Brightcom Group’s Valuation

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    Registered Boarder

    Thank You @aindia for the detail analysis and the price forecast. One needs to be a patient investor of at least a year or two to realize the growth of the company and in turn the higher price. Once again thank you Dear Members for the knowledge contribution which has helped me immensely to understand the sector and the company. Very Happy to be a part of the BrightCom Family. Cheers!!!

    Registered Boarder

    Thanks @aindia hope the LOC effect puts further momentum to your projections.

    Registered Boarder

    Aindia, thanks for your analysis and excellent permutations and combinations

    Registered Boarder

    BCG-Fresh Perspective -on the past commentary ( Then and Now):
    2020_BCG_after a Roller Coster Ride-appears Ripe for scaling to a conservative STOCK Valuation.Some triggers to look forward to:
    Check “comments”( then and now )against each of the listed triggers
    A.  Venture Capital and Private Equity Firms-Exit Impact :
    Passport Capital, Eight Capital and Venus Capital sold during 2013-16,Sansar Capital during 2014-17, Everest during 2018-19 and Oak in 2020.

    Comment-Then: Rs.150 cr (inflicted by LGS) write off 2012-13 was the first of the triggers for the above exits through the period up to now.
    Comment-Now: Not relevant. Nothing left to write off. No PEs in the picture

    B. Perception about Management -a cloud of negativity on trust factor with management riding on a tiger, as in :
    – Protracted Bankruptcy Protection battle,
    – Significant write-offs in the past
    – Delays in addressing the Workings Capital TRs,
    – Strain Of Legacy Debt: Multiple Bank loans contracted at high cost( around 14%) prior to reverse merger, left a lasting strain till FY’21
    – Sizeable and sudden Impairment of Balance Sheet, of more than INR.865 cr, in FY 2020.

    Comment-Then:Substantial part the management attention has been drawn majorly to post-merger legacy issues-write offs, paring down of debt.
    Comment-Now: Through this entire period, management has not been shy of :
    – periodic write offs, some of big value too.
    – Huge Impairment: timing well by choosing to bite the huge (₹868 cr) and significant Asset Impairment bullet in FY 2019-20, at a time when the size of the balance sheet size could easily afford and absorb the shock.
    – They adopted unconventional, street smart and yet legally compliant ways to fight all of the then open issues, such as :
    C. DAUM –Long Drawn Battle: Root of negative influences on various performance metrics for a long period.Closure is now on the horizon. Ending the battle on the winning side. While they were initially staring at a huge $36 mn ( on top of $20 mn paid) liability, the end figure could be a single digit negligible number…..We shouldn’t be surprised if it is as low as ₹35 cr vi’s -a-vis a claim of ₹260 cr.
    On hind sight, conclusion could be that it was a battle well worth fighting on merit –now a closure is on the anvil. Daum, to end this thorn in the flesh, may have conceded a few million dollars.
    D. Indian Legacy debt paring and closures with SBI, Canara Bank and Axis Bank via OTS route. BIG POSITIVE FALL OUT of the sustained battles with Daum and Banks is the coveted “DEBT- FREE” status:
    * India side bank debts are of legacy in nature and not the doings of BCG management. They waited patiently, albeit at the cost of shareholders pain, for OTS offers and gainfully closed INDIA side NPAs turned “Legacy” Debt from SBI, Canara & Axis Bank loans. One reason to fault the management is that they allowed deceit ( poor due diligence)at the time of acquisition(reverse merger) of such loans. Brighter side of the tragedy is that the OTS meant significant savings in o/s principal payments and saving in huge interest liabilities. Now sitting pretty with “ interest expenses” line item gone from the parent’s P& L.
    E. Could not pull off Experian buy transaction-Sep 2012. Roll back of initial acquisitions ( ex: Lycos Sports, my SMS etc).

    Comment then:
    Could not pull off the monies.Experian was then a very big investment.Daum issue was the culprit for rolling back of the smaller acquisitions.

    Comment Now:
    Fresh efforts initiated to tie-up fundings by staggered equity expansions and Line Of Credit to fund long standing closures , fix Working Capital Imbalance, support acquisitions, improve Free Cash Flows, support growing revenues and profits to the next level.
    * Following are at works LoC of $120-180 mn.
    * Pref offer of 3.14 cr shares@₹10 each.
    * 34 cr Pref Convertible Warrants@₹7.70- approved at AGM & Awaiting Stock Exchange Clearance.
    F.Chaotic/ Erratic Dividend distribution process- May sound unprofessional, but may have used to achieve significant traction on Daum and Indian bank liabilities settlements’ front.
    Comment: A fresh beginning on DIVIDEND- made an announcement in the recent past,a paltry one at that.Subtle clue to ease of pressure on REAL CASH generation.Dividend Yield (on FV of Rs 2 and even on recent lows) should be very healthy over the period: 2021-2025.
    G. Very High % of Pledge of Promoter Shares:
    Comment-Then: linked to purchase of Lycos and in support of India debt. Shows promoters’ conviction about growing business.
    Comment-Now : No more the case.More recently, the % of promoters’ pledged shares is progressively dropping (from 60 to 50 to 33 and a basis recent debt clearances a further drop is to expected). It is now at works for the charges to be released, so we get to see negligible pledging in the current year.
    H.Technology: BCG is technologically,way too ahead of its competition due to its first mover advantage, backed by multiple providers of technologies that help in minimising Fraudulent Traffic.
    Comment-Then: To consolidate Tech Combos such as DM,AdTech,AI, ML
    Comment-Now:To begin sharing sub level incremental revenues and profits from the more recent strategic and financial investments in the new age start-ups.

