Not looking to raise funds right now, says Physics Wallah co-founder

Reports surfaced recently that the company was planning to raise $250 million in fresh funding, seeking a $3.3 billion valuation. However, Maheshwari denies that

Prateek Maheshwari, co-founder of ed-tech unicron firm Physics Wallah (PW), said that the company is not looking to raise any fresh funding but, looking at how their business has grown, is expecting a valuation markup. He also added that profitable growth is the company's focus.

"PW is not looking to raise any funds right now. This is our third consecutive year being profitable. Around 60 per cent of the funds from our previous funding round are still unused. The remaining was utilised to fuel our acquisitions," he told Business Standard. Reports surfaced recently that the company was planning to raise $250 million in fresh funding, seeking a $3.3 billion valuation. However, Maheshwari said that PW is well-capitalised and has no funding requirements.

Regardless, the firm is looking for a valuation markup. "Our business has grown four-fold since 2022 in terms of size, revenue, and our numerous verticals. So, we are looking at a valuation mark up with these metrics in mind. Our vision to impart learning to students is still our primary focus, and valuation is a byproduct of that. We have simply diversified this vision into our multiple verticals," he said.

At a time when Indian edtech start-ups are facing a funding crunch and a slew of layoffs, edtech unicorn Physics Wallah (PW) is on track to become profitable for the third consecutive year in a row. Founders of the company say that PW is well-capitalised and is not looking to raise any funds, as its current focus is hypergrowth while maintaining profitability.

The firm achieved its coveted unicorn status in June last year by raising $100 million in Series A funding from WestBridge Capital and GSV Ventures, after which the company was valued at $1.1 billion. Using this capital, PW ventured into other competitive exam categories as well.

"Although education is a negative cashflow business, we do not require a lot of operating capital to run the business, be it offline or online. Students pay their fees in advance, which helps us maintain our operations," Maheshwari added.

PW has been on a steady growth trajectory since its previous fundraise. Of the $100 million that PW raised last year, the company had set aside around $40 million for acquisitions. Its most recent one came in the form of UAE-based Knowledge Planet, PW's first international foray, last month.

In October last year, the company acquired test preparation edtech company PrepOnline and book publisher Altis Vortex for an undisclosed amount in a mix of cash and stock deal. With the acquisition of PrepOnline, PW forayed into the online competitive exam preparation segment, and the acquisition of Altis Vortex marked its entry into the book publishing domain. Before that, in August, PW acquired FreeCo, a Jaipur-based doubt solver and resource management firm.

Maheshwari claimed that PW's acquisitions would contribute nearly Rs 350 crore to the firm's overall revenue. However, this will not be counted in its FY23 financials as the acquisitions are yet to be finalised. "We are planning to double our profits and revenues by the next year. Our aim is to reach Rs 2500 crore in revenue."

Focus on profitability

The current focus of PW, Maheshwari says, is to remain profitable and achieve hyper-growth in the multiple verticals that the company has ventured into. "The only metric that we care about is our student Net Promoter Score (a measure of customer satisfaction). Revenues and profits are byproducts but student NPS is our top priority across verticals," he added.

PW reported a fourteen-fold increase in net profit in FY22 at Rs 97.8 crore. This was up from Rs 6.93 crore in the previous financial year. Further, the firm reported its standalone operating revenues for 2021-22 as Rs 234.09 crore, a nine-fold rise from Rs 24.62 crore in FY21.

PW is on track to maintain its profitability streak for the third consecutive year. "Our revenues will reach Rs 800 crore this year," Maheshwari said.

The company currently has no plans for an initial public offering (IPO) but estimates to go public after three years.

Creating communities

In a market that has been battered by funding challenges and is facing countless layoffs, PW has emerged as an outlier. The company has flourished at a time when its competitors are struggling to stay afloat.

"Our understanding of the markets is very different from our competition. Our business model is not comparable to anyone else. We believe in building communities and not in customer acquisition," Maheshwari said.

PW relies on forming engaging communities over platforms like YouTube and Instagram, where the company offers engaging content to students for free. Doing so makes student acquisition costs almost zero, which, in turn, makes the business sustainable.

