[Logan]

There’s a letter from the CEO addressed to shareholders signed by the new CS.

Attachments:

1. 

   BCG-Letter.pdf
   

[Logan]

Investors have given complaints on all the issues and if anyone wants to give complaint on anything, they are free to do so. Some want to get clarification from management and they go through SEBI or the exchanges and others also want clarification and they go and ask the management. No approach is right or wrong here. If you think giving complaints is the right approach then you can do so and if you think that asking the management is the right approach then you can do that.

There’s a proverb which says that “you can take the horse (with or without force) to the water so that it can drink water but if the horse doesn’t want to drink then we can’t do anything. Everything depends on the horse”. Maybe because of translation it’ll be hard or confusing to understand but what it says is that everything is in the control of the promoters (or the management) and if they don’t want to take action then no matter how much effort we put it’ll be of no use and we can’t do anything.

I’m a big supporter of buybacks (and also ESOP) and in fact I’ve asked about this many times in the past few years but looking at the supply and the sentiment (mostly because of FA and SHP) I’m not sure whether that will work now. Until FA is cleared I’m not sure any good news will matter and will have a big impact.
Tanla did buyback and it didn’t matter, 3i and Subex did ESOP but that also didn’t matter for their stocks. BCG is not in the same league as 3i or Subex when it comes to business but the issue here is the FA which brings uncertainty. Hope SEBI will finish it ASAP and give their report.

[Logan]

SEBI has plans to initiate forensic audit of all mutual funds.

SEBI plans forensic audit of all mutual funds

[Logan]

As investors we have done everything we can and now everything depends on the management and the promoters. Some investors have requested while others have complained to SEBI but if the management doesn’t want to act then we can’t do anything. It’s very frustrating to see the stock performing so badly when the company is doing well on the business front.

What other companies’ management people do is they try to clear uncertainties as their company grows but in BCG’s case there’s no improvement and we still feel like it’s being run like a private company.

Except fa all the other matters are fixable from their end. Fixing those may not change everything but at least it’ll give more clarity and remove/clear uncertainty to an extent.

[Logan]

I saw the notification to conference call only now. They should’ve held it sometime in the next week or shared the notification earlier.

If in case they don’t answer our queries then I request callers to not miss asking queries related to these –

– LLPs selling, audio ad company acquisition status, the auditor has shared the remark that subsidiaries haven’t been audited/reviewed by their respective auditors. Please don’t forget to ask these queries.

@admin, these are my queries for the conference call, please review them once and send them to the IR.

To the CFO,

-Update on forensic audit

-The auditor has mentioned that BCG’s subsidiaries aren’t audited/reviewed by their respective auditors. Why have they commented like that and why not get the subs audited like other companies do?

-When are you planning to hold a meet with domestic mutual funds and FIIs?

To the CEO,

-Update on forensic audit

-Is the the company that BCG has plans to start joint venture with is the same company that BCG was trying to acquire?
(Audio ad company)

-The LLPs that were allotted shares in 2020 and 2021 have been dumping their shares in the market and creating not only more supply but also panic in the market as they are selling at a time when there is news like forensic audit and when the company has recorded the highest profit and revenues ever.

Is everything alright at the company or should investors be worried about something that only these LLPs know? If the company is doing so well and if the future is bright then why are they continuously selling their shares?

What if the FPIs who are allotted shares too start selling when their lock in period ends?

-How is the Hygrowth model different from traditional JVs? Won’t BCG invest any capital in these JVs?
What is stopping other companies (big and small) to replicate the same model which causes more competition to BCG?

-Update on Lycos deal with DAUM? You said that there are no challenges in this but why is it taking so much time to close the deal?

-What are the advantages and disadvantages of a decentralised internet? Will it pose a threat to adtech companies?

-Why onomagic and boldwin were started? Their businesses look similar to BCG’s subsidiaries. When will you acquire 100% of these companies?

-Are audienciad and GetMX part of BCG?

-Why is there a lack of information on subsidiaries of BCG like dreamad group, Frontier data management, Dyomo etc? Can you please share more info on these, like their websites, LinkedIn address etc?

[Logan]

Thanks @Yogi. I don’t think retail investors like us can know or even try to guess about all that. We can only talk about the developments happening and the notifications shared by the company on the exchanges. In the last two conference calls I had asked the CEO about these LLPs and he ignored it in the January call and gave a very diplomatic answer in the November call. We can’t do more than that because conference call is the only way we can communicate/connect with them. Even if we do go to the company’s office they won’t reveal anything. He’ll just say that their lock-in was over so they sold etc which is not in his control.

