In a move that echoes a controversial chapter in India's edtech history, PhysicsWallah (PW) is betting big on student financing.

During the sector's boom years, education loans emerged as a powerful growth lever for startups.

Easy credit helped remove upfront affordability barriers, drive enrolments and support the sale of higher-ticket courses.

The strategy worked, at least for a while. But the model eventually began to unravel. The most prominent casualty was BYJU'S. Its aggressive reliance on third-party lenders to finance expensive courses triggered regulatory scrutiny, customer backlash and allegations of mis-selling. Financing stopped looking like a conversion tool and started looking like a structural risk.

Now, PhysicsWallah is positioning its lending business as a new growth engine. The company believes it can scale education financing while avoiding the pitfalls that ensnared many of its peers.

So, what gives PhysicsWallah this confidence? And can it build a lending business without repeating the mistakes that tarnished edtech's first experiment with credit?

PhysicsWallah's Lending Ambitions

Ahead of reporting its FY26 earnings on Wednesday (May 27), the listed edtech major approved a capital infusion of ₹120 Cr into its wholly owned NBFC arm, FinZ Finance. The company said the move is aimed at expanding access to education loans for students for whom affordability remains a barrier.

In a post-earnings call, PhysicsWallah cofounder Prateek Boob said that FinZ began operation nearly two years ago via external lending partnerships. Over the past two years, PhysicsWallah disbursed education loans of over ₹200 Cr, while keeping NPAs below 1%.

"These are small-duration loans of less than one year," Boob said during the call. Around 70% of these loans were extended to PhysicsWallah students, while the remaining 30% went to external learners.

Encouraged by early traction, PhysicsWallah decided to bring the lending business in-house through FinZ Finance, which received an NBFC licence in September 2025 and commenced operations in March earlier this year.

The company said that the NBFC licence will improve affordability and access for students from lower-income households. Its management also stressed that PhysicsWallah does not intend to deploy significant capital into the business despite the loans sitting on its own balance sheet.

The business rationale is straightforward. However, the sector's history with education financing raises legitimate questions about whether the model can scale sustainably.

Before examining those concerns, it is worth noting that PhysicsWallah is entering the lending business from a position of strength. With a healthier balance sheet and improving profitability, the company appears to view financing as a calculated risk aimed at unlocking its next phase of growth.

A Strong FY26 Gives PhysicsWallahRoom To Experiment

In FY26, PhysicsWallah managed to slash its net loss by 90% to ₹24.2 Cr from ₹243.3 Cr in FY25. Operating revenue surged 35% YoY to ₹3,899.5 Cr.

Consolidated EBITDA more than doubled to ₹549 Cr, while profit before tax stood at ₹10 Cr against a loss of ₹259 Cr in FY25.

The company's online business remained the primary growth engine, with its revenue growing 39% YoY to ₹1,954 Cr in FY26. More importantly, growth is increasingly coming from outside the company's traditional JEE-NEET franchise.

As per Boob, the revenue from state board programmes surged 9X YoY during the year, while Curious Junior - PhysicsWallah's K-8 platform - grew 4X. Foundation, CUET and UPSC categories also gained traction as the company continued diversifying away from its dependence on engineering and medical entrance preparation.

Following a strong FY26, the management now expects overall revenue to grow 30% in FY27, alongside a 2X increase in pre-Ind AS EBITDA.

The company has also recalibrated its capital allocation priorities. During the call, Boob said PhysicsWallah has pivoted its K-12 expansion strategy away from a capex-heavy model of setting up schools toward an asset-light approach centred around state boards, school integration partnerships (SIPs), and online-first categories.

Under the SIP model, the company partners with schools and deploys faculty and curriculum infrastructure inside existing campuses instead of building schools outright. According to the management, revenue from SIPs tripled during FY26.

Simultaneously, the Alakh Pandey-led company seems to have sharply moderated its earlier appetite for acquiring and operating schools directly. Instead, the management now appears focused on improving returns from the company's existing offline network.

Offline Business Gains Momentum

The company's offline vertical also saw strong growth in the last fiscal year. Its offline centre count increased to 353 from 198 at the end of FY25, while offline revenue grew 31% YoY to ₹1,774 Cr. The revenue from the offline segment accounted for 45% of the total operating revenue during the year.

According to the management, nearly 60% of its Vidyapeeth centres are now profitable, while centres opened in 2023 and 2024 have already turned EBITDA positive. Offline EBITDA margins improved to -10% in FY26 from -19% in FY25.

The company now expects its offline business to turn profitable at a group level in FY27. "We are very confident of achieving PAT-level profitability in FY27," Boob said.

While increasing offline centres can be a concern in terms of losses, Anand Rathi Investment Banking's executive director Atul Thakkar believes PhysicsWallah's course diversification push is aimed at reducing the risks associated with running a large offline coaching network dependent on a handful of exam categories.

"An offline centre built purely around JEE or NEET coaching is a high fixed-cost asset tied to one exam cycle. What makes PhysicsWallah's strategy more defensible is that management appears conscious of this risk and is diversifying accordingly across state boards, commerce, vernacular content and K-12," he said, adding that investors should view it "less as an edtech company with centres and more as an education institution with strong digital delivery capabilities".

But as PhysicsWallah expands into higher-ticket offline offerings through its Vidyapeeth centres, state board programmes and premium online courses, affordability will increasingly emerge as a key challenge, particularly in Tier II & III markets.

This is where FinZ Finance enters the picture.

Can FinZ Unlock The Next Leg Of Growth?

Financing helps smoothen conversion friction without forcing the company to discount products. Thakkar believes FinZ has the potential to become a meaningful monetisation lever over the next few years.

"At 10-12% loan penetration over the next two to three years, FinZ becomes a material contributor to revenue per student and to conversion on premium products," he said.

He also argued that PhysicsWallah possesses a structural underwriting advantage unavailable to traditional lenders. "Credit risk is better understood here than in conventional consumer lending. Borrowers are already enrolled students. Repayment behaviour can be correlated with course completion and outcomes."

This advantage becomes particularly relevant because many PhysicsWallah users come from first-time borrower households with limited formal credit histories. Traditional lenders typically either reject such customers or price loans aggressively. PhysicsWallah, meanwhile, believes its student engagement and academic performance data can help underwrite these borrowers more effectively.

The model makes strategic sense on paper. But India's edtech sector has already demonstrated how quickly education financing can become a liability.

No matter how PhysicsWallah frames its NBFC ambitions, comparisons with BYJU'S are inevitable. The poster child of India's edtech boom relied heavily on partnerships with fintech lenders during its years of aggressive expansion to finance high-cost tablet-based learning programmes. While the model helped drive enrolments, it later drew widespread criticism over alleged mis-selling, coercive recovery practices and mounting debt burdens on families.