"In terms of absolute numbers, the online mode is our most profitable avenue. We started with online in 2020, so the vertical has matured faster than others," Maheshwari said. The firm's test prep categories, which include JEE/NEET, among others, are PW's second most profitable vertical, followed by its offline centres.

"We are breaking even in almost every vertical. However, the capital allocation is higher in our offline centres due to leasing challenges and infrastructure needs. It is a capital and operational intensive area," Maheshwari added.

Hybrid coaching: Vidyapeeths and Pathshalas

The brainchild of Alakh Pandey and Prateek Maheshwari, PW, started its journey in 2014 as a YouTube channel to coach JEE and NEET aspirants. Today, it has scaled into India's 101st unicorn, preparing students for ten other competitive exams, including GATE, UPSC, NDA, and CA.

PW offers both free and paid online courses to students. Students can avail of these paid offerings for the affordable price of Rs 4,500 a year. The firm provides offline and hybrid coaching nationwide through its Vidyapeeths and Pathshalas.

The company offers educational content in 9 languages, including Hindi, English, Bengali, Marathi, Tamil, Telugu, Gujarati, Odia, and Kannada.

"We have designed the model to cater to the masses. Our entire technology and product stack has been designed to maintain these prices. We operate in mega batches, where the average enrollment rate for each batch is 20,000-40,000 students. Our tech stack, combined with our volumes, is the secret to this low pricing," Maheshwari revealed.

The edtech major currently teaches a total of 1.65 million students through its online subscription model. Another 70,000 students are enrolled in the company's offline centres. The company operates 60 Vidyapeeths and Pathshalas cumulatively across 30 cities nationwide.

This year, PW plans to grow its online student base to the 2.5 million mark and expand its offline presence to reach 150,000 students.

Opportunities, challenges and concern

Operating at such high volumes, however, comes with its own set of challenges, user engagement being a major one. To combat this, PW has introduced solutions like fortnightly testing and daily practice problems, among other peer-to-peer learning models.

Nevertheless, it is not all smooth sailing for PW. According to reports, the edtech giant has also been facing some headwinds in terms of attrition among its teachers and refund challenges from students in its offline centres, especially in areas like Kota.

"Five teachers, out of our roster of 250 teachers, left to join our competitor Adda247, which is hardly 2 per cent of our total teacher base. So, I wouldn't call it an attrition problem. Teachers tend to leave at the end of the academic cycle each year," Maheshwari said, addressing the challenges. Overall, PW has around 2,000 teachers.

Maheshwari says PW's refund percentage is in the single digits, less than many of its competitors.

"Around 30,000 students enrolled into our offline centres in Kota during the first two months. Many students faced challenges finding proper accommodation as hostels were not available. The cost of living in Kota is similar to Delhi. So many students decided to get refunds. Generally, refunds are higher in the area."

PW also wants to expand into southern India, especially to states like Tamil Nadu, Kerala, Karnataka, Andhra Pradesh, and Telangana. This expansion will primarily be driven through acquisitions.

"Test prep companies have not expanded to southern geographies, so it's a relatively untapped market. We have active viewership from these regions but we have not been able to penetrate the market like we have in north India," Maheshwari said.

In its short lifespan, PW has emerged as a market leader, beating out many better-funded edtech players in the market. "We are the clear leader in terms of test prep in the market. Because we are charging one-tenth of the price, our student base is 10 times more than our nearest competitor. We are yet to foray into some competitive exam categories, which we plan to do going forward," Maheshwari said.

Aside from its newly launched categories, PW's future growth, Maheshwari believes, will come from the higher learning space, which is the biggest growth lever for the company at the moment.

FACT SHEET

• 70,000 enrolled in offline centres
• 2,000 teachers enrolled across the country
• 14-fold increase in net profit in FY22 at Rs 97.8 crore
• Ninefold rise in standalone operating revenues in FY22 at Rs 234.09 crore
• 1.65 million students being taught through online subscription model
• 60 vidyapeeths, paathshalas across 30 cities
• 2.5 million online students and 150,000 in offline remain the target