[vgsatwork]

related to #12333

I was checking to see if the consolidated balance sheet published as part of the FY20 results to see if there is any kind of correlation that could be seen between that balance sheet and the one shared in the investor presentation shared by BCG last night wherein Lycos Acquisition payable of $7Million is the ONLY long term/Non current liability and which has reduced from $24.4 Million to $7Million between FY20 and FY21.

I could not see any major differences in Neither the current liabilities or in Non current liabilities of the balance sheet published on 28th June as part of the results which could correlate to the reduction of non current liabilities of $8 Million that is shown in investor presentation.

[vgsatwork]

Follow up to #12326

I was going through two of the announcements from the company and it becomes clear that between the result announcement on 28th June when the bonus decision was announced and the EGM notice sent on 13th July, the amount of money earmarked for Bonus has increased by 5.98 crores

In the first document, Annexure A talks about post bonus equity share count (assuming all preferential warrant shareholders would be getting bonus shares) of 104.93 crore shares and the share premium required for implementing the bonus issue at 41.98 crores (for issuing 20.99 crore shares of face value of rs 2/- as bonus)

In the second document (EGM Notice – Page 17 para 2), the share premium required for implementing bonus issue is mentioned as 47.96 crores (for issuing 23.98 crore shares of face value of rs 2/- each).

Clearly between 28th June and 13th July, the number of bonus shares that BCG was planning to issue has increased by 2.99 crore shares, which is 25% of 11.96 crore shares of preferential allotment to FPI’s.

So, it is clear that FPI’s were meant to get the bonus and the timelines were arranged accordingly and they are effectively getting shares at the rate of 25.36 rupees (post bonus shares).

So, FPI’s getting bonus is not speculation, but something that has been accounted and planned for by BCG.

[vgsatwork]

@hw_tw
ESOP is purely for rewarding the employees and BCG has earmarked 5% of aggregate paid up capital + reserves for buying 2.6 cr shares from secondary market and they have mentioned the quantum of shares, amount of money to be loaned to the trust for purchasing from secondary market and maximum possible ESOP that would be allotted to any individual in a year clearly in the postal ballot notice. Hence this ESOP would not be used for paying the stock component of the acquired company.

In a separate post, I had given my guess in terms of how much BCG might pay for the acquisition (making some broad assumptions) and the figure I believe that would be paid would be in the range of 1000-1200 crores.20% of the same would be about 240 crores. Assuming the stock price to be about 40 rs, BCG might issue about 6 crore new shares from the approved list of 150 crore shares. (Given all PW & PI allottees are eligible for bonus, by 27th August, paid up capital would touch 115 crores, leaving scope for another 35 crore shares to be issued). Between 6-8 crore shares from this remaining 35 would be issued for acquisition and remaining 27-29 crore shares would be issued through QIB to raise 1500 crores (between 50-55 price range) is what I think would happen. But it is more of an educated guess than anything else.

I don’t think acquisition of India based digital marketing company would happen before 20th Aug. New issuance of shares would still require shareholders approval and voting, etc along with clearance from regulators. Hence the earliest it can happen is sometime in late September or early October

[vgsatwork]

@Raja

Because all these FPI’s are SEBI registered, their due diligence would not take time and even 2 weeks should be sufficient to get the exchange approvals. Given that EGM approval of FPI was done on 5th, it is safe to assume that the company would have applied for approval from stock exchanges on that day itself. Now 4 days after the EGM they have announced the record date as 20th Aug 2021, which is 2 weeks from EGM date, my sense is that BCG has got feelers that the exchange approvals are expected well within 20th August and on 20th August if they allot the shares to preferential allottees, all of them would be eligible for bonus shares.

If you think about it, unless this was not factored in (that FPI’s would not be allotted bonus share), the entire time table in terms of date of announcement of preferential allotment to date of EGM to record date of bonus need not be lined up for this possibility.

Hence it is safe to assume that preferential allottees would get bonus share and that their effective allotment price would be 25.36/-. If market senses that it bent over backwards to accommodate preferential allottees to be eligible for getting bonus shares, the benchmark support price for the share would be around 25-26/- and not the current market price since it would be seen as BCG trying hard to please the preferential allottees.

[vgsatwork]

Market would wait to get clarity as to FPI’s preferential allotment shares would be eligible for bonus shares (given that ex-date is yet to be announced). If FPI’S get bonus shares, then their effective allotment price is 25.36, upto which the stock can potentially correct before finding support. If FPI’S are not eligible for bonus shares, then current price would be good support level. But, neither the market nor the investors know the ex-date and that is probably what is delaying support/reversal in stock price

[vgsatwork]

This is my guess – BCG may be paying the target company about 5-7 times EBITDA to acquire the same. Assuming a revenue base of 75 million $ with about 35% EBITDA, BCg might end up paying anywhere between 130 – 180 Million $ (1000- 1400 Crores)to acquire the same with 80:20 cash/equity that he spoke of

[vgsatwork]

@conservative_indian

Thanks for the detailed analysis based on the updates in EGM.

