[Logan]

@nitin_asce, compared to last year’s AR this year’s looks far better. They’ve given more information on the business, company structure, it’s history etc but they’ve ignored to give complete details on many items on the balance sheet like other assets, loans and advances, other receivables etc.

We requested them to make the annual report as informative as possible but they took only half of our request.

[Logan]

@drjaysee, the warrants will be accountable only after it is approved by the shareholders, exchanges. Remember PO allotment was approved by shareholders and BSE but NSE took more time.

Regarding price movements, everyone has different theories. My theory is that it all depends on the basics of the stock market, which is supply and demand, optimism and pessimism, fear and confidence etc. Since BCG is a turnaround story (not the business but the price) everything depends on material developments.

For there to be big changes in stock price, People need to be optimistic about the future of the company. When the price is this low and when the company is having few issues pending, everyone will be sceptical so only material developments will lift the price. If you check all the stocks that have gone up, all were battered before the rally and that rally sustained only when there was more optimism than pessimism.

Many companies like Birla tyres, Alok industries, subex went up but the rally didn’t sustain because there weren’t material developments. Later subex went up because of a material development. Famous names like Reliance, Birla couldn’t stop stocks like Alok and Birla to fall more than 50-60%.

Events like NCLT bring supply, fear and pessimism. Once that is done also we may not see demand, confidence and optimism because there is still Daum issue pending to be resolved.

[Logan]

@Sumeshnair2005, why would they give 65crs to the company if they don’t convert warrants to equity?

If they aren’t going to convert the warrants later then they can buy shares worth 65crs from the open market now itself right? At this valuation with 65crs, they can easily get close to 25% of the company.

Still the management team hasn’t told us why they want to dilute the company by this much. Instead of diluting, they could’ve easily gone for loans and pay interest.

[Logan]

@odysee, at this point without any information we can only speculate.

This is just a speculation, not to be taken seriously.

1) I don’t understand why they want to raise funds when they are seeking LOC. Maybe LOC is put on hold and they want to close off Daum settlement with the money raised by issuing warrants.

260crs is still not a guarantee but they will get 65crs. 31crs was raised from po allotment and it is not yet used anywhere because of Axis. If we add this the total comes to 96crs. 96crs is $13M. Maybe $3M from internal accruals so totally $16M. When Daum is settled, the price may go up.

2) If LOC, then 260crs is close to 1/3rd of the digital business receivables. Maybe 1st line is 65crs and instead of paying interest they are giving shares/warrants?

3) I don’t think promoters have 260crs, so they will bring an outside party who may be is a stable investor. Part of the warrants may go to promoters and the rest to some entities. Looking at the past history of the price, the investors want warrants instead of buying from the open market. They look at the business and they want a piece of it but looking at the price they get two thoughts so they opt for warrants. Doing this will also give the company extra money. If they buy from the open market that money doesn’t come to the company.

(These are all my speculative guesses and should not be taken seriously. I’m just sharing my opinions. When they don’t provide proper details, we make up these crazy theories).

[Logan]

@VivekRT, I also believe that. See I don’t give importance to Daum and Axis as they don’t impact the business much but I know how important they are for changing market sentiment. The sentiment will change only if these are closed. But problem is with their transparency.

Suppose you have some health problem and you go to a doctor and the doctor tells you that you need a surgery. He won’t say what problem you have or he won’t say where he has to operate on but he only says you need a surgery. What will be your reaction? Don’t know how good an analogy this is but my point is it’s better to give all the details at the beginning itself so that no-one has any confusion.

Obviously the company will update us later but my question is why can’t they update us now? This is a very big decision and impacts the company a lot. What will they lose if they update now? It’s not a sensitive matter also. For sensitive things like Axis and Daum, they need not take our approval but for this they need it and it’s better to tell us at the beginning itself.

This is what Warren Buffett says about communication and it suits BCG perfectly:

“If you can’t communicate, it’s like winking at a girl in the dark — nothing happens. You can have all the brainpower in the world, but you have to be able to transmit it.”

The management may have good intentions but they should communicate well with the investors to gain trust. It’s the investors who will value the company. If they keep repeating these mistakes then the market won’t take them seriously. The price may go up to say 3-4PE but to get the right valuation the company deserves, the management has to be more transparent.

