraordinary General Meeting (EGM) of the Byjus called by some investors of the company. There is considerable speculation on the intent of those who have called the meeting. One stream of thought has it that they are bent upon removing the founder and CEO Byju Raveendran. Whatever the details of the final outcome of the EGM there is little doubt that the Byjus story is one of the most sensational corporate stories to have emerged out of the Indian business firmament in recent times. There was a time when the Indian media as a whole, and particularly the business media, spoke only about the rise and rise of Byjus. And then the crash happened.

Consider this. Global giants Coca Cola and Pepsi fought for the official sponsorship of Cricket in India. In their strife to outbid the other, the bids turned hysterical. The money swindling Sahara was the official sponsor for some time. From nowhere, Byjus began to don the jerseys of national cricket team as official sponsor. Its disappearance from the players’ apparels was also swift.

It was the season of “cash burns” in start-ups jargon. The angel investors picked up equity in Byju Raveendran’s Think & Learn Pvt Ltd at astronomical valuations. At each round of sale of shares under the private equity route, the valuations of the company kept rising. May be, Byju did not know what to do with the money. This is the beginning of the dream run from 2015. The covid pandemic was disruptive to classroom teaching. But, it was the boon to Edtech industry, Byjus included.

Unhindered access to easy money forced Byju Raveendran to clock higher revenues to satisfy the angel investors and seek higher valuations in subsequent rounds of equity infusion into the Company. He began with the acquisition of White Hat Junior, a fledgeling edtech that specialised in upskilling young students in computer coding. Byjus bought it for around USD 300 million in July 2020. In nearly twenty months, the founder of White Hat Junior, Karan Bajaj had rewarded his angel investors who put in just USD 11 million, most handsomely. 

In the process, he himself got enriched much beyond his efforts, backed by a management qualification from IIM, that some chose to describe him as a parvenu. Byju was on his way to create more such parvenus. He bought Aakash Educational Services Ltd in April 2021 for close to USD 950 million, making the founder Aakash Choudhary humongously rich overnight. At the same time, Byjus commanded a valuation of USD 22 billion. 

Byju Raveendran continued his acquisitions at frenetic pace. He funded these through equity and debt. And he found the going tough in clocking revenues. Auditors refused to close his books without qualification. Debtors chose to take him to courts for loan repayment delinquencies. These were the King’s horses and men. Will they be able to put Humpty together again?

In the course of these scrambles, Byju ran into problems with non-compliance of provisions of Foreign Exchange Management Act (FEMA 1999), as he wantonly made advance remittances and received advance remittances but failed to execute the orders. So, the Enforcement Directorate were behind him.

Byju was fortunate to rope in Ranjan Pai of Manipal Hospitals as an investor in these testing times to keep his head afloat. Amidst these compounding woes, Byju had to perforce go back to the same King’s men and horses to save him. He offered a Rights Issue to existing investors. Nothing novel about this, many faltering entrepreneurs have taken this route earlier. He discounted the USD 21 billion by 99%.

 Some investors saw this as an opportunity to retain their stake in the Company and at the same time, lowering the average holding price of their stock in the Company, especially when new investors might not touch it even with a barge pole. Not everyone thinks on same lines. Some investors wanted to oust the promoter Byju Raveendran, his wife and brother from the Board of the Company and accordingly demanded for an Extraordinary General Meeting (EGM) of the Company. Byju could get some succour through an interim relief on executing the decision of the EGM scheduled for 23rd February 2024, while the Karnataka High Court refused a stay the EGM as demanded by Byju. Sensing that Byju might flee the country if things get hot, the Enforcement Directorate has obtained Lookout Notice Circular from Bureau of Immigration against Byju Raveendran, quantifying his foreign exchange violations at ₹9362 crores. 

While the market waits expectantly to see how things unfold among Humpty and the King’s horses and men, let us look back at this Subhashitham sloka.

“Na chora haryam, na cha Raja haryam, na bhaatr bhajyam, na bharakaari. Vyayam krutevardhat evam nityam Vidhyadhanam sarva dhana pradhaanam.”

“Knowledge cannot be stolen, nor is it a treasure confined to Kings. It cannot be divided amongst brothers. It is not heavy to carry. As you spend it, it keeps growing. Knowledge is the most precious wealth amongst everything.” Did he make the cardinal sin of commercialising knowledge?

Only the King’s horses and men will be able to analyse it better!