Regarding future and other topics, as Warren Buffett says in Becoming Warren Buffett documentary that “he likes to think about business or investment problems, and that they are easy and that human problems are the tough ones. Sometimes there aren’t any good answers with human problems and there’s always good answers with money (for business and investment problems)”.

Wrt to BCG, if we analyze, most of the issues/problems are human or other problems. SHP is the best example as it’s a human problem. It was not communicated properly. In the last conference call we got only little information on that but we still didn’t get any clarity. I think we investors can’t be sure how much the actual promoter holding is and whether they’ll get back those pledged shares that were sold. In MCA they are showing that the holding was low in March 2021 also, which means those shares weren’t sold during the peak prices of the stock.

At first Lycos-Daum was a business problem and now it has become a different problem. It could’ve been solved if BCG paid the money that Daum asked but that would be like paying more for something which isn’t worth much. But on the other hand, not just the valuation of the company went low but even it’s image got damaged because of the Lycos case. These are hard to judge even in retrospect. What if BCG paid all the money that Daum asked and kept Lycos but didn’t invest money in starting Brightcom (programmatic platform) because of lack of funds. Now the company is doing well because BCG was one of the earlier companies to start the programmatic thingy but what if BCG didn’t start it at all or started too late. Many companies went bust or struggled because of the competitive nature of the industry and the duopoly nature (Google and Facebook). Smaller companies are doing little better only from the last 1-2 years and that too because of the pandemic. Facebook is struggling because of the strict privacy rules that Apple implemented but others didn’t struggle as much. Snap, Facebook (which includes Instagram) are struggling whereas Tik Tok is growing.

Getting back Lycos now is more to do with the image and less to do with the business as it doesn’t bring anything important. In the world of ChatGPT, decentralized internet, streaming and CTV etc I’m not sure how much Lycos will help but it will be like taking some burden off your shoulders and have a better image.

Business wise company is doing good but as always, other issues get highlighted more and I’m not sure what happens wrt to all those issues and the timelines as some are in management’s hands and some are not. With other companies that I have invested in, most of the problems are due to industry related and their valuations depends on their business. Buying and selling always depends on individuals and like I always say, investors should talk to the management first and if they are not satisfied and if they suspect anything then they should approach SEBI or other authorities.

[Logan]

In the last conference call the CEO said that the management people’s bandwidth is getting stretched etc but he’s not taking any action to resolve that. Arthi consultants sent the compliance certificate/letter to them on 5th January but the company shared it on 21st January. Every other company has shared that certificate in the first week of January except BCG. The same with shareholding pattern, which too was shared only yesterday. If there was a company secretary working in the company then that person would’ve taken care of that but the CS quit and his replacement will start working from mid February. I’m not sure why they can’t hire someone who can start working immediately.

It seems like most of these LLPs who were allotted shares have sold entirely and their selling is one of the reasons why the stock is underperforming. I asked about their trading activity to the CEO in the conference but he did not answer it. I request all investors (who get the opportunity to ask questions in the conference call) to ask about the LLPs selling as the CEO may ignore to answer all our queries that we send.

The CEO can’t complain regarding bandwith of the management because it’s his responsibility to hire suitable people at the right time. He gets serious only at the last moment. One very good example is previous CFO, Mr.YSR left in March but his replacement was found only in June and he started from July. Who’s fault is this? Why couldn’t they start looking for Mr.YSR’s replacement six months before his tenure ended? Same with company secretary post.

Almost everything, they do only on the last day. Paying dividend was done on the last day, issuing bonus shares got delayed, CFO replacement was hired 3 months after the old CFO retired. You get good valuation when you do things as early as you can and not at the last moment. Also most of these aren’t hard to do if the CEO and his team are more flexible but BCG’s management is too rigid and they don’t suit the modern standards. Everything has to go through the CEO like how things are in private companies and startups. As the company progresses and becomes bigger, the CEO has to handover some of his responsibilities to others. Like I’ve said many times before, he may be good at business related things but on other things he’s too slow or takes too much time to understand the situation. I’m not sure whether it is careless attitude or laziness but this has to stop.

I appreciate that they hosted a conference call to answer few queries but that was unnecessary if the communication with shareholders was very good in the first place. The IR department won’t be knowing about any development and only response they would give is “we will update you at the right time”. What else can we expect them to say when they themselves don’t have any information? Only good thing now is that they are atleast responding to our mails and calls. Like winning a Consolation prize which isn’t worth anything.

[Logan]

@admin, these are my queries for Saturday’s conference call, please review once and send them to the IR.

