Prosus has drastically marked down its investment in Byju’s to zero, resulting in a loss of $493 million, according to the company’s FY24 annual report released on June 24. Despite this significant write-off, Prosus management remains hopeful about Byju’s future, emphasizing the need for governance reforms to safeguard shareholder interests.
Byju’s Financial Health Under Scrutiny
Prosus, which held a 9.6 percent stake in Byju’s prior to the rights issue, cited inadequate information on the edtech giant’s financial health, liabilities, and future outlook as the primary reasons for the write-down. A Prosus spokesperson explained, “We have impaired Byju’s down to zero at the end of FY24. We have written down Byju’s primarily because we have inadequate information on the company’s financial health, liabilities, and future outlook.”
Negative Investment Return
In an investor presentation, Prosus reported an internal rate of return (IRR) of -100 percent from its Byju’s investment. IRR, a measure of investment profitability, indicates a negative return when outgoing cash flow exceeds projected incoming cash flow over the investment’s lifetime. This write-off aligns with ongoing legal challenges from Prosus and other investors like Peak XV Partners against Byju’s management decisions, including a controversial rights issue that threatens to dilute existing shareholders’ stakes.
Governance Reform: A Path to Recovery
Prosus management stressed the importance of governance reform in a post-earnings call, stating, “We are seeking protection of our rights and all shareholders. There are a number of actions that the company’s management has taken. We have hope for the company’s outlook. The key for us is to change the governance of the company. That is the first step.”
Byju’s is currently raising $200 million through a rights issue at a 99 percent discount to its last valuation of $22 billion. However, the National Company Law Tribunal (NCLT) has restricted the use of these funds pending a court decision.
Significant Valuation Decline
In the first half of the fiscal year, Prosus had already marked down Byju’s valuation to below $3 billion, an 86 percent drop from its previous valuation of $22 billion. “Edtech continues to be a very interesting area for us. At the same time, our businesses have not performed. We spent a lot of time improving their performance. We have three large positions in edtech: Stack Overflow, Skillsoft, and Byju’s. All three have not performed. Byju’s has been an important contributor to the challenged performance in the last year,” Prosus stated.
Board Resignations Amidst Turmoil
Byju’s last official valuation was over $22 billion in October 2022, following a $250 million funding round. However, the company has faced numerous challenges, including delayed financial results and auditor resignations. In July 2023, Prosus’ representative on Byju’s board, Russell Dreisenstock, resigned, citing poor reporting and governance structures. His departure followed those of Chan Zuckerberg Initiative’s Vivian Wu and Peak XV Partners (Sequoia Capital India)’s GV Ravishankar.
The series of board exits reflects broader issues within Byju’s management and governance, adding pressure on the company to address these problems and restore investor confidence. As Prosus continues to push for governance reforms, the future of Byju’s hinges on its ability to navigate these challenges and implement necessary changes.
Disclaimer
The information provided in this article is for informational purposes only and does not constitute financial, legal, or professional advice. The views expressed are those of the author and do not necessarily reflect the views of any affiliated organizations. Readers are encouraged to conduct their own research and seek professional advice before making any investment decisions.
