[vgsatwork]

With the previous FPI cancelled and new one coming in @ 37.77 is a good news as the new base valuation is based on previous day’s(15th sep) closing price.

I am not sure if the warrant allottee shankar Sharma is the same Shankar Sharma of first global. If it is, then it means finally BCG is in the radar of biggies.

But this entire exercise would drag their timelines by another 2-2.5 months to raise this money and no further dilutions is likely before this year’s AGM. Not sure if the acquisition of Indian conpany is going to get delayed because of the same of the same, but they have managed to increase the amount that they are raising through the his preferential allotment by 200 crore (over what they had initially planning to raise through the earlier proposal) with slightly increased preferential issue size to FPI and 1.5 crore preferential warrant.

Purely from corporate governance standpoint, I would have expected the company to intimate the market the moment they had decided to cancel the FPI due to potential issues that they foresaw. Even though market would have panicked for couple of days(till the revised offer price/size is announced), it would have improved BCG’s corporate governance credence manifold. But, they had withheld this info till they finalized the revised offer price/size. From that perspective, I am little disappointed as they had missed their chance to show their improving corporate governance standards.

[vgsatwork]

Little surprised to see another round of preferential allotment/preferential warrant is being issued even as the share price is within 10% of last preferential allotment to FPI. Ideally I would have been happy if this dilution came at higher valuation of around 50 or so as opposed to current market price of 34 something.

But it does indicate that the company is doing some planning in terms of the timelines involved in completing all the formalities and readying a warchest, which is good from chasing growth standpoint.
Preferential warrant now means promoters could be increasing their stake to retain management control post recent dilutions and planned/upcoming dilutions. Hence, expecting fairly large PW size in favour of promoters

[vgsatwork]

I think too much is being read into the AGM date. Last year it happened in Dec and I presume This year AGM would happen almost at the same timelines as last year.

My take is that most of the key developments that are in pipeline would require shareholder approval(through voting) and instead of having multiple voting’s and avoid the associated overhead work, management would want to delay the AGM in order to have all of these combined together as part of the AGM resolutions. Developments like additional share issuance (for acquisition), QIP, Dilution of consolidated subsidiary in US, etc,. would require shareholder approval and if the request from the company is to get 3 months time for AGM, then the right way to look at it would be to assume that most of these issues would be coming to a logical closure by then and would be ready to be placed in front of the shareholders for their approval and that is certainly a good thing to wait for…

[vgsatwork]

Happy to see a message from CDSL that the bonus shares were credited yesterday @10 pm. This is a very good sign that company is trying to keep up its commitment to the shareholders. Timely actions like this would help improve the credibility of the company. Hope to see BCG sticking to its revenue/profit guidance numbers for Q2 come mid-November…

[vgsatwork]

Based on the update given by SKR in the conference call and the revenue guidance for Full year FY22,
– Taking midpoint value PAT of 897 crores (Average of the range provided by the company)
– Assuming equity base of 120 Crore (Revenue guidance assumes only 104 Cr shares, which we know would change once FPI issue is complete)
– Considering the guideline of 20% net profit to be distributed as dividend
We can expect around Rs1.5/- per share (roughly 70% of the face value of Rs 2) as dividend for FY22, that is also a HUGE plus and an indicator given to all the analysts…

[vgsatwork]

@hw_tw

I think they have lot of scope to improve in terms of ensuring no typographic errors/calculation errors, etc. But yesterday’s revenue guidance seems to have been a sudden decision and these oversights could be more because of that. Otherwise, it should have come along with the quarterly results and should have been included in press release along with the result highlights

[vgsatwork]

Giving revenue guidance is first real massive step in terms of gaining credibility with Institutional shareholders and Mutual Funds. Institutions would wait till Q2 results to see how accurate their revenue guidance to the actual numbers and based on the same, they may start entering the stock as NO ONE would want to miss a growth stock with 70% YoY sales growth.

From that perspective, it is HUGE positive. Now, people would ACTUALLY start comparing BCG’s valuation with industry peers since the growth is comparable with those companies and hence would see BCG as undervalued stock and would start accumulating this.