To the CFO, Mr.Narayan Raju

-Can you please give details on this notification shared by the company

Authorised Mr. S.L. Narayana Raju, CFO to file an application on behalf of the Company under
Securities and Exchange Board of India (Settlement Proceedings) Regulations, 2018 for
the purpose of settlement of the proceedings initiated by Securities and Exchange Board
of India (SEBI) issued under Rule 4(1) of the Securities and Exchange Board of
India(Procedure for Holding Inquiry and Imposing Penalties) Rules, 1995- Adjudication
u/s 15A(b) and/or 15HB of the Securities and Exchange Board of India Act, 1992 in the
matter of Brightcom Group Limited.

What is the application that you have filed on behalf of the company and what is the settlement about?

-You and Mr.Acharya were appointed by the board to work on closing the Lycos deal with DAUM. What challenges are you facing regarding this?

-What is your comment on the forensic audit done by SEBI and how would it impact the company if the report is negative? We know that this is hard to answer given that it’s a sensitive issue and SEBI has not yet shared the outcome but can you please give some details on this?

-Why isn’t the parent company sharing the audited results of its subsidiaries? What are your thoughts on this since the majority of the revenue comes from these subsidiaries?

To Mr.Peshwa Acharya,

-What are your thoughts on forensic audit?

-As the president of group strategy, please share your thoughts on Lycos deal with DAUM and the audio ad company acquisition. Why is the company taking so much time to close these two deals?

-To the CEO, Mr.Suresh Reddy,

-Thank you for initiating this call to address shareholders’ concerns and also for improving the communications with the shareholders (through mails and calls).

Because of a few issues we have no choice but to focus more on them than on the business and growth aspects of the company. We request you to address all these concerns and close all the pending issues at the earliest so that we can start talking more about the future of the company.

-Update on forensic audit. How will you address the shareholders if the report comes out as negative?

-Is the audio ad company acquisition canceled? If it’s not canceled then why is it taking so much time to close the deal? Are there negotiations still on and are they related to valuations or any other topic? Can you provide some details at least on this?

-What plans do you have to bring stability to the stock price? We know that the movement of stock prices is not in your control but if you take necessary actions you can bring some stability. The past few years have been a rollercoaster ride for the investors and we would appreciate it if you would take necessary actions to end this.

-Update on shareholding pattern of the promoters. Why didn’t you disclose the actual numbers earlier and waited till 2022 to disclose? Was it because of any threat of a hostile takeover etc?

Will you get the pledged shares back or should we consider the current holding as the final promoter holding?

What if SEBI levies penalty on you for this? And how will it impact the shareholders?

-Few LLPs who were allotted shares back in 2020 and 2021 are doing intraday trading and controlling the stock prices of the company. Why did the management issue shares to these LLPs? You assured us that they won’t do this kind of trading and that those shares won’t come to the market. What actions will you take on this?

-Why did the new company secretary quit? Is it because of the forensic audit and other issues?

-There is a trust deficit in the market wrt BCG. What plans do you have to change that?

-When can we expect Q3 results?

[Logan]

The CEO/company/management should not have allotted shares to these LLPs who do trading. Shares should only be allotted to genuine investors i.e long term oriented investors. Before they were allotted shares another group owned by one of the allottees had done intraday trading and when we raised this issue the CEO said it won’t repeat again.

Last year I finally thought that the CEO had changed his attitude for good but he’s repeating his earlier traits again (assuring us that he’ll do something and not even bothering about it later). He used to tell us that all the loans would be paid by 2 quarters in every conference call but it took years. Last conference call (and in previous calls) he said DAUM issue would be settled in the next quarter (he did give a commitment saying that) but still no news on that except only one notification which gave zero information.

Most investors would be happy if he doesn’t give any timelines or commitments and just execute things and then inform us or even better is telling the truth right away instead of trying to patch up things temporarily.

As an example – What he does is just to patch things up he’ll say DAUM will be done in one quarter when in reality he won’t be knowing how much time it’ll take. So it’s better for him to tell the truth instead of giving false hopes. If DAUM issue takes say 6 months or 1 year or 2 years or doesn’t happen at all then he should tell us frankly.

(Many times I’ve said that I don’t see Lycos as very important but when it comes to commitment part, I consider it as important)

What I’ve noticed is that he’s an optimistic person and doesn’t want to talk about negative things and gets annoyed if anyone points out negative things about him or the company. But running a public company he can’t keep that attitude when negative things have happened (some of which have happened because of him). He gets annoyed when someone mentions about promoter SHP but it’s his fault that he didn’t disclose it earlier or hasn’t given any explanation on that till now. Shareholders will face the consequences because of his actions (negative or positive).

