The Reasons for the fall in Stock Price of BCG

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  • #6957
    allenasrini
    Registered Boarder

    1.Lack of communication with investors at critical junctures.
    2.Chapter 11
    3. Corporate structure leading to lack of transparency of accounts of subsidiaries outside India.

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    #6958
    Saul Goodman
    Registered Boarder
    Topic Author

    Hi allenasrini,

    Your points 1&3 are addressed in Reasons 7 & 4 (The CEO and the Management / Corporate Governance and People don’t understand the business) and point 2 is addressed in Reason 3 (DAUM Case)

    If you need more details on subsidiaries you can refer the recent investors presentation on Mergers and Acquisitions (M&A), it’s available on this forum in the thread Investor Presentations, on the company’s website and also on the exchanges.

    For financials of the subsidiaries, you can refer the annual report, they have given the financial details of all their subsidiaries. (Please keep in mind that even the big companies won’t give details on all their subsidiaries).

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    #6959
    Profit Guru
    Registered Boarder

    I have been reading most of your posts, they are very well written. This will help change perception of unstable investors.

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    #6995
    allenasrini
    Registered Boarder

    Hi Saul Goodman I have been an investor for last 7 years and I expressed what I felt over the years. However, I am a firm believer in BCG business model and I have been continuously increasing my holding. I believe that BCG is at the inflexion point.

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    #6996
    Cuteinvester
    Registered Boarder

    Thank you dear saul for enlighting us, as a long term invester had a lot of questions about the nature of bussiness, technicals, present trend and how the company established

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    #6998
    Saul Goodman
    Registered Boarder
    Topic Author

    Hi allenasrini,

    I thought you were asking me about those points so I explained about them in my reply.

    Its good to know that you are a long term investor and a firm believer in BCG. Like you, I also believe that BCG is at an inflection point. Let us hope for the best.

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    #6999
    VALUEBUYER001
    Registered Boarder

    Thanks dear Saul Goodman for your very detailed write up about BCG it is very useful to all new investors

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    #7000
    odysee
    Registered Boarder

    Thank you Saul Goodman for putting it all together in such a coherent manner. The content is truly enlightening, and even though one had some knowledge of events and milestones, and gained substantial insight when the the results of the individual subsidiaries were first released, this is the first time ever that so much relevant data and perspective has been so comprehensively compiled and presented. Easy and brilliant reading. If you had appeared on this forum a year ago, I doubt if the stock would have been available in single digits as it has been in the last many months.
    Thank you.

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    #7002
    Deepak
    Registered Boarder

    Mr saul the way you describe the things it is very convenient for the new shareholder and it gives the strength to all the bcg community.I would like to request you to write on the investment of 8 firms on jio right issue and how it will boost the digital marketing in india. Is bcg going to get benefit of all this investment made by different firms in jio digital marketing? As we all know the presence of bcg is well known in overseas only and in india hardly anyone know it strength in digital marketing.do you think mr reddy will try to expand bcg presence in india also.

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    #7006
    Saul Goodman
    Registered Boarder
    Topic Author

    Hi Deepak,

    To know more about digital sector and the disruptions happening in the industry, please read Suresh Reddy’s articles, he has posted many articles on his Twitter handle. My writing won’t match his standards and he has great knowledge and vast experience in that field.

    Coming to your question on how BCG can take advantage of this, it depends on many factors.(whatever I’ve written below, I’m talking about BCG’s India operations and not their overseas business)

    We all know it’s not easy to start a digital marketing company from scratch, so in that BCG has great advantage over others. Most of the brands will go to BCG instead of going to other companies.

    To grow more BCG needs funds, just like how Jio is getting investments from Facebook, KKR etc. BCG too needs funds to scale up.

    The question is how will they get it?
    Since they have some debt left and some of the past loans were labelled as NPAs, banks will be too strict on loans. We should remember it’s not BCG’s fault that they were labelled NPA but banks will not care about that. Now after becoming debt free, maybe the banks will not be too strict.

    Second is to issue more shares and use that money to grow. But the share price is too low. So if the share price goes up, maybe Mr.Reddy will raise funds by issuing more shares.

    Since the price is too low and because of DAUM case, some of the institutions will not invest in the company. Even if they don’t know the magnitude of the case, they won’t invest and will wait till the case gets settled officially and then they’ll start investing.

    So all these years people without knowing the complexity of the issues simply were complaining about the CEO.

    But now most of the issues are resolved and BCG is ready to grow. They’ll become a debt free company also.

    During the conference calls, we all should be asking Mr.Reddy about how they will take advantage of the disruptions happening in the digital industry.

    Instead of asking him the same old questions on stock price, dividends, buyback, receivables, we should be asking him interesting questions on the business.

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    #7007
    Deepak
    Registered Boarder

    Thank you saul for your feedback. And one more thing which mr reddy mentioned in a last concall regarding the role of mr prasad pisipatti. He told that this time he will be along with him and he will explain the project of hardware in which bcg president is working very closely.

