US-based asset management firm Baron Capital Group has nearly halved the fair value of India's most-valued start-up Byju's in its books. This happened following the resignations of its auditor and three key investor board members, according to the investor's June quarter report.
In its April-June quarterly report, Baron Capital cut the valuation of Byju's to $11.7 billion as of 30 June. This is down 44.6 per cent from $21.2 billion as of 31 March.
Byju's was last valued at $22 billion when it raised $250 million from Qatar Investment Authority in October last year.
"Think & Learn Private Limited, the parent entity of Byju's – Learning App, detracted during the quarter. The weak performance was driven by a marked slowdown in business momentum as Covid-related tailwinds that benefited online/digital education have begun to dissipate," said Baron's June quarter report. "In addition, Byju's announced that Deloitte had resigned as its auditor and will be replaced by BDO (another top five global audit firm). Three investor-appointed board directors also resigned during the quarter. These developments were deemed as material adverse events that required the fair market value of our holdings to be adjusted down accordingly."
The fund made an investment in Think & Learn in the second quarter of 2021 as part of a private round of financing. "We are under a non-disclosure agreement with the company and are constrained in what we can share with our investors," said the report.
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However, it said as India's largest edtech player, the company has a significant opportunity to benefit from structural growth in online education services in the country.
"As India's largest education technology player, the company is well positioned, in our view, to benefit from structural growth in online education services in the country," said the report. "While we are disappointed with recent developments, we continue to believe that Byju's remains a dominant franchise and can sustain low to mid-20s earnings growth in coming years."
Meanwhile, Baron Capital has marked up the value of its stake in food delivery firm Swiggy by 33.9 per cent from 31 March to $8.54 billion. Also, the valuation of another portfolio company, Pine Labs, a fintech platform, has also been increased to $4.92 billion as of 30 June. This is up 10 per cent from a quarter ago.
The Baron Capital report said that India equities returned to leadership, as valuations reset after two consecutive quarters of underperformance and the economic and earning expansion in the country continued on a healthy course. "This reversal was a meaningful driver of our second quarter outperformance, and we maintain the conviction that India likely offers attractive long-term investment opportunities in the EM/Asia universe," said the report. "We believe that several EM/Asian central banks, including India, are on the cusp of a rate-cutting cycle – regardless of how the Fed progresses in the second half of 2023."
Large Indian start-ups have been facing valuation markdown by investors amid a funding winter and macroeconomic uncertainty. Some of these companies include Byju's, Swiggy, Pine Labs, Meesho, Eruditus and Gupshup.
US asset manager BlackRock recently reduced the valuation of its share in edtech giant Byju's — this time to about $8.4 billion, according to its filing with the Securities and Exchange Commission for the March quarter. Byju's latest valuation, as estimated by BlackRock, was around 62 per cent down from the peak of about $22 billion in April 2022. Before this, BlackRock had reduced the start-up's valuation to $11.5 billion (as of 31 December 2022).
A fund managed by Baron Capital Group had slashed the valuation of Swiggy by 34 per cent to $7.1 billion as of December 2022, according to filings with the US's Securities and Exchange Commission. The filing for this period was submitted in March this year.
Janus Henderson recently marked down the valuation of API Holdings, the parent firm of medical services firm PharmEasy, by half to around $2.8 billion, marking the second such action by a US investor for the Indian start-up. Funds managed by US-based investment management firm Neuberger Berman also recently marked down by 21 per cent the valuation of the shares they hold in API Holdings. The same funds reduced API Holdings' valuation to $4.4 billion from $5.6 billion.
US-based investment management firm Vanguard Group marked down the valuation of ANI Technologies, the parent company of ride-hailing firm Ola, by about 35 per cent to $4.8 billion from $7.4 billion, according to regulatory filings with the US's Securities and Exchange Commission.