[Logan]

When we have a large group of investors, it’s common (and also healthy and good) to have different opinions on various topics. As investors we can do all that we can to change the management’s attitude but ultimately it’s left to them. Some investors request and others give complaints but if the management doesn’t want to change then no type of action will have any effect.

The issue with BCG since past many years is the CEO’s attitude and him not appointing anyone else to look after the market related activities. I’m quite sure that even the investor relations department of BCG won’t be knowing what’s happening on things like DAUM or audio ad acquisition or any other topic for that matter. BCG is being run like a private company and the promoters/management haven’t changed that which is hurting the shareholders. I really thought these things would change when new people like Mr.Peshwa Acharya came on board and when FPIs invested in the company but the progress (if any) has been too slow or not very impactful. Only one thing that has improved is that finally they are picking our calls or replying to our mails.

If I want to learn to play cricket I go to a cricket coach and for football I go to a football coach and for swimming I go to a swimming coach and etc etc. If I want to learn swimming and if I go to a cricket coach then he/she may not guide me as well as a swimming coach. Their techniques and understandings will be different. If they were the same then we wouldn’t have had so many experts in specific fields. You get the best results when you consult people who are experts (or at least have experience) in that field.

So BCG’s management has to look at things this way to improve the company’s efficiency and for people to take the company seriously. They can’t depend on the CEO for everything. He may be good at one thing but on other topics he may not have the expertise. More than anyone else, the CEO himself has to understand this. He can concentrate on business and leave other things to other people. So far most of the issues have taken up so much time because of relying too much on him. He may not understand the severity of some issues and may neglect them but others will not do that mistake and even if they do they don’t repeat it again.

When you have a plumbing related issue at home you don’t go and consult an electrician or a software guy to help you but you go to a plumber. Once or twice an electrician can fix a plumbing issue but not every time. Severity of the issue matters. Sometimes when the issue is big even some plumbers can’t solve it and they have to consult others.

Every company’s stock price will fluctuate (as we’ve seen in the last few days) but BCG’s case is special and is always like a rollercoaster and new issues come up quite often. The management has to be ready to face all the issues and shouldn’t drag them too long else people will lose interest and not give any importance to you.

When we were in schools and colleges, our well wishers would always tell us to complete easy questions first and then start writing the tougher ones. There’ll be different scenarios but things remain the same in every other field. In cricket, when you get a good ball you have to try to hit a boundary and for tougher balls you try to defend. In BCG’s case, among the different issues, the easiest according to me is the Daum issue so the management has to look at clearing it first then the other easier thing to close is the audio ad acquisition. For FA and SHP, you have to depend on SEBI so it’s not in your control. If at least the Daum issue is closed then people will understand if you take more time for audio ad acquisition but if you don’t close any and keep saying they are in final stages then no one will take you seriously.

[Logan]

Thank God they gave the clarification else all our weekend would’ve been spent speculating about it.

The problem with BCG is that the CEO is not ready to handover some responsibilities to other people and his private company mentality is bringing bad image to the company. He thinks they can wait on few things like they do in private companies but that’s not how it works with public companies. He makes easy things get complicated. Appointment of CFO and CS are good examples. He knew that Mr.YSR would retire but found the replacement only after 3-4 months. He had time to appoint someone before the previous CFO left. In case of CS appointment he could’ve appointed someone any time in the last 12 months but waited till the end to do so.

Axis case was not a major issue but got dragged for months. Lycos though not a big issue anymore, should’ve been closed by now. I know it won’t bring anything to the company and I’ve written about it many times but I’ll also say that keeping a good image is better than what you gain or lose from something. Good image is like your health, if you keep your health good and if some issue comes up suddenly you’ll have the power to fight it but if you’re health is bad in the first place and if any issue comes up then it’ll make your health even worse. That’s what happening with BCG since many years. There’s always one issue or the other and new issues keep coming.

I’ll give an example – Cancelling of Mediamint was good strategically for both the parties. BCG saved money and MM can have freedom to work with anyone. If BCG had a good image in the market then the market would’ve taken the news positively but the opposite happened. It brought more negativity and BCG’s image got worse. Had they closed Lycos deal and then later if they cancelled MM deal, things would’ve been very different now.

First came the FA news then promoter SHP, after that was the delay in crediting bonus shares, delay in CFO and CS appointments, then came cancellation of MM deal. Most of these wouldn’t have created so much negativity if things had been done quickly or at the earliest. FA is not in their hands but other things were, like CFO, CS appointments, crediting bonus shares, closing Lycos deal etc. Delay in appointing a CS caused the authorities to freeze their accounts. I don’t know when they’ll take things seriously. They’re not lazy in business related things but in other matters they’re too lazy and also careless.