[vgsatwork]

@hw_tw

I hope so. If FPI’S are not getting the bonus share, then they would be paying 31.7/share ex-bonus, which is almost 20% premium to what a common investor would have paid if they had purchased from secondary market (though it is very difficult for th to get 12 crore shares without the price moving up significantly). In other words, a common investor who had decided to invest post the FPI allotment news, but bought it on 17th, their effective cost/share would have been 20% less than the FPI’S considering FPI did not get bonus.
Hence expect the market price to move up sharply to stabilize around 38 rupees over near term, without factoring in any other news flows.

[vgsatwork]

Agree with you @jay69

I had completely missed the share premiums that they are receiving for the preferential issue and warrants and the effect of the same on book value. Hence have deleted my earlier post.

Considering the share premium balances, post FPI /bonus issue of about 117-120 crore shares, the book value is 31 rupees. Assuming remaining 30 crore of approved equity gets issued towards QIB for a consideration of 1500 crores and FY21 net profit of 720 crores (assuming 35%+ topline growth and 50% growth in net profit in Q3 and Q4 for FY21 – factoring in the effect of LOC, acquisition of indian company), book value would be 39-40 rupees with 150 crore shares.

[vgsatwork]

If the preferential allotment to FPI’s doesn’t happen till Friday EOD(Even late allotment on 20th Night would enable them to be eligible for Bonus), then we could see turn around in the stock movement and it would move up and settle around 39-40 rupees range or if the preferential allotment happens on or before Friday, it would end up consolidating around 25-26 level before moving up.

Hence depending on the preferential allotment, the stock price can move anywhere between 25 to 39 levels in short term before any news flows determine the stock’s price movement from there on..

[vgsatwork]

@Brightspot

New shares would be allotted to the owner of the company being acquired based on the Stock % of the deal. Assuming the deal is for 200 Crore with 20% stock component, then company would issue shares worth 40 crores (based on established pricing mechanism, like how it was done for preferential warrants) to the owner(s) of the company being acquired – The process would involve share holders voting & approving the new issuance of shares to the individual. Easily 2+ month timeline for Board meeting announcement, Postal ballot timeline, Approval from exchanges, etc,..

[vgsatwork]

@anand84sharma

Thanks for sharing the details from registrar of companies. I was hoping that the revenue would be around 500-600 Crore assuming the typical revenue productivity in IT services company. But this revenue seems to be only about a 5th of what I was expecting as revenues with average revenue per employee seems to be around 1000$/month as opposed to 4000-5000$/month revenue productivity seen that is typical in IT services company. Though these numbers are from 31 Mar 2020, still the company had headcount of about 950. Hence do not expect the revenue numbers to change drastically from the current numbers (31st Mar 21 Revenue with about 1100 employees could be at the max 100 crore and the profit should be about 40 crore or so). Assuming that being the case, overall BCG might pay about 200 Crore for this acquisition.

[vgsatwork]

@explorer

Looking at all the customer, employee headcount, industry/service offering, etc,. it appears that BCG is targeting to buy mediamint.

[vgsatwork]

Key ingredient for sustained stock price upmove is growth. Bottom line would come as long as there is growth in topline revenue. With most of the ad-tech companies top line is growing at 30-40% YoY and in turn are commanding rich valuations. In the case of BCG one can understand muted growth when the had problems with NPA loan, share pledge, etc. Now for the last 1.5 years they have been raising capital through preferential route and some of the legacy issues have been sorted out. But now if the top lines does not grow at a rate comparable with industry peers, there would be immense selling pressure with stock upmove and the stock would not be able to sustain at higher levels due to muted growth.
Hence I sincerely hope that they close the LOC by early September to take advantage of the best quarter for ad-tech industry (oct-dec quarter) and show impressive topline growth. This is more important than Nasdaq listing, ESOP, Preferential allotment, etc,. If they miss this window, they would miss the boat (from the perspective of growth) for another year.
Market may not take this result kindly (Given that diluted EPS is about 4 rs now – post preferential issue and bonus). For a trailing PE of 10 and trailing P/BV of over 2 (at current market price of 40), BCG would have to show 15+% topline growth and close that LOC on priority basis, if that is the solution to growth problem. Otherwise sustaining current market price for 2.1%YoY revenue growth would be an uphill task and it would come down significantly from current level.