[Logan]

They should at least say why they are issuing the warrants. When everyone was expecting LOC, they come up with warrants and don’t give proper details. We wouldn’t be this anxious if they had told us to whom these are issued to and why. That’s it.

Axis, LOC are not in their control because it involves other parties but this is in their control. Transparency is very important and it’s the very basic thing to do being a public company. People will lose trust if they update us after many days. We deserve to know more details when the dilution is this size.

[Logan]

They should mention for what purpose these warrants are issued. They miss out the basic information that needs to be shared and later try to give clarification. Same happened with the asset impairment. They updated after 2 or 3 days.

Diluting this much and not even telling for what purpose and to whom these warrants are issued looks unprofessional. When the market sentiment is this negative, they keep on repeating these mistakes again and again. Of course they’ll give details later but what’s the use? They create confusion and later give clarification. My question is why create unnecessary confusion. Why not give complete details at the beginning itself.

This all comes to corporate governance and as we always say, they should improve a lot in that.

[Logan]

@odysee, my phone was switched off so I saw the update now.

It’s really shocking to see this level of dilution. The PO allotment itself was a big dilution but I didn’t care much at that time because that money would’ve helped close off Axis debt and that dilution is nothing compared to this. Even if it for stable investors, I don’t like this level of dilution.

Also, I can’t understand why they can’t reveal details of the entity or individuals. That’s why I always say that they should improve corporate governance. One update should contain all the information needed on this topic. They need to appoint a board member who has experience in the market. They creating unnecessary confusion.

[Logan]

@drjaysee, whatever opinions I give will only be speculation right now so let’s discuss about this after we get to know more details.

[Logan]

@ramganesh, with BCG, we can never guess any timeline. If Axis didn’t go to NCLT, we wouldn’t have seen this level of manipulation. Looking at the price movements, it’s very clear that the market wants the company to close off Axis case in NCLT as soon as possible.

This particular event overshadowed all the other good events like growth in business, appointment of Mr Acharya, promoter buying shares etc. Even the proof that the company is continuing to pay Axis (when the case is in NCLT) didn’t lift the spirits because the market
won’t recognise half-done things.

Even last year, the company updated to the exchanges that it paid off SBI,and Canara loans and still there was no changes in the price because the market didn’t see any proof for the loan payment but later when it saw the decrease in pledged shares, the price went up.

[Logan]

I think (guess/speculation) promoters have pledged shares with third parties who act as intermediaries between the bank and the promoters. Once the loans are paid off, they will release the pledge on shares.

If loans aren’t paid on time then it’ll affect the intermediaries too, banks will put pressure on them who in turn will put pressure on the promoters to close off the loans.

I think bankers will have better idea on this.

[Logan]

@Raj, combination of all these created negative sentiment but we don’t know which among these has the biggest impact. With this poll we can get an answer to that (sort of). It’s important to know what everyone thinks and what opinions they have.

If we give an option of “All the above” then we’ll not get an accurate answer because most of us will select that option. We’ll have to assume that each and every event had the same impact which is not correct. If we look at the current results, Daum has 4 times the votes that PE firms selling has.

While looking at the impact of PE firms selling – Sansar, Everest and other firms exits brought more negativity than Oak’s.

Then recently, Oak exit didn’t cause negativity like the Axis case caused. So putting both together will not be accurate.

[Logan]

@drjaysee, I think going for buyback right away will hurt the company. At first, the company has to close off Daum issue because the market is giving more importance to it. The company has to pay interest on LOC too so it’ll harm the company if they do both Daum settlement and buyback. 120crs (assuming $16M) is a big amount for the company.

(Whenever I wrote on buyback of shares, I meant it should be done once all the issues are closed/resolved)

I don’t think Tanla went up only because of the buyback. Even after the buyback was announced, the share price didn’t fly. Tanla went up because of many factors, like the business improved drastically, Banyan bought more shares from the market, since it is a cloud company (cloud communication) people got excited and of course the buyback. Buyback was like a catalyst.

We see Tanla at 500 and get excited but we have to remember that it’s shares traded below 10 for 3-4 years. That time even the market sentiment towards Tanla was very negative. People weren’t trusting the promoters and many didn’t see any future for the company because they thought penny price stocks/companies are all bad (most of them are).