BCG is no longer a small company and for institutions and funds to invest (or not sell in some cases) they have to have a dedicated team which handles market related things. I’ve been saying this for years but they’re not ready to take our suggestions. The CEO can concentrate on business and leave other matters to the dedicated team. He can check with them regularly and if he wants he can guide them on different matters.

They’ll get serious only when any issue gets bigger and most of the time they neglect issues at the beginning. Most of the issues can be closed at the initial stages only but they’ll wait till the end to close it.

Sometimes in cricket, you lose 2 or 3 early wickets. That time some teams take things seriously and try to bring stability then itself. They’ll play defensive for sometime and when things stabilize they’ll start playing aggressively (attacking). But BCG’s management doesn’t do this, they’ll wait till 7-8 wickets are gone to get serious. They’ll neglect it till that time.

In football terms, it’s like conceding 2-3 early goals and start attacking only when you have 10-15 minutes remaining. In some cases you can equalise, draw the match and go into extra time (like it happened in yesterday’s match between Argentina and Netherlands) and in some rare cases the team that concedes early will win the match when they attack at the very end. But like I said it happens in rare cases and you can’t be sure that it can happen in each and every match. BCG’s management people are like the second case and they believe that they can win if they take things seriously at the end.

But the most important thing is top teams don’t concede many goals early and even if they do concede early, they’ll start taking matters seriously from the beginning itself. Every team wants to be a top team but to become one it takes a lot of efforts and change in attitude.

Hope BCG’s management and promoters take matters seriously and become a top team ASAP. We can see in many things in life that you can make a comeback and become stronger than ever. We all want BCG to be one of the top teams who takes things seriously and when any issue comes up, sort it out at the earliest.

[Logan]

I think (more of a guess) the audio ad deal is getting delayed because BCG’S management is negotiating the deal price. My guess was based on Mr.Shankar Sharma’s tweet. Today I saw his reply to someone about BCG’s acquisitions.

This is what he said

-As a rule,Acquisitions have to make sense from valuation angle:if everything in US is down 30-90%, should a company blindly pay price of 10 months ago? Wasting capital is easy. Earning it is extremely hard. No company should do an acquisition irrespective of market conditions.

-Many deals fall through in corporate history. It’s not unheard of phenomenon.

___________________________

What I understood from it is that since valuations of almost every tech company has fallen (especially in the US where tech stocks have fallen minimum 30% and in few cases more than 70-80%) it makes sense to negotiate and bring the cost down. When they made the deal and discussed the total amount, there was a bull market going on which later turned into a bear market. Same with Mediamint deal. Last year everyone was optimistic about tech companies but this year no one wants to invest in the that sector. Nasdaq index is down 30% this year. Smaller company stocks have fallen 80-90% and even the large caps like Amazon, Facebook, Netflix etc have fallen more than 50%.

If valuation is the main reason why the deal is getting delayed then it makes sense. But this doesn’t mean that the management handled the communication well. They shouldn’t have announced the deal in the first place and should’ve announced only when they signed the definitive agreement. Being in the market from so many years, they should know how to communicate with the market and the investors. Same with Lycos deal, the CEO shouldn’t have given any commitment to investors (he said in one of the calls that it would be completed in one quarter).

Mr.Sharma has also written about BCG’s price, this is what he has said

___________________________
Price isn’t here because company hasn’t acquired anything. It’s there because of FA. You need to dissect issues to understand why market is behaving in a particular manner. Let’s await outcome. Period.
___________________________

So the biggest issue according to an experienced investor/expert is the FA. Market will look at sebi’s comments and then decide. I don’t think it’ll have any impact on the business but let’s see what sebi says. Mr.Sharma on live TV had said that BCG had followed the right rules and regulations when it did the impairment.

FA negative or positive, little negative or little positive, whatever happens, BCG’s management should start building trust with the investors and shouldn’t give commitments if they can’t execute in time. They should give some details at least on the developments happening. Calling a board meeting saying we’ll discuss this and that but not telling us what this and that are should stop. Reg Lycos deal they could’ve given some info at least like timelines or deal amount etc. I don’t know when they’ll take communications with shareholders seriously.

[Logan]

We are pleased to present the Silver Sponsor for #TGS2022 – Brightcom Group, a Fortune 500 India company, with a robust global presence in AdTech & Digital Media, with offices in 25 locations including the US, Israel, Latin America ME, Western Europe & the Asia Pacific regions.