    I. Healthy Macros:Industry canvass on a spiralling growth path. Quality and transparency are the Key drivers of size and number of business engagements.

    Comment -Then: BCG took the early warning seriously , began working closely with multiple vendors to focus on creating fraud free traffic.
    Comment- Now: BCG well prepped to capture , in their favour, incremental business from DM industry weaklings due to cleaner traffic
    J. Growth Numbers:
    Comment: So far, not exciting enough. Consistently healthy and sustainable PAT figures QoQ, are expected to grow as we move into next decade (FY2021-30 and beyond).Let’s look out for traction in the FY21 Audited results.EPS Growth is expected to be material( FY2021).
    K.INDIA MARKET:The management for the first time began to hint at India as a territory to bet on.
    This incremental business would drive top line and bottom line growths and margins in the coming years.
    L. Entry of one or two MFs/ FIs:
    Comment: So far NONE have. As it happens, it would be an added endorsement of the Quality of Management and the Financials.
    M.Free Cash Flows – A sorry story:
    Comment-Then:Trade Receivables impacted throughout an otherwise growth phase of the Company.
Comment-Now:LoC attempt is precisely to ease the stress (of TR) on business growth in the very near term. We can expect 2020-21 to spring a pleasant surprise,should the LoC happen quickly.About the more recent TRs:While the absolute number is as big as Rs.983 cr, the growth trends are suggestive of “less than proportional” increases in TR, compared to growth in Topline. This could also be eased, on the back of Annual Revenues crossing the $500mn.Not too long ago TTD ( Trade Desk) landed with an LoC of $150 mn, suggesting that there is a clear appetite for it.

    Triggers for growth in free cash flows:
    1. Debt Free Status, on prospective basis, releases annually INR 15 cr ( interest expense line item).
    2. Delta ( positive) between excess provisions made vs actual payments to the likes of Daum and Banks (as per granted OTS amounts by SBI, Canara Bank and Axis Bank). Once Daum is declared as settled, a one time “reduction in provision as in AR” could release up to ₹70 cr.
    3. The growth in margins/ profits coming from the low cost ( for TTD it is around 2.2%) LoC would add to Free Cash Flows .
    4. Incremental Releases from the deployment of LoC monies in strategic partnerships/ investments in start ups.
    5. Growth in fraud free traffic, longer screen times aided by Corona and US Elections.
    6.Audited ‘21-results are likely to turn heads on all financial parameters incl FCF.
    7.Fixing of the imbalance between TRs & TPs ( so far skewed in favour of TRs)

    Registered Boarder

    Aindia thanks for your excellent analysis and write-up

    Registered Boarder


    Compare the Key Adauth Ads.Txt metrics of BCG & Inmobi:


    Check attachments ( BCG & InMobifor a comparison

    No of Publishers & DIRECT Accounts.
    DIRECT means HIGH MARGIN, which is not the same with RESELLERS count
    BCG is too way ahead of InMobi.

    InMobi is still loss making, Where as BCG has always been in significant profits.

    If loss making, lower margin InMobi is targeting $15-16 bn by Dec ’21(9 m from now) through an IPO, the valuation goal of consistently and significantly profit making BCG’,s valuation “cannot be any less than $ 15 bn”.

    Registered Boarder

    Dear @aindia,
    Numbers and valuation is all based on PERCEPTION.
    Here BCG is far far far faaaar below than InMobi.

    Quarter on Quarter results has no impact…if perception is that numbers are fraud..Ofcourse if perception is bad ..and they are talking about cash flow problems…things are taking endless time to get resolved..its easy to say numbers are cooked..

    While no one will question InMobi because it has rewarded the early investors(PE/VC/Other early investors) by consistently increasing the valuation.

    We all know what has happened in BCG. How the VC/PE have exited at single digit price.

    BCG will continue to remain at this level if nothing is done to improve the PERCEPTION.

    Mgmt has to work hard to make every effort in proving the authenticity of numbers and be more transparent in their deeds/corporate governance.

    Unless that happens.. no big investor will touch it.. even if continues to increase its revenues/profits.


    Registered Boarder
    Topic Author

    I don’t think data on adauth should be considered to value any ad-tech company. SSPs have more accounts than DSPs, and DMPs.

    Rubicon Project (SSP part of Magnite Inc) has 436,299 publishers, 1,596,243 direct accounts, 9,414,354 total accounts, 7,818,113 reseller accounts and the market share is 41.5%.

