upGrad’s FY23 Loss Surges To INR 1,141.5 Cr On Goodwill Writedown Of INR 410 Cr

Mumbai-based edtech unicorn upGrad’s net loss surged 76% to INR 1,141.5 Cr in the financial year 2022-23 (FY23) from INR 648.2 Cr in the previous fiscal year.

The startup’s bottom line took a hit due to goodwill writedown of INR 410 Cr (more on this later) despite its operating revenue crossing the INR 1,000 Cr mark for the first time since inception.

The edtech startup reported an operating revenue of INR 1,169.6 Cr in FY23, an increase of 97% from INR 595 Cr in the previous fiscal year.

Founded in 2015 by Ronnie Screwvala, Mayank Kumar, and Phalgun Kompalli, upGrad offers higher education courses and skilling programmes in collaboration with colleges and universities.

It primarily earns revenue from programme fees and the commission that it earns from universities. 

Including other income, total income rose to INR 1,194.4 Cr by 96% from INR 608.3 Cr

Acquisitions Take Toll

upGrad’s acquisition spree in 2022 cost it heavily as it recorded an impairment of goodwill worth INR 410 Cr on its acquisitions during the year under review. 

upGrad acquired six startups in 2022 – Harappa Education, INSOFE, Centum Learning, Exampur Marking, WOLVES India, and Work Better.

It seems that not all the acquisitions proved successful as upGrad closed several verticals of the acquired businesses in FY23, resulting in impairment of goodwill. For the uninitiated, goodwill impairment takes place when a company pays more than book value for the acquisition of an asset, and later the valuation of the asset declines. 

For instance, upGrad acquired the International School of Engineering (INSOFE) in a $33 Mn (INR 275 Cr) share swap deal. However, as per its filings, upGrad decided to discontinue the programmes offered by INSOFE and refund fees to the enrolled students in FY23 due to tough hiring market and external economic factors. As a result, upGrad recorded an impairment of goodwill worth INR 112.7 Cr (about $13.5 Mn).

The startup also recognised an impairment loss of INR 125.5 Cr due to a reduction in the number of university programmes of Aarina Educational Services Pvt Ltd (TalentEdge), which it acquired, to improve business margins and make it self- sustainable.

Harappa Education, which was acquired by upGrad for $38 Mn in July last year in a mix of cash and share deal, is another such example. upGrad recorded an impairment of goodwill worth INR 175 Cr (about $22 Mn) post this acquisition. 

The startup’s adjusted EBITDA loss came in at INR 558 Cr in FY23 as against INR 572 Cr from previous year. 

Where Did upGrad Spend?

The startup’s overall expenses increased 56% to INR 1,938 Cr from INR 1,241 Cr reported in the previous fiscal year.

Employee Benefit Expenses: The edtech startup spent INR 707 Cr on employee benefits in FY23, an increase of 80% from INR 393.7 Cr in the previous fiscal year. Employee benefit expenses comprise employee salaries, PF contribution, and ESOP costs and was the biggest contributor to the startup’s total expenditure during the year under review.

Advertising Expenses: The edtech startup managed to reduce its marketing expenses by 8% to INR 371.4 Cr in FY23 from INR 403.7 Cr in the previous fiscal year. 

University Fees: upGrad’s university fees jumped 70% to INR 132.7 Cr from INR 77.8 Cr in the previous fiscal year.

In June this year, upGrad announced its foray into the Pacific region with the establishment of its first offline medical institute in the Republic of Vanuatu. Called the upGrad Institute of Medical Sciences (UIMS), the college will train students in modern-day clinical competencies and impart medical skills. 

upGrad has raised over $600 Mn to date and counts marquee investors such as Temasek, International Finance Corporation, and IIFL among its investors. It entered the coveted unicorn club in August 2021 after raising funding of $185 Mn at a valuation of $1.2 Bn. In June last year, the startup’s valuation catapulted to $2.2 Bn after raising $210 Mn led by ETS Global.