Gradeup’s Profitable Turn: BYJU’S Edtech Arm Shows Fiscal Resilience, but Questions Linger

BYJU’S-owned Gradeup, the exam preparation startup, reported a net profit of INR 15.2 Cr in the fiscal year ending March 31, 2023. This marks a significant turnaround from a net loss of INR 133 Cr in the previous fiscal year. While the operating revenue soared by 214%, reaching INR 154.1 Cr, concerns emerge when dissecting the sources of this revenue and Gradeup’s expenditure profile. Here’s a closer look at the financial intricacies and challenges faced by Gradeup.

Gradeup’s Financial Highlights:

1. Net Profit Resurgence: INR 15.2 Cr net profit in FY23, contrasting with INR 133 Cr net loss in the previous fiscal year.
2. Operating Revenue Surge: A 214% increase to INR 154.1 Cr in FY23, up from INR 49.1 Cr in the prior fiscal year.
3. Expense Reduction: Overall expenses down 24% to INR 139 Cr from INR 182.5 Cr in FY22.

Digging Deeper: The Catch in Profitability:

1. Revenue Breakdown: INR 34.7 Cr generated from education and related activities, a 29% decrease from the previous fiscal year.
2. Dependence on BYJU’S: Majority of revenue (INR 119.3 Cr) derived from “business support services” provided to BYJU’S, raising questions about independent revenue streams.
3. Loss without Support Services: Without the support services revenue, Gradeup incurred a loss of INR 104 Cr.

Concerns and Auditor’s Warnings:

1. Auditor’s Caution: Auditor Lodha & Co expressed concerns about Gradeup’s ability to continue as a going concern basis due to accumulated losses and negative net worth.
2. Current Liabilities Exceed Assets: As of March 31, 2023, current liabilities exceeded current assets by INR 11,117.74 Lakhs, creating uncertainties about Gradeup’s financial sustainability.

Expense Analysis:

1. Employee Benefit Expenses: Increased 19% to INR 89.4 Cr, a significant portion of the startup’s disclosed costs.
2. Advertising Expenses: Declined 64% to INR 19 Cr from INR 53.2 Cr in FY22.

BYJU’S Group Context:

1. Gradeup Acquisition: BYJU’S acquired Gradeup in 2021 for $40 Mn to $50 Mn, rebranding it as BYJU’S Exam Prep.
2. Challenges Across BYJU’S Group: The financial revelations come amid multiple challenges faced by BYJU’S, including delays in filing financial statements, debt repayment issues, ongoing investigations, and legal cases.

The financial resilience displayed by Gradeup is juxtaposed against concerns about its dependence on BYJU’S and the broader challenges faced by the edtech giant. The auditor’s caution about Gradeup’s sustainability adds complexity to the narrative, raising questions about the long-term viability of the edtech arm.