physics wallah offline centres: Physics Wallah shrugs off profit drop, plans more offline centres

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Test prep startup Physics Wallah will open “as many offline centres as it can” in FY25 even if it erodes profits, founder and chief executive Alakh Pandey told ET.

The Noida-based company’s aggressive approach to opening offline centres has not been dampened by the sharp drop in its net profit to Rs 16 crore in FY23 from Rs 98 crore in the previous year.

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Physics Wallah, which was valued at more than $1 billion after a funding round in 2022, operates 130 offline coaching centres in 105 cities, of which 55 were opened this fiscal. By the end of next fiscal, it plans to open another 50, Pandey said.

“Offline centres are capex-heavy. To turn a centre profitable, it takes three years. I don’t want to wait too long and open offline centres slowly,” Pandey told ET. “Our brand is strong and the student pool is strong, so I want to go across India and open as many offline centres as we can right now. For that, we have to take a hit in the profit.”

Edtech startups operating in the test prep and K-12 segments, such as Physics Wallah, Unacademy and Byju’s, have turned their attention to building a network of offline centres as demand for online offerings has waned with the receding of Covid fears.

According to Pandey, the offline business at Physics Wallah now contributes 40% of total revenue although it accounts for only 5% of its student base. The company is aiming to take the revenue share to about 45%.

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Pandey said Physics Wallah is focussing on building experience in the offline segment instead of profitability. “We are correcting the average revenue per user (ARPU) as well as offline, we are correcting the capex costs, we are learning a lot here… whatever earnings we are making online, we are pouring it into offline scaling,” he said.For Physics Wallah, the ARPU at offline coaching centres now stands at Rs 50,000, which the company is trying to push to Rs 65,000, according to Pandey. ARPU on the online side rests at Rs 3,500.

Pandey clarified these are only for the standalone business of Physics Wallah. Its subsidiaries include iNeuron, PW Skills, PW Institute of Innovation and Xylem Learning.

The offline expansion at Physics Wallah began showing up in FY23’s significant increase in employee costs and provisioning towards certain non-cash expenses, which led to a sevenfold jump in total expenses. The expenses including one-time costs and non-cash expenses, came in at Rs 777 crore compared with Rs 103 crore in the previous year.

However, revenue from operations had risen threefold to Rs 772 crore in FY23 on a standalone basis, again attributable to the offline expansion, the company said.

Physics Wallah, started by Pandey—a teacher of physics– as a YouTube channel in 2016, was registered as an enterprise in 2020. The company is grappling with scaling-linked quality issues, delayed delivery of classes and study material, and class schedules.

The company clarified that about 87% of orders delivered by third-party courier partners are delivered within five days, 9.5% are delivered in 5-10 days, and just 2.8% take more than 10 days. It attributed the delays to adverse weather and address mismatch, among other reasons.

Pandey listed discipline within the organisation as one of the priorities for FY25. “In a fast-moving organisation, discipline starts becoming a challenge as you keep adding new people and categories. This year, we have started an annual operating plan, which everyone will make in the company and review it every month. This will help in the long term, whether or not we want the company to go public,” he said.

The startup employs 2,800 teachers, of which 400 only teach online. The remaining 2,400 teachers teach offline. The company had begun to speed up its offline coaching centre network with 30 new centres in 2022, the same year that it became a unicorn after raising $100 million in a maiden funding round from WestBridge Capital and GSV Ventures, among others.

Pandey said he plans to return to full-time teaching from May this year. “Last year, I was involved in operations, team building and everything else. But this year, I’m going completely back,” he said.

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