Attachments:

1. 

   Fi3iM6VakAAVNg2.jpeg
   

[Logan]

It’s good that BCG’s management finally understood the importance of explaining their business and future plans to everyone. Like this they should also try to give complete details of a few items in the balance sheet. BCG’s management doesn’t understand how important that is.

I think most of you must have read this, earlier this year there was an article in et prime in which they discussed a few topics related to BCG. Main focus was on receivables, and loans and advances. The lady that wrote the article didn’t properly know about what constitutes loans and advances of BCG so she assumed it generally and wrote that they are the general loans and advances which are given to people so that you earn an interest. It’s nowhere close to what BCG does but it’s also not completely her fault because the company hasn’t provided a detailed explanation of those items. But she should’ve done some research at least and should’ve checked what those loans and advances were (she looks like a newbie who wanted to write an article for the sake of it)

Here’s what she wrote in that article

This metric falls under non-current assets in the balance sheet. As the name suggests, it is the loans or advances given to receive them in the future with interest. This number stands at INR720 crore for Brightcom for FY21, which is almost 20% of its total assets.”

And then she wrote about receivables of different industries like Pharma, IT etc but never mentioned the adtech industry where some companies have receivables more than their revenues. This is the problem when you let newbies write important articles.

BCG and its subsidiaries don’t give loans or advances to get an interest but they do to buy media space or to invest in a product etc. BCG is not some financial company but is a tech company.

The CFO, and the CEO have explained these in a few conference calls and they’ve also explained them in the impairment notification but that’s it, they haven’t mentioned the same in any of the annual reports. Even after asking for it repeatedly in almost every conference call they have ignored our request.

How many current investors/potential investors/analysts will wait for the conference call to know about this information? Will anyone search each and every notification by the company to get that one document? If any person wants to know more about the company then that person will always look for information in the annual reports. So if all the details are given in the annual report then et prime or other websites won’t write something based on their assumptions which would bring less speculation.

These details can be filled in just one sheet under the notes section but the management is too lazy, I’m sorry, too ignorant or careless to provide those details.

In the balance sheet there are many items like other assets, other receivables, other liabilities etc etc which when people see won’t have a clue as to what they are. If you don’t attend conference calls then you’ll find it very hard to get that information.

I request each and every investor to write mails to the company asking them to give detailed explanation of the balance sheet items in the annual reports. Let us flood their inbox with these messages and make them understand how important this is. I’ve asked about this in almost all the conference calls but they kept ignoring it. I’ve stopped asking because every time I look like an idiot asking the same question again and again.

You won’t get a decent PE unless you put in the effort. Companies with uncertain futures, bigger problems and lesser profits are trading at higher valuations than BCG.

[Logan]

High P/E ratio (excluding cyclicals) doesn’t depend only on high growth but also on how much trust, certainty and expectations the market has on a company. Private banks have higher PE ratios than PSBs and a company like Affle has a very high PE ratio because of the Microsoft factor (and Economic Times too).

TTD has a better PE than most of the other adtech companies because of its past performance which makes people think, compared to the others, uncertainty in TTD is less. Criteo was once valued more than all the other adtech companies combined but it couldn’t live up to the expectations so it crashed and could not replicate it’s past performance. Magnite was trading above $60 last year but it fell below $6 this because of uncertainty.

Both these companies have high potential but are not having premium valuation because they also carry uncertainty.

If the managements of companies don’t clear the past issues then the market will not forget the past so easily and if the managements clear all the issues and brings more certainty and more importantly if the trust factor improves then the market will not hesitate to give a premium valuation.

When it comes to BCG, right now the trust factor is low. Maybe it’s because of FA or because of the SHP or other things (like Lycos). For Sun Pharma the news of FA and fines given to their management/promoters didn’t matter as that is a large company. I think no one remembers about that now but for smaller companies something like FA will be the main highlight.

BCG has high growth but there’s a deficit in other areas like trust, certainty and to an extent expectations. What I sense is that BCG’s management is focusing more on growth and less on other areas.

Building trust is like maintaining your health, there’s no shortcut, you have to exercise, do yoga, eat balanced diet, be more active etc. BCG’s health was not normal to begin with, it had two big incidents in the past (loans and Lycos) and one is done and dusted but just when the other issue was about to be closed there came another issue which is the FA.

It’s like a player who plays really well but gets injured often. You don’t pay high for that player because you can’t count on him all the time and that’s exactly how the market feels about BCG.

