Physics Wallah (PW) has closed a Series B funding round of $210 million, bringing the company’s post-money valuation to $2.8 billion. This represents a 2.5x increase from its last valuation of $1.1 billion. The funding round was led by Hornbill Capital, with participation from Lightspeed Venture Partners, both new partners for PW. Existing investors GSV and WestBridge Capital contributed about 25% of the round. As part of the funding round, PW is offering one board seat to Hornbill Capital, with Lightspeed set to be a board observer.
In an interview with Fe, PW co-founder Prateek Maheshwari said that the company is on track to close FY24 with revenue of Rs 1,975 crore, lower than earlier projections of Rs 2,400 crore. The company is in the final stages of its FY24 audit, with plans to file credentials within a week. Maheshwari added that FY25 is expected to be “the year of largest absolute profitability for the PW Group,” with Q1 and Q2 of the current fiscal year already profitable.
In FY23, despite posting an over two-fold increase in revenue, which reached around Rs 804 crore, up from Rs 234 crore in FY22, PW’s net profit, during the same period, had decreased to Rs 16 crore from Rs 98 crore. This decline was attributed to a significant increase in employee costs and provisions for certain non-cash expenses, resulting in a sevenfold jump in total expenses.
Maheshwari, said that PW currently has 40% of its previously raised capital in the bank, with a total treasury of Rs 1,250 crore. Maheshwari described the new funding as “comfort capital,” allowing PW to mitigate unforeseen situations and seize opportunities for large-scale acquisitions without repeatedly approaching investors. He emphasised that PW is already a cash-generating company, sufficiently fueled for its growth initiatives.
The company plans to invest an Rs 100 crore in offline capex in the short term, focusing on opening new Vidyapeeth centres. PW has already invested Rs 400 crore in offline verticals over the past two years. Maheshwari also mentioned plans for a “large M&A” in the next 12 months, potentially in the publication industry.
The company’s revenue mix currently stands at 55% from online operations and 45% from offline centres. Online business margins range from 40-50%, while offline centres typically have 12-25% margins and take 2-3 years to turn profitable. PW sees the future of education as a blend of online and offline, with 95% of their current learners utilising the online mode to some extent, Maheshwari added.
PW has diversified beyond JEE and NEET preparation into GATE, UPSC, CAT, CA, and other commerce categories. Maheshwari claimed market leadership in these new verticals in terms of both revenue and student numbers. He also cited examples of successful acquisitions, including Zylem, which has seen a 4x increase in revenue since acquisition, Knowledge Planet, which has tripled its revenue run rate, and Utkarsh classes, which has seen a 25-50% increase in revenue.
The company is investing heavily in AI technology, introducing tools like AI Guru, Sahayak, and AI Grader for personalised learning. Maheshwari positioned PW as “the largest company in India who uses AI at a very big scale”. He added that while AI is enabling teachers and making education hyper-personalised, it cannot replace teachers, likening such a scenario to “replacing parents from your life.” Maheshwari downplayed concerns about teacher attrition in offline hubs like Kota, emphasizing “sheer execution” over relying on “star faces.”
While looking to expand on serving the Indian diaspora in the Middle East, PW’s primary focus will remain on domestic growth, Maheshwari added.
This funding round marks one of the first significant primary capital raises in the edtech sector following a prolonged slowdown. According to Tracxn, a data intelligence platform, the Indian edtech sector has raised $215 million up until August this year, showing a slight improvement from the $321 million raised throughout 2023. However, these figures pale in comparison to the sector’s peak in 2021, when edtech companies raised $4.1 billion. The 2023 total represented an 87% decline from the $2.4 billion raised in 2022. Addressing the funding environment, Maheshwari acknowledged that this round wasn’t “as smooth as the 2022 funding round” but stated that “there are no bad times for good companies.”
Hornbill Orchid, the fund behind this investment, is an India-focused hedge fund with backing from Chinese private equity firm Orchid Asia. Hornbill Capital, which advises the fund, was founded by Manoj Thakur, former CEO of Avendus Private Equity Investment Advisors. Interestingly, Lightspeed Venture Partners, had previously backed the now troubled edtech Byju’s.
The latest funding round takes the company’s total funds raised to around $312 million. As of end of FY23, the founders held a 81.8% stake in Physics Wallah, with the ESOP pool accounting for 9.1% of shares. Investors WestBridge Capital and GSV Ventures held 6.7% and 2.27% respectively, as of then. PW currently has over 3 crore app downloads and more than 55 lakh paid students. It produces 9,500 hours of educational content weekly, reaching students across 18,808 pin codes in India. The company employs 15,000 people.