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    #7008
    Saul Goodman
    Registered Boarder
    Topic Author

    BCG can grow like The Trade Desk(TTD) and Affle if the share price trades higher and if they get the right valuation they deserve.

    Issuing more shares at a proper price, the company will get more funds. And that can be used to grow, they can acquire other companies, venture into new markets etc.

    I’m not saying this to “pump up the price” but this is how most of the tech companies make use of their shares. They issue more shares at a higher price and use that money for growth. Most of them won’t go for loans.

    All the past issues would’ve been resolved by now if the share price traded higher i.e. if BCG got the right valuation they deserve.

    They could’ve paid off debt, settled DAUM case, acquired more companies (companies like affle), could’ve paid dividend etc. many years ago.

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    #7760
    VALUEBUYER001
    Registered Boarder

    Bcg has acted penny wise pound foolish and missed growth opportunities

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    #7763
    Saul Goodman
    Registered Boarder
    Topic Author

    1>

    @valuebuyer, every company will stumble in their journey and it’s not specific to BCG alone. BCG never lost focus on their main business (digital marketing), there were few hiccups but business wise they didn’t take bad decisions. We can’t compare business with stock price movements, many big companies’ stock prices have underperformed for many years.

    Take Apple for example, Apple fired it’s biggest and main asset (Steve Jobs) and for many years the stock lagged it’s main competitor Microsoft’s stock.

    Apple’s average stock price in 1987 was $1.4 and in 2000 it was $3.26 (up 2.3 times in 14 years)

    Microsoft’s stock price in 1987 was $0.34 and in 2000 it was $38 (up 111 times in 14 years)

    Comparing the above prices, Apple’s stock price massively underperformed Microsoft’s for 14 years.

    Now, fast forward to 2020, from 2000 to 2020 Apple’s stock has gone up from $3.26 to $385 (up 118 times) and Microsoft’s stock price has gone from $38 to $202 (up 5.3 times). See how things can change.

    I’m not saying that BCG will become the next Apple or Microsoft and I’m not comparing their businesses either. All I’m saying is even the biggest company in the world (Apple) experienced setbacks in it’s journey. Apple launched many products and some of them failed but now Apple is the biggest non government company in the world.

    #7764
    Saul Goodman
    Registered Boarder
    Topic Author

    2>

    Coming to BCG’s stock price, the main reason why BCG fell is because of market sentiment. People didn’t understand the business properly and the management didn’t know how to fix that.

    BCG tried to fix few problems in 2017 by taking loan from White Oak but daum stopped that.

    That money would’ve helped BCG with its cash flow problems. By getting more free cash they could’ve paid dividends or bought back some of the stocks.

    They had to change their strategies after they lost Lycos and maybe that’s why they didn’t come up with anything in 2018.

    But from 2019 you can see the changes. They are going for a global audit by a reputed auditor, they are trying to get LOC to grow their business and resolve their cash flow problems, they have announced a dividend distribution policy and they issued preferential shares to close off bank debt.

    In the past because of daum and other issues, they couldn’t take proper actions to change the market sentiment but now they are improving a lot. Many unexpected events happened which BCG couldn’t control, COVID-19 happened, Oak decided to close down their firm and Axis took the case to nclt.

    Many complain that they are not taking actions on Oak selling but it’s really hard to find a buyer because they’ll ask BCG to resolve the outstanding issues first.

    Nobody likes to invest in a company which is labelled as NPA (LGS loan write off) and also everyone will ask them to clear off the dispute with daum first. And also most of the major institutions will not buy a stock trading at 1 PE.

    Many will say BCG could’ve paid dividend to change market sentiment but you can see how Axis has behaved. They took BCG to court for not paying 11crs. Imagine what would’ve happened if BCG had not paid off the debt, every bank would’ve filed case against BCG in courts and that would’ve become a very big problem. Till now BCG has paid including interest, close to 250crs to banks.

    Imagine if that debt was not there, BCG would’ve used that same money to buy back shares or pay dividends. The market sentiment would be totally different.

    #7767
    VALUEBUYER001
    Registered Boarder

    Thanks Saul Goodman Ji

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    #7769
    odysee
    Registered Boarder

    As an aside, Saul, today there is a buyer in total of approximately 30 lac shares plus ( combined on both exchanges). Wonder why Oak is not offering their shares? Strange indeed.

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    #7771
    VALUEBUYER001
    Registered Boarder

    Odysee oak may wait a price of ₹10 to exit

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    #7773
    odysee
    Registered Boarder

    Valuebuyer001, at Rs 10, Oak may not get a buyer easily. If they still have a large quantity left , I wonder how they will be able to dispose that off at a higher price than currently prevailing, when we have had continuous lower circuits till last Thursday with not much buying in the preceding many days.

    #7774
    VALUEBUYER001
    Registered Boarder

    I feel bcg to move upto ₹ 9 or ₹10

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