[conservative_indian]

BCG 5AUG2021
This is in reference to EGM today. It is unfortunate that everyone gets fair opportunities but only some make fortune and the rest litter it. BCG, the way Mr. SKR disseminated hints on LOC, getting EPS growth by multi fold by March 2023, it occurs to me that company can easily grow from EPS of 9 to EPS of 5-6 after dilutions and then grow to minimum 3 times after all acquisition coming on stream… He has also offered an iota of inkling that when market sees credibility of our actions, PE multiple improves. In same Indian market Affle India trades at almost 16 time more valuation (5 vs 80 plus) than much larger, debt free BCG. So, my take home points are –
• LOC is a deal in the oven. Once it is done, we may see revenue to expand by 40% with 200-300 bps impact on EBITDA. Mostly, he would do it from the American banks than Indian financial entities thanks to very low rates of working capital financing in the US. So, this itself can grow BCG pie to 4000 cr plus without any inorganic seasonings!!
• He has also gave credence to my belief that after LOC, we may see fresh efforts to list BCG on Nasdaq in next 3 years.
• New acquisition(s) in question would be over in next 18 months and this will enhance already bigger top line. It is very rudimentary way analyse but being a novice in area of technology, I enjoy luxury to say, Affle India generates close to 2 cr of revenue per employee (517 cr sales and 287 employees) and in the same segment, BCG employees 463 employees for 2856 cr revenue which comes to approx. 6 cr per employee. So, when SKR says some 1200 employees’ company is being acquired that means, at some point, SKR will generate similar type of output from those new acquisition(s) which comes to 7000 cr.
• As he said, when you join all pieces, the resultant company would be much larger and EPS would be manifold from current levels. That means, if we put just 10% growth for FY22 and FY23, this company would be about 3400 cr without inorganic elements. Hopefully, LOC matter would be resolved by then and top line would inch up over 5000 cr. (40% addition) So, it is safe to expect BCG would be about a 12,000cr company in next 2 years or may be 3 years max. Continuing with 30% current OPM minus cost of LOC, say 200 bps, we can safely conclude that BCG would be able to deliver margins north of 25-28%. This translates into 12000*25% = 3000 cr EBITDA. I am assigning 15 (Mcap to EBITDA) x 3000 cr EBITDA equivalent market cap which comes to 45000 cr in next 3 years. This is a conservative 50% discount to AdTech industry’s valuation. So, I expect to see BCG to trade at minimum 150 by 2022/end and 500 by 2023/end.

In my previous post, I expected stock to test 50 and it reversed after hitting a half century. The current correction is way past its expiry date and may reverse soon. Then there will be some volatility around ex-bonus event. From my first call at 5, stock travelled 10x and that time it went only halfway thru on logarithmic chart. Another 10x is still pending. All the best for holding this gem.

[Zoro7]

Thanks for the update sir, have been waiting for you (also missing you!). Hope you’re fine and recovered.

SKR has given all the hints, don’t know how are the LCs sustaining with so low offer qty. It’s a life changing opportunity. I have loaded it to the best of my ability.

I found this gem with your recommendation last year, thank you so much.

[sknatani]

@ Zoro7, Yes, I too entered in BCG on CI sir’s post in MMB. Thank you CI Sir. CI Sir and Logan Sir Both are priceless gems in this Forum.

Thank you CI Sir for your valuable post.

[vgsatwork]

@conservative_indian

Thanks for the detailed analysis based on the updates in EGM.

I believe the company that they are planning to acquire may not be bringing in revenues that are comparable with average revenue per employee that BCG currently generates.

I think this is due to their India operations wherein they are spending about 38Cr for employee salary expenses (Compared to 165 crore employee salary expense for the consolidated entity – 25% of overall employee salary is spent for employees in standalone company, that is the one in India) to get about 386 Cr revenue. Assuming only 25% of overall employee strength of BCG is in it’s stand alone(India) entity, which would be 106 employees generating annual revenue of about 386 crore at a rate of 3.64 crore revenue/employee. Remaining 75% of the BCG employees(318 employees) are bringing in about 2500 crore at a revenue rate of 7.86 crore/employee.