    Then there’s data on Telaria too which is part of Magnite Inc. Telaria has 54,183 publishers, 83,170 direct accounts, 226,221 total accounts, 143,051 reseller accounts and the market share is 5.2%.

    Comparing to BCG, these are maybe 10 or 15 times more. But the thing is combined revenues of both Rubicon and Telaria are less than BCG’s. For FY20, Magnite’s revenue was $221.6M which is less than BCG’s $350-375M.

    TTD which is a pure DSP has only 2k publishers and it’s valued at $31B. Magnite is valued at $5B. Pubmatic also has more accounts.

    I don’t know whether InMobi is a SSP or a DSP or a DMP or maybe a combination of all these, so can’t really judge properly. Also, InMobi’s is mostly ads on mobile devices. The company may work more with apps which will be beneficial too.

    Then we have to look at the largest investors in InMobi, which is SoftBank (holds 40%). That name will bring confidence to investors.

    $15-16B is way too much for even InMobi. That’s 40 times it’s revenues. If it can have very high growth rates then it may get that valuation.

    Registered Boarder

    I have to agree on NOT rely on any one parameter ( ADAuth)to compare and conclude. What was evident though is LOSS making vs PROFIT making entities…….hence the argument for margins’ comparison stays.

    …interestingly, InMobi figures as a partner in one of BCG’s .ppts.

    Registered Boarder

    Dear AiIndia,
    just now read your post on Valuation dt March 2021. Excellent way of presenting the valuation. Thanks a lot. With warm regards

    Registered Boarder

    Ad Tech Valuations Are Sky High – But Are They Justified?

    Bcg deserves a very very high valuation.40 to 50 pe minimum.

    Registered Boarder

    BCG as an organisation has not been properly understood by most Indian investors, institutions & analysts until now as all of them just see its standalone performance but fail to look at its real scale, capabilities & size of the business which is outside India that’s why standalone financials always doesn’t show the real picture in Brightcom Group.

    The company & its real capabilities will be visible to all as time passes by apart from its current bread & butter business of digital adtech its huge investments in AI & ML will also become a big business (even bigger than digital adtech biz) in the times to come as these are future tech which has endless opportunities in terms of scale, size & even variety in the next 5 years especially after the launch of 5G technology there is going to be a huge transformation in all walks of life due to large scale introduction & implementation of AI & ML in all walks of life & business in short if the management of BCG have learnt their lessons properly from Lycos Life they will see to it that these ventures are hugely successful when they are commercially launched.

    The management has signed an LOI to acquire a digital adtech company based out of India which will give a massive filip to its Indian as well as global business in the times to come, the world is rapidly moving towards digital in all spheres of life & business this will give a major thrust to companies like BCG which is a purely digital company in all aspects.

    The management had issued 33 crores PWs most of which have already been converted to equity & the rest will also be possibly converted before the record date for bonus but all these shares which are converted now will have a lock-in period of 1 year so the stocks cannot be sold by the allottees during the lock-in period, apart from that the company has also arranged investors to subscribe for about 12 crores shares at a price of Rs 31.2 out of which more than 10 crores shares is being subscribed by FPI’s which is a very good sign of confidence reposed by them on the company & its business, this may be just the beginning as lot more big indian & foreign institutions may join the bandwagon in the future.

    The company’s plan of securing an LOC may be achieved sooner than later as the market capitalization of the company has tremendously increased in the past 2 months, so getting the LOC will further boost the growth of business even more rapidly boosting the turnover & profits in a way that the company may achieve 1 billion dollars sales in the next 2-3 years along with corresponding increase in net profits.

    The initiative of issuing ESOPs to the employees is a very good one which will retain & even draw new talents as the company grows bigger & bigger right now the stock price may not be that attractive but in the next 12-36 months when the stock prices shoots up like a rocket then it will become a prized possession in the hands of the allottees.

    The management’s plans to list the subsidiaries on Nasdaq after their consolidation is a very good move as it will unlock the true value & potential of Brightcom Group both in India & abroad, companies smaller than BCG are getting billions of dollars in valuations so even by a conservative estimates BCG can easily fetch a valuations of Rs 50000-60000 crores only for its current digital adtech business add to that the business it will generate in future after acquisitions & launch of AI & ML business which will only increase its valuations further higher, so even if the equity capital of BCG increases to about Rs 300-350 crores (after further dilutions) it has massive upsides from the currently very undervalued prices of Rs 45 as the stock can rise by atleast 10-15 times or even more after getting listed on the international stock exchanges like Nasdaq.

    Even Lycos which will come back to BCG’s fold shortly will add substantial values to its current & future businesses so it shouldn’t be considered as an unproductive asset as it possesses some valuable patents which is important & relevant even today.

    The current fall after the stupendous vertical rally is just a temporary blip which will not last for long, so all those who have the stock should hold on to it, some may be planning to sell after getting the bonus which will only make them repent later.

    #This is neither a Buy or Sell recommendation

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