Baron Capital Slashes BYJU’S Valuation Amidst Business Slowdown and Management Changes
- ByStartupStory | August 29, 2023
Baron Capital Group, a US-based asset management company, has significantly reduced the valuation of BYJU’S, citing factors such as a business slowdown, Deloitte’s resignation as auditor, and the departure of three directors from its board. In its June quarter report, Baron Capital indicated that BYJU’S fair value had dropped by 44.6% from $21.2 billion in March to $11.7 billion. The report noted a slowdown in business momentum as COVID-related advantages for online education waned, along with the change of auditor to BDO from Deloitte and the departure of three board directors, which were considered material adverse events leading to the valuation adjustment.
“Weak performance was driven by a marked slowdown in business momentum as COVID-related tailwinds that benefited online/digital education have begun to dissipate. In addition, BYJU’S announced that Deloitte had resigned as its auditor and will be replaced by BDO (another top five global audit firm),” the AMC’s quarterly report noted.
The report added, “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.”
Baron Capital, while disappointed with recent developments, maintains confidence in BYJU’s ability to sustain earnings growth in the low to mid-20s range in the coming years. Earlier in June, Prosus reduced BYJU’s valuation to $5.1 billion. BlackRock, a major global asset management company, also devalued its stake in BYJU’S by 62% as of March 31, 2023, resulting in a valuation of around $8.4 billion, down from the previous $22 billion.
Baron Capital’s assessment of food tech company Swiggy, on the other hand, showed a positive turnaround. After consecutive quarterly declines, the value of Baron’s stake in Swiggy rose by 33.9%, valuing it at $8.5 billion in June, though still lower than its January valuation of $10.7 billion. Similarly, fintech platform Pine Labs saw a favorable valuation change, with Baron Capital raising its fair value by 10% to $4.9 billion by the end of June. This adjustment remains below the valuation during Pine Labs’ funding last March.
“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,” Baron Capital said in the quarterly report. “This reversal was a meaningful driver of our second quarter outperformance, and we maintain the conviction that India likely offers the most attractive long-term investment opportunity in the international/EM universe,” it added.
It’s important to note that an asset management company’s valuation assessments are influenced by its internal evaluations of the broader macro and micro-environment. Baron Capital mentioned that India’s equities returned to leadership in the international/emerging markets universe, driven by economic and earnings expansion, leading to its positive outlook on the long-term investment opportunity in India.
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