[Logan]

What I felt is that the management wanted everyone (including current investors/the market/analysts/potential investors) to understand the company’s business and operations better and I guess that’s the reason Mr.Acharya talked so long about the business. For various reasons (including management’s fault), BCG has been misunderstood all these years and the situation still continues and I think the management wanted that to change. The stock has always been valued based on events more than the business. When Lycos case happened it brought so much uncertainty that people thought the parent company went bankrupt (when it was actually a subsidiary that was holding Lycos declared bankruptcy to buy time) and all the negativity started since then.

Even the last 1.5-2 years we can see how events have influenced more than the actual growth in the business (and improved cash flows). The stock started moving up when Axis case was closed and when BCG announced plans to issue bonus shares and then it stayed in a range till we got to know that Mr.Shankar Sharma was investing in the company and then it went up after Mediamint deal was announced and then it crashed because of the FA news and rallied again based on other event which was Mr.Sharma paying the remaining amount and converting his warrants to shares during the peak of the FA crash and crashed when the second bonus was delayed which brought huge negative press and when it was issued the stock crashed again because of more supply.

The company is growing with good growth rates and improving it’s cash flows (paid total dividend of 60crs which is more than what many companies make in a year), but still the stock is not performing well. These are operational performances and not events. For the better future of the company and for investors to sleep peacefully at night, the stock should always be valued based on business parameters and less on events and the management should focus on doing that. This will happen when the management talks more with analysts and focus more on the valuation side of things. What I can see or sense is that now their focus is more on growth and capturing market share and less on valuation. Some investors may not like it and others might be okay with it.

Also important point to note is that all the investors (including us) have made it clear that we are not happy with the stock’s performance and it should motivate the management to take smart decisions benefitting all the stakeholders. The CEO talked about stages and how each stage takes it’s own time and I understand it but if they take care of things that they have control of then the next stage/s will happen sooner than expected. Starting a separate line for investors (which we have asked since ages) is a good example of executing things that are in your control.

The next stage will happen when they get back Lycos and complete the audio ad deal. I don’t know what happens with the forensic audit, I’m guessing that Deloitte has completed the audit and submitted their report to SEBI and then SEBI called the company’s CEO and CFO to discuss few points (as the CEO mentioned in the call). Like I said in one of my previous posts when FA was initiated, there’ll be different rules and regulations in different countries and since BCG has different subsidiaries in many countries there’ll be many confusions. SEBI may not like few things which are different to our rules, regulations, policies, practices etc and it may be okay with few things. Tech companies have to follow different rules in different countries and Google was fined more than $5 billion dollars in Europe and our country imposed a fine of over $250 million as recently as in October (I think close to or over 2000crs). For a company like Google this is peanuts and it doesn’t hurt it’s stock but for smaller companies like BCG, any negative comment will have a big impact on it’s share prices. The business will be impacted if they are committing any fraud but I don’t want to comment on that because I don’t think they have committed a fraud. If they did commit a fraud then I’ll be the first person criticizing the company and take necessary actions. What I feel is that it’s better to wait for SEBI’s report and make comments based on that. Some will take small negative comments very seriously and others may take it differently and again it all depends on individuals. I can’t and won’t force my views on others and likewise I won’t get influenced by others. I have invested my hard earned money and I’ll take decisions based on what may happen with the company in the future. If I have any complaints first I’ll try to talk with the management and if they don’t respond then I’ll approach authorities like SEBI.

From what I have seen recently with most of the reports of forensic audit is that SEBI will impose a fine on the management and promoters if they have any complaints. I haven’t seen companies shutting down their business because of negative reports. Even the famous Bombay Dyeing company got a negative report from SEBI recently and its stock crashed the next day after it was announced and now it’s trading normally.

Regarding conference call, all our queries were answered but some I was not satisfied with their reply and some I was okay with. To reveal the name of the audio ad company is taking too much time and they shouldn’t have announced the signing of the LOI. It’d have been better if they announced when they signed the definitive agreement. It’s better to surprise than make people wait and feel frustrated. Other topics, like Lycos, I think both the companies, BCG and DAUM (owned by Kakao), have to take shareholders’ approval for the deal to happen since both are listed companies. Then it’s good to know that BCG owns 51% in companies like Onomagic and Boldwin (both look futuristic businesses). I didn’t like the CEO’s answer to query related to LLPs selling. He told us that those shares will not come to the market but still it happened. I didn’t ask about promoters’ SHP because I knew that he wouldn’t give us a proper answer. It’d have been a waste of time.

After so many years I got some clarity as to why they aren’t focusing more on the standalone business. With the standalone company, they’ll build products that other subsidiaries will use and focus more on those type of things. Adtech market here is dominated by big players like Google, Facebook etc and even companies like InMobi aren’t concentrating more on our markets. But Mr.Peshwa Acharya did give a hint that when they start focusing more on our markets, we can expect good growth rates. Let’s hope that it happens as early as possible.