I believe the company that they are planning to acquire may not be bringing in revenues that are comparable with average revenue per employee that BCG currently generates.

I think this is due to their India operations wherein they are spending about 38Cr for employee salary expenses (Compared to 165 crore employee salary expense for the consolidated entity – 25% of overall employee salary is spent for employees in standalone company, that is the one in India) to get about 386 Cr revenue. Assuming only 25% of overall employee strength of BCG is in it’s stand alone(India) entity, which would be 106 employees generating annual revenue of about 386 crore at a rate of 3.64 crore revenue/employee. Remaining 75% of the BCG employees(318 employees) are bringing in about 2500 crore at a revenue rate of 7.86 crore/employee.

Above calculation is more of approximation one. I believe BCG’s india employee strength would be way higher than 106, which I deduced by calculating portion of India employee cost from the overall employee cost base. It is because employee cost in india is way cheaper than in any of the western country. Hence the revenue per employee in india would be much lesser than 3.64 crore/year.

My guess (assuming typical backend IT support kind of work – Which is what SKR was implying that the target company is doing) is about 75 Million $(560 crore or so) revenue/annum company with average employee revenue base of about 45-46 lakhs of revenue per employee. This could help BCG cross the 450 Million revenue mark which SKR has been mentioning about (Where free cash flow would start coming in)

But I believe this would help them to scale up their operations when they pick up additional volume of business with LOC, etc,. since backend support is critical for their operations

[vgsatwork]

What stood out in today’s conference call is clearly the intent from the management- in terms of Action. There was no build up w.r.t communications about LOC/ audio company acquisition in the last month or so, but in today’s EGM, SKR mentioned that he is in newyork to for the acquisition & LOC discussion and he even mentioned that part of his agenda in NY is w.r.t consolidating subsidiaries and getting the consolidated entity listed in NY. So, we can expect a concrete update in the next couple of months. Market would keenly watch to see if there is follow through action from the management in a timely manner and accordingly would start re-rating the stock.

Also, he had hinted clearly that multifold increase in topline and bottom line through a combination of Acquisition and organic growth is very much possible and he is hinting about the same materializing in the next 18+ months.

Another key indicator is that he would be predominantly using cash (Generated from the acquired company) for upcoming acquisitions with a small stock component, indicating equity dilutions may not be much going forward. Digital Marketing Services company that is set to be acquired seems to have much better systems in place and they have addressed the scalability issues associated with back end support – These comments seems to suggest that Stand alone (parent) company along with the acquired company would be the key enabler for volume growth going forward.

Overall, the confidence in his tone and the optimism about the future of BCG was very evident in his tone. If the market sees ground level action, then I am sure it would start getting a good PE multiple.

[vgsatwork]

https://vcnow.webex.com/vcnow/onstage/g.php?t=a&d=1701900473

[vgsatwork]

Till the Preferential issue to FPI’s are completed, stock would not move much and would tend to be around the 31-32 levels and only post the approval from exchanges, it might start moving up. Given that BCG EGM on 5th August is expected to approve buying from secondary market for ESOP allocation, my guess is between 5th August and when exchanges approve the preferential issue (Probably in 30 days time Max from 5th August), stock may be range bound and company would buy from open market for ESOP allotments. Post Preferential allotment, stock might start moving up and hopefully we would have some concrete development on acquisition to support the up move.

net net I expect the downward trend to remain (Purely due to sheer volume of retail share holding and retail shareholders are mostly driven by Fear and Greed) till it touches about 32 rupees.

Once the preferential allotment to FPI’s are complete and ESOP’s being issued, institutional players would start looking at entering into BCG as both FPI’s and key employees are invested into the growth story..

[vgsatwork]

BCG’s acquisition target – How much it might have to shell out? Between 5X-10X of sales? Assuming meagre revenue per employee of $5000/month, it would mean BCG would end up paying anywhere between $330-$660 million – roughly between 2500-5000 crores? Views pls..

P.S – BCG’s average revenue per employee is about $70k per month.

[vgsatwork]

Board meeting update – my views.

