Baron Capital almost halves Byju’s fair value, marks up Swiggy, Pine Labs in June review

It is important to note that these adjustments to fair values are typically based on AMC's internal assessment of the macro and micro environment.

US-based asset management company (AMC) Baron Capital has nearly halved the fair value of India’s most-valued startup, Byju’s, in its books following the resignations of its auditor and three key investor board members, it said in its June quarter report.

Baron has slashed the fair value of Byju’s by 44.6 percent, effectively valuing the edtech giant at just under $12 billion, the company’s June quarter report showed. Byju’s was last valued at $22 billion, when it raised $250 million from Qatar Investment Authority (QIA) in October last year.

“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),” Baron Capital said in the report.

“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 AMC added.

The investor, however, noted that it continues to believe that Byju’s remains a dominant franchise and can sustain low to mid-20s earnings growth in coming years.

Silver lining 

Even as Baron Capital slashed Byju's valuation, it marked up the fair value of Swiggy, after lowering its value for two straight quarters. As of March, Baron had slashed the fair value of Swiggy by almost 40 percent valuing the company at $6.5 billion.

As of June, the US-based AMC has now marked up the fair value of the food tech startup by 34 percent effectively valuing it at $8.5 billion. While that is an improvement, it was still lower than the $10.7 billion that Swiggy was worth in January last year. 

Baron Capital holds around 0.7 percent stake in Swiggy. The AMC invested in Swiggy in January last year and according to the SEC filings, it paid $76.8 million for 11,578 shares of the food tech platform, valuing Swiggy at $10.96 billion.

In July, CEO of Swiggy's food delivery business, Rohit Kapoor told Moneycontrol that valuation changes do not affect the startup.

“...one fund sitting in the US marking up and marking down, we have no control over - these are very standard fund reporting mechanisms which every company lives through. We are only as much curious about it (markdowns or markups) as anybody else is,” Kapoor said in the interview.

In another positive move for the startup ecosystem, Baron also marked up the fair value of Pine Labs in its books by a little over 10 percent, effectively valuing the fintech unicorn at $4.9 billion now. Pine Labs was valued at over $5 billion when it raised money in March last year.

It is important to note that these adjustments to fair values are typically based on AMC's internal assessment of the macro and microenvironment. They do not necessarily indicate a permanent markdown in the startup's overall valuation.

The US-based AMC, which is also an active investor in public markets, further showed optimism on Indian equities.

“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 the most attractive long-term investment opportunity in the international/EM universe,” Baron Capital said.