Finally, some people just because they bought shares will say positive things and influence others and other people talk negative and influence others in a different way if the stock doesn’t perform as per their wish. Whatever decision anyone takes should be based on their own research and analysis. If they have any complaints then they should talk to the management and if they don’t respond then they have to approach SEBI.

[Logan]

This is a good news and we’ve been asking for this since ages. They should also start replying to each and every mail since most investors prefer asking queries through mails.

[Logan]

@admin, these are my queries for the conference call. Please review them once and send them to the IR.

To Mr.Peshwa Acharya,

– Congratulations on a great quarter. We wanted to hear your thoughts on BCG’s India/standalone business and when we can expect to see growth in that business like that of the consolidated business.

– What are your thoughts on how the company is received in the market and being the president of group strategy, what strategic plans do you have currently to improve BCG’s image and change the perception of BCG in the market? In spite of having great business and excellent growth rates, the company’s valuation is not reflecting that and is lagging by a lot. You have been with the company for more than 2 years and you must be knowing which all areas to improve. All the shareholders will be thankful to you and the management if you take steps to improve BCG’s image.

To the CEO, Mr.Suresh Reddy

– Congratulations on a great quarter which exceeded our expectations. The improvement in free cash flow is a healthy and positive sign and we hope to see similar performance in the coming quarters

– In the last conference call you said that Brightcom of 2023, 2024 will be different from Brightcom of 2020, 2021, 2022 etc. Can you please explain what will be different and share your future plans?

– Do you expect to see a slowdown in the business and advertisers cutting their ad budget in the near future because of the macro environment conditions?

– In the last call you said that BCG owns a stake in companies like Boldwin, edgecase, Onomagic etc. Can you reveal the percentage of holding in these companies and how they are related to BCG? Will you be acquiring 100% of these companies? (Boldwin and Onomagic’s businesses look similar to some of BCG’s subsidiaries)

– Does BCG have a stake in companies like Literally Media, MindAd and other companies that are under 44 Ventures’ management?

– Why is it taking so much time to reveal the name of the audio ad company? What’s the update on the final agreement? Is it still in progress?

– What’s the update on Lycos deal with DAUM?

– Update on forensic audit

– Regarding Quantum computing, how much are you spending on R&D?

– In the past you had said that the shares allotted to few investors in 2020 & 2021 would not come to the market but few of these investors like Muskaan Limited and Pankti Commosales have sold all their shares and others like Hansraj, Sahitay and Mangal Commosales have sold part of their holdings. Already the value of BCG eroded a lot in the last 6-8 months and if these investors sell their shares then it’ll bring more supply. What are your thoughts on this?

– Now that the MediaMint deal has been reworked, what plans do you have for the backend operations of BCG?

– Finally, looking at the stock price slide and volatility, we shareholders are a little anxious. What is your message to all the shareholders on this? We know that stock prices are not in your control but we would like to hear your thoughts. The company is doing very well on the business but that is not reflecting in the stock prices.

[Logan]

Yesterday Magnite was up 65% (single day), TTD up 20%, Criteo 10%, PubMatic 11%, Perion Network 7% and the Nasdaq index was up 7.35% in a single day.

In US markets both selling and buying are crazy. Stocks reach a point where they’ll be way overvalued and then in the next few years become way undervalued and then become overvalued again and on and on.

[Logan]

Guessing Adtech companies’ results is very hard. Some do very well and others do worse in the same period and the US market is so fickle that even after having great quarters some stocks fall 10-20% when they miss analysts earnings/revenue estimates by even 1 percent. The Trade Desk had a great quarter but the management gave revenue guidance little short of analysts estimates and the stock tanked. It doesn’t make sense to me.

Regarding results of other companies, TTD and Perion had great quarters whereas PubMatic and Magnite were average and Criteo was below average.

TTD was down 8% yesterday even after impressive results, Perion was up 3%, Magnite is up 18% in after hours trading after an average quarter (compared to TTD and Perion). PubMatic is down 14%.

So valuations of companies depend mostly on what analysts estimates say and the growth of the business. Results good but below analysts estimates then stock down. Results average or bad but do better than analysts estimates then stock up.

Suppose company XYZ grows above 20% every year for 3-4 years and the next year it grows 10-15% also that’s bad in the US markets. It’s crazy. Magnite was trading above 60 last year and now it’s below 6. Even if you have a great business but grow little less then the stock will crash.

[Author]

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