1. LOC/Receivable financing is not going happen and instead 1500 cr to be raised through combination of equity and bonds (Not going to be cheap like LOC raised in US in low single digit interest rates) – No timelines given for this. So, the growth that all of us are expecting due to LOC/additional funds to be used as working capital is not coming for atleast another 6 months and organic growth to be in single digits only till then. Big investors are likely to come via convertible bond route.
2. Entire list of preferential warrant allottees are incentivised to excercise their warrants and pay up BEFORE 27th August in order to get the bonus shares, resulting in 190 crore cash infusion. With existing 30 crore from Preferential issue last year and another 75 crore from Preferential warrant money -Total of about 290-300 crore available for acquisition in the medium term
3. SKR likely to issue preferential warrants to himself to the tune of about 50 crore shares or so as part of the 1500 crore find raising and given the pricing rule of 6 month average pricing for preferential warrant and ESOP warchest of about 70 crores, stock price is likely going to be kept around 30(give or take few rupees) till the preferential allotment happens and only then organic growth boosting fund raising would happen..

[vgsatwork]

I don’t know if it is a hidden gem. I have been trying to create a screener based on the acquirers multiple concept pouplarized by Tobias Carlisle in his famous book by the same name and came across kilpest India Ltd. It has a acquirers multiple value of 2.75 (Enterprise Value/EBIT) even as it has excellent growth metrics – Return on Assets – 95.5%, Return on Capital Employed – 179% and return on invested capital of 142% and Return on Equity of 122% with a P/E of 4.53 and Netmargin of 43%. It has free cash flow/share of 128 rupees and almost ZERO debt (0.02 debt equity ratio) 10 year compounded Sales growth – 27%

It is the only maker of RT-PCR kits in India…

[vgsatwork]

I don’t understand the logic of BCG issuing bonus shares when the business is needing lot of cash and for that they just has preferential warrants. Issuing bonus share of 1:4 would require the company to increase the paid up equity capital to 130 crores from the current 104 crores by investing cash. All these in the midst of cash crunch which has been hurting companies growth. Something isn’t adding up.

I am assuming they have already got LOC for 1000+ crores sce they are talking about acquisition, cash dividend and stock dividend along with FY 20 results. Otherwise, these news simply doesn’t make any sense

[vgsatwork]

@admin

My last post (posted about 3 hours back) is not appearing. Has it been withheld/blocked?

[vgsatwork]

ESOP announcement is very positive for the stock as
1. It is not resulting in any dilution of equity through fresh issuance, but by purchasing from secondary market
2. Because they are earmarking upto 2% of paid up equity + paid up capital and the ceiling for the # of shares is set as 5% of the paid up equity capital as of 31st March – This would mean that the company would be acquiring shares from secondary market through employee welfare trust by spending upto 70-72 crores to purchase upto 2.5 crore shares – This move would support the share price above 28 rupees per share
3. Due to the proposed ESOP, retail shareholding could get reduced by up to a maximum of 5%, a HUGE plus for price stability of the stock
4. Since this purchase from secondary market cannot start till 16th July, the share price would move up and consolidate ONLY around the 28 rupee mark from the current 13.44, an assured 100% appreciation from current level and about 250% appreciation from the previous base of around 8 rupees, sufficient enough jump for institutional investors (mutual fund) to jump into this counter, which can keep the price momentum up
5. Spending of this 72 crores would not create cash flow problems given that the company has about 65 crore from their recent PW money…
6. At around 28-30 rupees, PE multiple would be a respectable 3-3.5 instead of current value of 1.5, which would allow big players to get into this counter..

Finally looking the timeline window of these announcements (potal ballot window is right within annual results and they have acquisition, LOI financing, dividend related long pending news and the mention of company authorizing CEO to take decisions surrounding this) could only mean that they have lined up news flow to support the price action upto about 28-30 rupees

For the patient long term investors, now is Time to finally reap the rewards ..

[vgsatwork]

@jay69

All along my suspect has been the same that this PW has been announced only with a intention of edging out large investors so that the promotors can run the company unchecked despite having only about 35% stake…

[vgsatwork]

@Srd.rdx

I too hope that the PW gets scrapped (Looking at the current state, PW allottees are also not in a tearing hurry to get the PW’s at 7.7 since the market price is also hovering at the same rate, despite it being almost 4 months since the PW allotment size/price was decided)

[vgsatwork]

@sac6310

I don’t think there is any kind of time limit as to HOW SOON the board has to allot the PWs once the exchanges approves. I am not sure why you feel it should be 15 days from the date of Exchange approval. But no matter whenever it approves, the 25% money needs to be paid immediately(on the very same day) and that is the reason why they are keeping quiet without announcing a date for board meeting to consider and allot the PW’s.

[vgsatwork]

@sac6310

Allotment can happen only after board approval and initial money being paid by the allottee. Calling for board meeting is no big deal. But the fact that it has not yet been called for only indicates that the PW allottees do not have the money for the 25% upfront payment yet and once they arrange their finances, board meeting could be called for with 48 hr notice and the allotment will happen on the same day upon 25% initial payment. This is my reading of the situation.

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