Why Prosus' $578 mn fair value doesn't put BYJU'S valuation at $6 bn

New Delhi, Nov 23

Global investment group Prosus has put the fair value of its 9.67 per cent stake in BYJU'S at $578 million, which technically puts the current valuation of the edtech major at nearly $6 billion -- last valued at $22 billion -- but this is not the case as Prosus has changed its accounting treatment for BYJU'S.

In its September quarter results, Prosus classified BYJU's as a non-controlling financial investment rather than an associate, as its shareholding dropped below 10 per cent.

Prosus told IANS in a statement on Wednesday that the investment group has changed the accounting treatment for BYJU's and in the subsequent reporting periods, "the company will be accounted for as an investment".

Prosus hasn't sold any of its stake in BYJU'S, which reported Rs 4,500 crore loss in FY21 due to accounting change (or Rs 12.5 crore loss daily), but "made Rs 27 crore in revenue per day in FY22".

"The provision of BYJU'S audited financials did not align with the timing of the close of our financial reporting periods, so we did not have sufficient information to make fair assumptions for our Group's financial statements. The fair value of the group's BYJU'S investment was determined by a third-party firm," a Prosus spokesperson informed.

According to industry experts, this is more of an accounting issue than a valuation markdown for BYJU'S.

"In September 2022, the group lost significant influence in BYJU'S as it no longer exerts significant influence over the financial and operating policies of the entity. The group recognised a gain on disposal of the associate of $22 million, including a reclassification of the accumulated foreign currency translation losses of $55 million," Prosus said in its quarterly earnings report.

"The group accounts for its 9.67 per cent effective interest in BYJU'S at fair value through other comprehensive income. The fair value of the BYJU'S investment, subsequent to the loss of significant influence, is US$578 million," it added.

BYJU'S has said it has embarked on a path to achieve group-level profitability by March 2023 with a three-pronged approach. It has consolidated all its K10 India subsidiaries into one unit to leverage their synergies.

Last month, the edtech major took an unsecured loan of Rs 300 crore from its subsidiary Aakash Educational Services, which it acquired for more than $950 million, to bolster its "principal business activities".

BYJU'S also raised $250 million from its existing investors in a fresh round of funding in October.

Prosus said that macroeconomic conditions have changed in the several months preceding "our half-yearly financials, generally resulting in significant declines in company valuations across the technology sector".

"Prosus Edtech retains its board representation and continues to support BYJU'S in their vision to expand access to quality education in India and beyond," it added.