PhysicsWallah IPO: Issue size, promoter cash-out, heavy costs and teaching moments decoded

Among institutional backers, WestBridge Capital is the largest with 6.41 percent stake, followed by Hornbill Capital Partner at 4.42 percent. US-based GSV Ventures’ Fund III owns 2.85 percent, Lightspeed Opportunity Fund 1.79 percent, and Setu AIF Trust 1.39 percent.

The issue is being managed by Kotak Mahindra Capital, JP Morgan, Goldman Sachs, and Axis Capital, among others.

Where the money’s going

The edtech firm, which offers test-preparation courses for competitive exams and upskilling programmes, has laid out a meticulous spending plan for the fresh issue proceeds.

As much as Rs 460.6 crore is earmarked for fit-outs of new offline and hybrid centres, Rs 548.3 crore for lease payments of existing centres, and Rs 47.2 crore for expenditure at subsidiary Xylem Learning. Another Rs 33.7 crore will go towards investments at Utkarsh Classes & Edutech, while Rs 26.5 crore will be used to acquire more stake in Utkarsh.

PhysicsWallah will also deploy Rs 200.1 crore on server and cloud infrastructure and Rs 710 crore on marketing initiatives — a telling sign of how aggressively it plans to battle for visibility. The remainder will be set aside for acquisitions and general corporate purposes.

The financial chalkboard

PhysicsWallah’s topline has swelled, but the bottom line remains stubbornly red. Revenue from operations rose 49 percent year-on-year to Rs 2,886.6 crore in FY25 from Rs 1,940.7 crore in FY24, marking a two-year CAGR of nearly 97 percent since FY23.

Net loss narrowed to Rs 243.3 crore in FY25 from a bruising Rs 1,131 crore the year before, aided by the absence of an Rs 816.6 crore fair-value hit on preference shares booked in FY24.

Expenses, however, continue to run ahead of revenue. At Rs 3,264.8 crore in FY25, costs were led by employee benefits of Rs 1,401.2 crore — nearly half the topline — and advertisement and publicity spends of Rs 276.2 crore. Depreciation and amortisation climbed to Rs 366.4 crore, underlining the capital intensity of offline expansion. Profitability, for now, remains out of reach.

The offline thrust is changing the revenue mix. PhysicsWallah’s 198 centres across 109 cities contributed Rs 1,351.9 crore in FY25, almost level with Rs 1,404 crore from online channels. Paid users climbed to 4.46 million, while average revenue per offline student rose to Rs 40,405. Yet growth came disproportionately from lower-priced segments such as civil services, defence and accountancy, pulling down overall ARPU.

Notably, in terms of remuneration, founder-CEO Alakh Pandey took home Rs 3.2 crore in FY25, while co-founder Prateek Boob earned Rs 1.35 crore, well above their Rs 90 lakh base salaries once allowances were added. The company also has 30.9 million outstanding stock options, setting the stage for potential equity dilution.

The risks to watch

The DRHP points out several key risks. The company has been consistently loss-making, posting restated losses of Rs 243.3 crore in FY25, Rs 1,131 crore in FY24, and Rs 84.1 crore in FY23, with negative net worth in FY24. Without tighter expense control, the risk of continuing red ink looms large.

Subsidiaries are proving another drag. Xylem Learning, Utkarsh Classes and Knowledge Planet all reported losses in FY25, forcing the parent to keep funding their operations. If these businesses don’t turn profitable, they could become a persistent cash drain.

Dependence on offline centres adds a concentration risk. Nearly half of PhysicsWallah’s topline now comes from offline hubs such as Delhi-NCR, Patna, Calicut and Kota. A slowdown in enrolments in these cities could deliver a disproportionate blow to revenues, particularly as offline operations are cost-heavy.

People risks are equally stark. Faculty attrition stood at 36.5 percent in FY25, down from 45.3 percent the year before but still high for a business built on teaching talent. In a sector where rivals are quick to poach, retaining and incentivising faculty remains mission-critical. On the student side, dropouts climbed to 46,019 in FY25, or just over one percent of paid users, up from 0.8 percent in FY24. Refund requests, especially for higher-priced offline courses, could further squeeze margins.

And then there is key-man risk. The DRHP explicitly states PhysicsWallah’s fortunes are tied to the leadership of founders Alakh Pandey and Prateek Boob. Any disruption in their involvement would not just hit operations but erode brand equity built over the last five years.

The takeaway

PhysicsWallah’s IPO will be closely tracked as the first large public listing from India’s edtech sector. With revenues rising sharply but losses and costs still weighing on the business, the company’s next phase will hinge on how well it balances growth with profitability while scaling its hybrid model.