Coming to BCG, at the end of the day, we all want value realization. Doesn’t matter if it happens because of stable investors buying or the company buying back shares or by closing off outstanding issues.

Right now, value recognition is there but the problem is value realization hasn’t happened yet because of the pending issues. Even after closing off the issues, if value realization doesn’t happen then the company can go for buyback of shares.

[Logan]

I think the jump in publishers count is because of Thanksgiving holiday (26th-Thursday) in the US and after that on 27th there’s Black Friday and on 30th there’s Cyber Monday. On both these days there’ll be more shopping because of huge discounts and this year because of the pandemic most of the shopping will be done online.

From 27th on wards the shopping season starts in the US, so I’m guessing there’ll be increase in the publishers count even more. Hopefully the increase in publishers will reflect in the financials too.

Cyber Monday has become the online equivalent to Black Friday and offers a way for smaller retail websites to compete with larger chains. Since its inception, it has become an international marketing term used by online retailers across the world.

[Logan]

@nithin_asce, regarding Axis, the CEO said the same thing in the last conference call and I think compared to the last call, they’ve made a lot of progress. These cases will take time and people are so anxious because the case is in NCLT.

Regarding additional costs, I think it’s mostly to do with product development and signing new publishers. Getting reputed publishers to do business with you is very hard and you have to invest a lot to do that. I think results will be good in Q3 because of presidential elections, Thanksgiving and Christmas holidays.

The Christmas shopping season starts from black friday (day after Thanksgiving day) and this year because COVID-19, people will shop more online so demand should pick up.

[Logan]

@dileepvn, it’s mostly to do with currency fluctuations. The CFO answered similar query in last year’s (FY 2019-20) 2nd quarter conference call. I think the transcript is available in Yahoo finance, please check it.

[Logan]

@VALUEBUYER001, yes, its because of that. Sorry I didn’t check properly.

[Logan]

@Admin, these are my queries/suggestions for the conference call.

– BCG had a good quarter in Q1 but why there was no growth in profits in Q2? (DM business revenues went up 10% but profits are flat)

– Status of LOC and Axis case.

– Why consolidation of subsidiaries is put on hold?

– In the last call, the CEO told us that by the next conference call there’ll be improvement in communications with the investors but we haven’t seen any significant improvement. We understand that the company can’t reveal sensitive information and we’ll always respect that but we need an acknowledgement at least from your side for our mails.

– The auditor has mentioned the following in the recent Q2 report –

Without qualifying our review report, Attention is invited to the following material observations which have been identified by us during the verification period:

The company is having branch operations at USA which are part of standalone financials.

What’s the significance of this statement?

– Can the CEO reveal why Oak didn’t honor the agreement with the company and sold their shares in the open market. We understand that this is a sensitive topic and involves another party but their selling has brought more harm and manipulations of share prices.

– Are there plans to revive the parent company’s business? There’s no growth in revenues and the profits are too small – for many years.

– Just a gentle reminder to make the annual report as informative as possible. Complete details of items like other assets, loans and advances etc should be mentioned. Please give more information about the plans for the future too. Also give more details about the digital marketing business in the annual report.

– Is Onetag part of BCG?

– Which brand name does BCG provide DSP and DMP services?

– Once Daum settlement ,and India debt are closed, can the company dedicate cash to buy back shares from the market? Since there are too many shares in the market, it’s very easy for operators to manipulate the prices and the company buying back shares will bring some stability at least. Since BCG is massively undervalued, it’ll be a great investment too.

– Can you appoint a person who can advise the company on topics related to the stock market?

[Logan]

@diamond_2017, I don’t think they are concentrating on the software business. Maybe they have plans for it (the project that Mr.Pisipathi was supposed to work on and the AI&ML projects). Let’s ask them about it. I consider the parent company as an holding company. My interest is mainly in their digital/online advertising business.

[Logan]

One positive thing that I noticed is, cash has increased from 118.94crs (March end) to 130.47crs (last year after Q2, cash was 107.69crs). This is in spite of paying more taxes. In FY20, for the 6 months ending (Sept 2019), taxes paid was 63.18crs and in FY21, for the 6 months ending, taxes paid was 82.47crs. That’s an increase of 19.3crs.

[Author]

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