Above calculation is more of approximation one. I believe BCG’s india employee strength would be way higher than 106, which I deduced by calculating portion of India employee cost from the overall employee cost base. It is because employee cost in india is way cheaper than in any of the western country. Hence the revenue per employee in india would be much lesser than 3.64 crore/year.

My guess (assuming typical backend IT support kind of work – Which is what SKR was implying that the target company is doing) is about 75 Million $(560 crore or so) revenue/annum company with average employee revenue base of about 45-46 lakhs of revenue per employee. This could help BCG cross the 450 Million revenue mark which SKR has been mentioning about (Where free cash flow would start coming in)

But I believe this would help them to scale up their operations when they pick up additional volume of business with LOC, etc,. since backend support is critical for their operations

[vgsatwork]

This is my guess – BCG may be paying the target company about 5-7 times EBITDA to acquire the same. Assuming a revenue base of 75 million $ with about 35% EBITDA, BCg might end up paying anywhere between 130 – 180 Million $ (1000- 1400 Crores)to acquire the same with 80:20 cash/equity that he spoke of

[hw_tw]

On revenue per employee, BCG is having a superlative figure of 10X+ times compared to Indian IT companies avg. ranging around 30 – 50 lakhs per employee (20 to 35 dollars per you billing rates)

My view on the revenues of target DM company might be somewhere in comparison to IT industry standard range or somewhat lower (12 to 25 dollars range as per Uplers rate card) …Note that in some engagements it could go higher if the billing also includes outcome based incentives like no. of leads generated etc;…I would be happy if their numbers are any better than normal IT industry average.

At the outset this numbers may not look encouraging in comparison to existing BCG numbers…this was the reason why I was suggesting in my earlier post to not have much expectations on the numbers especially going by no. of employees count

Basis today’s discussion, I feel SKR is looking to leverage this team also as the backend for their digital ad business. We need to note that a strong backend team and systems are very important for the growth. For example their sales team might quickly sign up huge number of publishers and brands, post that it is the backend implementation team which has to do the heavy lifting and ensure that they keep up with the pace of sales team. All this has to happen without adding too many head counts and I feel going with SKR words this target DM company seems to have better systems in place and they have cracked ways to scale up (without adding too many head counts).

Overall I feel the revenue per employee might dip for a quarter or two… anyway this is not a cause of worry given the huge ROLE margin with which BCG operates compared to normal IT industry or other adtech companies. Also we need to note that market never looked at BCG from this lens or whomsoever has looked at it from this angle they probably have seen it as a negative thing saying it is a too good number to believe…Hope
this perception changes in near future.

I feel once this integration happens this backend team will give them a strong base to go agressive on the sales (probably with LoC amount) and help them to scale and achieve back the same or higher revenue per employee.

In terms of EBITDA and EPS improvement, I feel this will contribute small as of now but will boost up significantly in coming quarters helping BCG to achieve EPS multiples target as mentioned by SKR.

Disc: This is my early analysis and this views are subject to change post the acquisition and the impact of it in coming quarters post integration. This is not intended to drive any sentiments in either direction.

[Guru1991]

Dear CI Sir,
Extremely glad to receive the Detailed Post regarding BCG. Highly informative and analytical. Hats off to your thinking process and enlightening learners like us. Glad to note your recovery from eye surgery. We wish you Good Health and Peace. With warm regards,

[Brightspot]

This is to inform that pursuant to Regulation 42 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, the Company has fixed Friday, 20th August, 2021 as the Record Date, for the purpose of ascertaining the eligibility of shareholders entitled for issuance of Bonus Shares of the Company in proportion of 1:4 i.e., 1 (One) equity share of nominal value Rs.2/- (Rupees Two Only) each for every 4 (Four) equity shares of nominal value of Rs.2/- (Rupees Two Only) each held by Member(s), as approved by the Members through Extraordinary General Meeting (EGM) held on 5th August, 2021.

[Author]

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