Brightcom Group Limited (532368) Earnings Call Transcript & Summary

Good evening, ladies and gentlemen. I am Bharati, moderator for the conference call. Welcome to Brightcom Group Limited Investor Conference Call. The duration of the call will be for 45 minutes. We have with us today Mr. Suresh Reddy; and Mr. Y. Srinivasa Rao. [Operator Instructions] Please note, this conference is recorded. I would now like to hand over the floor to Asma Khan, who handles Investor Relations. Thank you, and over to you, ma'am.

Thank you, Bharati. I welcome you all today to our investors conference call. Today, we have with us our Chairman and Managing Director, Mr. Suresh Reddy; and Y. Srinivasa Rao, who is our Chief Financial Officer. Before we go to the conference, I would like to mention that during the conference call certain statements in this call are forward-looking statements, which involve a number of risks and uncertainties that could differ materially from those in such forward-looking statements. The company does not undertake to update any forward-looking statements that may be made from time to time by or on behalf of the company. Now I would like to hand over the conference to Mr. Y. Srinivasa Rao, who will take -- who will talk about our financial statements. Thank you, and over to you, sir.

Thank you, ma'am. Good afternoon, ladies and gentlemen. It is a pleasure to speak to you all in the conference. Briefly, I will explain about the financials for this current financial year. In the financial year 2019 and '20, the company posted an annual revenue of INR 2,692.32 crores and a net profit of INR 440.1 crores against the previous year revenue of INR 2,580.24 crores and net profit of INR 443.98 crores. The digital segment revenue grew by 4.77% and the overall revenue growth in this financial year is 4.34%. Revenue from digital marketing segment for the financial year 2019 and '20 was INR 2,233.86 crore registering a growth of 4.77%. Revenue from the software development segment for the financial year 2019 and '20 was INR 458.46 crores, reaching a growth of 2.29%. We have received some questions through e-mail. Briefly, I will explain about the account receivables. On a consolidated basis, our total receivables are slightly increased from 126 days to 132 days on a year-on-year basis. This is mainly due to the increase in the volume of business. Since there is increase in the volume, proportionately, the AR also increased. The total receivables are increased from INR 890 crores to INR 974 crores. Our receivables in digital segment has increased from 114 days to 124 days, whereas the receivables in software segment is reduced from 183 days to 172 days. Out of the total receivables of INR 974 crores, the digital is INR 758.67 crores and the software is INR 216 crores. This is briefly about the top line, bottom line and AR position of the company. Now I hand our floor to Mr. Suresh Kumar Reddy, our Chairman and MD.

