The IPO of Physics Wallah Ltd is open with a Rs 3,480 crore raise with a high growth potential, yet again the brokerages feel apprehensive due to the stretched valuation and unprofitability.
Ed-tech company Physics Wallah Ltd shares are going to the open markets with lots of hype and as much caution. This week, the IPO will be opened to raise Rs3,480 crore through fresh issue and offers sale.
Although the company has reported a spectacular rise in revenues, market analysts are raising eyebrows about the growing losses, execution risk, and a valuation they would consider aggressive.
Physics Wallah is approaching a post-issue market worth Rs31,500 crore at a price of Rs103-Rs109 a share. That is approximately 9-11 times its FY-25 revenues remarkably large compared to numerous of its education industry counterparts.
Growth Story vs. Reality of Making Profit
Physics Wallah enjoys a good reputation in the India market of test prep/upskilling. Started as a YouTube channel and shifted to a hybrid model between online and offline, the company registered a turnover of approximately Rs2,887 crore during FY-25 against Rs 744 crore during FY-23. In FY-25, EBITDA went to the positive side of Rs193 crore, but the firm continued to record a net loss of approximately Rs243 crore.
It has a strong business strategy of having a huge online client base, having hundreds of offline or hybrid centers, and having a growing range of course offerings in exams and professional education.
Profitability, however, is under pressure. Quick offline growth, expenditure on marketing, and reliance on star teachers contribute towards risk.
Brokerages are divided. Others emphasize the strength and growth runway of the brand with the long term ratings as Subscribe. Others are conservative, citing protracted valuation and complexity of execution and lacking an obvious way to make long-term profits under the label of Neutral or Avoid.
When a non profit making firm is valued at multiples of the more typical valuation going on in more mature industries, the question to investors is, Are they buying the narrative or the performance?
At the highest price range, the EV/sales ratio of Physics Wallah stands at approximately 9.7-10.8x, which is extremely high in comparison to the traditional educational organizations that are being traded at highly downgraded multiples.
In addition to this, the subscriptions on the IPO’s first day indicate low demand: On the initial day, the issue was subscribed at a rate of approximately 0.06 times. This indicates that both retail and institutional investors are approaching it with caution
What Investors Should Watch
- Profitability trend: Is PhysicsWallah going to convert losses into profitable business as it grows?
- Implementation of offline expansion: The offline growth is very costly and time consuming to pay off, this will be a critical issue.
- Competitive situation: The ed-tech market is cluttered and fast changing now, competence in retaining faculty and students is crucial.
- Revenue versus performance: With high multiples, any misjudgment in growth or profitability might cause pressure on stock prices.
- Investor hunger: Weak subscription and low grey market premium (GMP) could reflect less listing upside.
The IPO of PhysicsWallah has its foundations in the inspirational growth story, solid brand name, and market share expansion. However, the valuation and unclear profitability are weighted propositions to investors.
Do they invest here on a long term basis, or is it a risky timing trade? Being a subscriber, you are probably a patient investor who trusts in the education tech transformation more than the listing gain he/she expects in the short term.
