Baron Capital halves BYJU'S fair value, marks up Swiggy and Pine Labs

US-based asset management company Baron Capital Group has slashed BYJU'S' valuation by nearly half due to a business slowdown intensified by Deloitte's resignation as its auditor and the departure of three directors from its Board.

Baron Capital's June quarter report revealed a significant decrease in BYJU’S' fair value, marking it at $11.7 billion, a drop of 44.6% from its valuation of $21.2 billion determined at the end of March.

“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 explained that while it is “disappointed with recent developments”, it continues to believe that the Indian edtech firm can sustain low to mid-20s earnings growth in coming years.

In June, Amsterdam-based Prosus marked down the valuation of BYJU’S to $5.1 billion. Prior to that, BlackRock, the largest AMC globally, reduced the valuation of its stake in the edtech firm by 62% as of March 31, 2023. The decrease in the value of BlackRock's stake in the edtech company resulted in BYJU’S being valued at about $8.4 billion—a decline from the $22 billion valuation at which the edtech startup last raised funds.

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In a turnaround, Baron Capital's assessment of foodtech major Swiggy was positive. After consecutive quarterly declines, the value of Baron's stake in Swiggy surged by 33.9%, valuing it at $8.5 billion as of June. While there’s an upswing, it is still lower than Swiggy's January valuation of $10.7 billion.

Likewise, Pine Labs saw a favourable change in its valuation by the AMC. After a phase of stability, the fair value of the fintech platform was raised by 10%, pegging it at $4.9 billion as of June end. This upward revision, however, is below the valuation of over $5 billion during its funding last March. In May, US-based fund Neuberger Berman took a haircut in the valuations of its stake in Pine Labs and healthtech startup Pharmeasy.

It is worth noting that an AMC’s evaluations of fair values are typically influenced by its internal assessment of the broader macro- and micro-environment. 

“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 conviction that India likely offers the most attractive long-term investment opportunity in the international/EM universe,” it added.