Growth is the only thing that can sustain this rally/Value realization. Without growth, it would come crashing down to mediocre valuations.

[vgsatwork]

2.1% YoY growth on topline. Nothing has changed from the perspective of growth…

[vgsatwork]

@odysee

I meant that BCG had 95 crore with them in Q1 FY22 and hence should have used that effectively to increase the topline by 15% or more YoY compared to Q1 FY21

[vgsatwork]

Missing topline growth in BCG

Despite all the positive news flows and up move in share price, the sore thumb for BCG continues to be topline growth with topline growth in low single digits. If they can start showing 20%+ YoY topline growth, that is when market would feel comfortable giving higher valuations like it’s peers – Affle, Magnite, Pubmatic, Tradesk, etc,.

Given that Management has had 65 crore (25%) of PW money + 30 crores of PI Money (Last year Preferential issue to Muskaan) of cash, I sincerely hope that they show atleast 15% YoY topline growth in Q1 FY22. That would do a world of good to stock prices than the other news items that are lined up. Once people start seeing growth, the trust on management to deliver growth would increase tremendously..

Hoping for a great topline growth today…

[vgsatwork]

@odysee

The category of investors who have invested in recent up move would fall into momentum investors (investors who invested in this stock because someone else or from someplace they heard about the share and have seen that quite a few people are trying to buy this stock). These kind of investors are buying into this counter with the hope that it would keep increasing and that they can ride the momentum. But any stock price would go up and down and that is how the market is and the price movement is almost never unidirectional. One way such investors could protect their interest and limit their downside is to put a trailing stop loss sell orders (if there is a downside move above a given % point). But even such strategy is futile when the stock price fluctuates widely on a given day..

[vgsatwork]

Reply to #12328

@odysee

Long term investors need not be carried away/disheartened by the share price movements which is a reflection of market mood (Greed/Fear)as the prices would align with the underlying value of the stock sooner than later as long as the fundamentals w.r.t the business has not changed.

Even with outlier Multi baggers like Apple(Increased from listing price by 1623 times) and Netflix (Increased from listing price by 481 times), the share price had fallen multiple times. Apple had fallen by 80% TWICE!. Netflix had lost 25% in a single day FOUR times and in a four month window has lost 80%, but still ended up as multi baggers.

hence ONLY thing that we long term investors should do when stock can potentially lose by about 50% in a short span is WAIT and DO NOTHING.

“To make money in stocks you must have –
1. The vision to see them
2. The courage to buy them and
3. The patience to hold them.
Patience is the rarest of the three.”
– Thomas Phelps in 100 to 1 In The Stock Market

As a final thought, here is a good article to understand the VIRTUE of DOING NOTHING (After doing the homework of picking the right business/stock to invest)and a study by Motilal Oswal on stocks that have given 100x or more returns in Indian context..

Shut Up and Wait

https://www.motilaloswal.com/downloads/19-wcs-2014-100x-12-dec-2014.pdf

[vgsatwork]

@VALUEBUYER001

There has not been any official communication about whether FPI’s are eligible for receiving bonus share or not. I don’t think the company would be obliged to clarify the same since the FPI allotment is still not done and it is approved in EGM and pending approval from Exchanges in order to complete the allotment. The moment the allotment happens (as long as it happens on or before the record date), they would be eligible for bonus and the fact that in the EGM notice that they have increased the provision for allocating bonus share by 5.98 Crore (Sufficient to allocate 1:4 bonus for the 11.96 crore shares under FPI allotment) seems to suggest that they are planning to allocate the bonus share (BCG is expecting preferential allotment for FPI to be approved by exchanges on or before 20th August) and have provisioned for the same.

[Author]

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