The Math of Physicswallah 

Post results management conference call with investors and analysts have truly democratised information. To know what the management is like and what it is thinking, you no longer must wait months for an appointment. Nor do you walk into their plush offices to get few minutes of their attention. All you need to do is dial into the call and listen.

For instance, the recent conference call with the management of Paytm (One 97 Communications) was enlightening and confusing at the same time. I dialled into the call hoping to understand how the payments entity hopes to get its house in order. Instead, Mr Vijay Shekhar Sharma kept listeners hooked on to his plans to offer GenAI features like personalised 'spend analysis songs'.

Going further, he elaborated on how he wasn't excited about just another cost-cutting tool. Rather, for small shops, Paytm wants to offer AI agents via its sound box and other custom devices. Ones that could act like a virtual COO/CFO/CMO for store owners paying subscription fees plus inference fees for AI usage.

By the end of the call, I was not sure if the business was about 'payments' anymore.

I would say something similar about listed edutech businesses in India, where traditionally the core idea of education has taken a backseat, after a point of time.

Why do I say so?

Well, listed Edutech companies in India, particularly, have a chequered history.

Especially, ones that grew too much and too fast. Ones that expanded into new geographies at a blistering pace. And ones that raised investor funds, either privately or through IPOs.

Byju's did grab a lot of headlines since 2020. The company's constant spate of acquisitions made it a regular feature in media reports. The entity's coding subsidiary, WhiteHat Junior, became very popular during the pandemic lockdown.

Byju's also poured hundreds of millions into marketing, signing Shah Rukh Khan and Lionel Messi as brand ambassadors. It became the main sponsor of the Indian cricket team and an official sponsor of the 2022 FIFA World Cup.But as losses widened, investors exited and the company neared bankruptcy. The scale of shareholder value destruction also attracted attention.

But Byju's was not listed. So, its value destruction did not affect common retail investors.

Edutech companies have tried their luck in the stock markets for a few decades now. Unfortunately, each time, the companies got the shareholder value creation math wrong.

And along with the founders of the edutech ventures, the minority shareholders too learnt many lessons.

Or so it seemed at least. Until the Physicswallah IPO came along.

Entities like Educomp, MT Educare and Tree House Education have tried and burnt fingers trying to grow in the hyper competitive edutech market.

MT Educare spent huge amounts post listing as the company invested in technology to launch the coaching classes on an app and a tab. It roped in celebrities like Amitabh Bachchan as a brand ambassador. Back in 2015 it was the only edutech company moving from an offline model to an online model. The entity did not understand the unit cost economics of running online edutech venture.

Six years prior to MT Educare's listing, Educomp, founded by an IIT Delhi and IIM Ahmedabad alumnus, got listed.

The company debuted on the bourses in 2006, riding the school digitisation wave with their 'SmartClass' product. Educomp's market cap touched Rs 100 bn in 2021. But the high upfront investment in deploying tech solutions across schools created liquidity issues. Educomp lost investors lost money when its market cap nosedived to Rs 2 bn and finally went into insolvency in 2017.

Similarly, Tree House Education rapidly expanded its pre-school network, fueled by investor confidence and an initial public offering (IPO) in 2011. The company's financials rapidly deteriorated around 2016, with a sharp drop in cash reserves and decelerating revenue growth. Allegations of financial irregularities, including related-party transactions and issues with receivables, severely damaged investor trust.

A proposed merger with competitor Zee Learn was called off, further crippling its standing and triggering a wave of branch closures. Ultimately, the financial distress and loss of credibility led to the collapse of the widespread pre-school chain.

PhysicsWallah certainly has stronger fundamentals to boast of compared to peers.

The entity's FY25 revenue was 10x that of competitor Vedantu. In fact, PhysicsWallah's revenue was comparable to offline coaching ventures Allen Institute and higher than Akash Education's.

PhysicsWallah banks on its popularity through its open access approach. It offers several courses and content for free on YouTube and social media apps, which helps it create brand value among students. This, along with platform specific offerings such as ability to download notes, structured curriculum, access to study tools and ability to avail offline classes, is intended to encourage students to organically become free or paid users.

So, PhysicsWallah's online community of content users acts as an organic funnel for students to consider its offline and hybrid channels.

The company closely monitors the geographical density of students using the free and paid online courses other marketplace platforms, to plan expansions and strategic acquisitions. For example, it expanded its offline centres in the states of Rajasthan, India and Uttar Pradesh, India by acquiring Utkarsh Classes.

Like its predecessors, PhysicsWallah has also dabbled in new tech-backed offerings, to cross sell and up sell its products.

While so far, the company seems keen to improve balance sheet and return ratios, while keeping growth intact, investors must not forget history.

It may be too early to give PhysicsWallah the benefit of doubt that the stock will prove to be different from that of its earlier listed online edtech peers.