Hello? Thank you, Srinivasa Rao garu. First of all, let me apologize on behalf of the company and the provider about the brief disruption in the beginning of the call. Looks like there was a technical glitch, and we were laughingly saying that maybe the volume of calls has increased so significantly that they want to -- that created this particular disruption. Now with that, I'd like to start with a nice positive note saying that the popularity of the company and number of shareholders and such has gone up since the last quarter by almost 40-odd percent in terms of number of shareholders we had, so this is a consequence of that. Last time, we were around 29,000 shareholders. And just in 3 months, we are at 42,000 -- 42,500 shareholders. Anyway. That said, let me just come back to the purpose of the call. This was a fantastic year. There are a lot of things we were able to accomplish. There were certain things we would have liked to be done with; however, did not happen due to extraneous reasons. And also, COVID was a little bit of a concern towards the tail end of the year, I think in March. January on, I think we started seeing some impact on global markets, while India probably came later in the month. But the beautiful thing about this year has been that we -- in spite of all these things, initially, yes, we had some flutter on the front. People were a little concerned saying, "Okay, is this going to impact us? How is it going to come? There were a few advertisers who pulled, I'm talking later in January and early February time frame. However, it just didn't even last for few weeks because we work so closely with agencies, and we just found a new set of advertisers started to rush in. So what has happened, at a very high level, if you look at the consumer behavior, is people have started to stay home because of this, they are working from home. And this has created a lot more usage of the media. So suddenly, digital has come into the forefront. With that, what has happened is the traffic, the amount of traffic, even the large players who actually provide interesting content, whether it is a Netflix or Amazon and such, new sites really took off. People who were tracking COVID started to take off. So a lot of things people were watching rather through their mobile phone, through their tablet or in their laptops. So this caused -- this actually was a big saving rate for us because it didn't take too long fortunately for us. And one view we took, again, talking to the clients and understanding from the guys on the ground is that there was -- there is an acceleration, if you may, of digital -- digitization of the world. And I am sure you're hearing a lot and you're watching -- reading a lot of articles on this topic. So in that sense, it is a great thing for your company. We are already in digital. We've been in this business for 20 years. So all in all, I think we are in a good place, poised very well for business growth, poised very well on consolidation, poised very well on cleaning up our issues that we've had. Yes, there are still a few, so I'll get to that. Let me give you a quick update on this. One moment, let me just pull this up, hold on. I have a list put together, which I want to get -- go through. Yes. Top things that were of concern towards the tail end of the year and early the quarter were what's work-from-home and how will it work for employees? So whether it was India, Israel, Argentina, Serbia, which is where most of our people work. And then we have in the U.S., obviously, where -- then other locations where we have people working outside, they're already on the sales, they are also doing account management. So that has -- that whole transition was a little bit of -- we had to watch very carefully. However, we were very happy to report being extremely effective. Our productivity is back to 100%, things are running very smoothly. In fact, in some areas, I would say, we're even doing better because we are happy employees don't have to travel as much. Now one thing we are now looking at is, why do we have these large offices all over the place, and half of them are empty or you know 2/3 of them are empty. We will -- we're trying to make it a little more spacious and obviously, with social distancing in mind and such. So this is one of the big things during this period. Coming into the entire year, we were listed as the Best 72 SSPs for 2020 by eDigital. And we are getting noticed number of places. I think just recently, there was another article even after the Board meeting, which talked about us being in the top 10 alternatives for AdSense. And I think today they have talked about how Brightcom is providing the effective mobile advertising and desktop advertising in Latin America. These are all good. Like I just said, publishers are seeing a huge upsurge in traffic, a lot of spikes in the traffic. And they are completely redoing. Advertisers suddenly have more alternatives. Pricing has come down, but volumes have increased. So it doesn't matter because net-net revenues stay put or get better. And it's always good to have -- it's like stock market, right? If you have more people playing in the stock market, then pricing of trade they try to reduce and net-net, the brokerages make money. Very similar if you want to take an analogy there. That is one thing that we are seeing. Next thing is we also launched something called B-local exchange. This is, again, moving from a faceless programmatic approach to have a brand-based community. We started signing up with a lot of news agencies and media. So we signed up already with Philadelphia Magazine, boston.com, is very effective. We are very surprised at the results, a great idea came from our Israel office. Salt Lake Tribune is also part of it. Lot of -- [indiscernible] is also signing up, primarily right now in the U.S. and then we're planning to look at other geographies as well. So this is broadly at a very high level. And you know the numbers have already been spelled out by the CFO, Mr. Y. Srinivasa Rao. If you look at it, yes, there has been a 3%, 4% increase. I'd like to share something interesting here. I know there has been some questions to us regarding why is the total revenue hovering around INR 2,500 crores, not really taking off from there, while digital is growing? And I've mentioned this in the past as well, where we have -- the nature of the business in digital advertising is that we get paid between 90 to 120 days or sometimes more -- even more based on market situation. However, we pay by end of the month, less than 30 days. So as the business starts to grow, the amount of money that is ours, sits in the receivables. And that becomes a bottleneck for both. Given that -- so what do we do? So we need to raise more funds to be able to do that. So one option is go do equity, but given that all this situation that we are trying to sort out, that option we're not going after. So we're trying to get a line of credit, which will help roll some of that money. So you might have read about people talking about a line of credit or whatever, so that's what we are trying to do. So in order to do that, we feel the best place to do that would be the U.S. So hence, we are actually -- we're consolidating 12 subsidiaries, which are outside of India, under 1 sub -- one for the, say, sake of reporting, which is simpler because this gets very cumbersome. It's been taking time for us to report; two, it becomes easy for the world to see what we do, it's easy for the lenders to see what we do, for them to see the flow of cash and all the good stuff, it goes to 1 bank, makes it much easier. And so that process is on. We started to work on that almost in January, February. We signed up somebody, big audit firm out of New York. There have been some delays here and there, but they've been asking for information. We have been providing them a lot of clarifications about the business, about our history, about the financials, everything. So in that process, so it has been very good for us, and we've actually been sharing some of the clarifications also with the public, with all of you. You might have seen barrage of, what we call, updates from us during the COVID time. Everything was shut off, we were continuously sending out every 3, 4, 5 days. And it has actually been a very nice experience, a lot of -- we've got a good feedback, people got lot more clarity about what we do. I'll start with that and then we'll come back to your other questions anyway. So that is that. Then coming to Lycos and Daum settlement. We were -- in January, we had a settlement agreement ready to sign. We were to pay the first payment in January. And there was a challenge in terms of giving -- handing off a cashier check and taking a signed agreement. And that's where it stopped. Unfortunately, due to all the things, we couldn't go to Korea, they couldn't come to India, all these things kind of in a standstill state. And so that is where it is. We are trying to revise that now. But it's probably best to go 1 shot and close it instead of having this 2-phase process. Once this funds are available, debt to go across and I can close it. So we are in that discussion right now. And I feel very strongly this is a done deal, there's nothing to be concerned about. And we will immediately let you know as soon as we have a solution there. And there are a lot of questions about how long is it going to take. It's like saying how long will -- this is a discussion between 2 parties, which is already done. It's just a matter of getting few things lined up and closing it. So in my view, it is very, very close, except that it all depends upon either we make the first payment now and then wait for the line of credit to come or get the line of credit sit across and see if we can do even better. So that is where we are at right now. So I don't think the members need to be too concerned about it. I think it's a very good place. I would not be very concerned about. The second thing that also came up was the Canara Bank loan. Given the history about it, we had 3 loans way back, I think even as early as last year with SBI, with Canara Bank and with Axis Bank -- I mean, Axis Bank, I am sorry. Canara Bank is already paid off in the last financial year. SBI also was paid off. Only Axis Bank loan is pending. And we had a settlement agreement with Axis Bank about 2 years ago. However, because we are making multiple payments, this thing got sidetracked, and there was an understanding between us and the management at that time of the bank to continue the payment and clear it off. So on that, it was settled at INR 22.5 crores. We have paid almost, I think, INR 14.5 crores. INR 8 crores are left from that settlement. But it is past, time is past. Hence, the -- what has happened is the management with whom we had this understanding, they have moved on, and there have been some changes within the bank. So new people have come and they are saying, we've taken so long in the past, so they're trying to figure out a new settlement number, which is where we are. So however, as banks go, the way they work is they always have a legal sidetrack that keeps going on. So they were trying to put pressure on us to have leverage point through properties that were under the loan. And those have been removed because of the payments we made. And now the next step, they don't have too much leverage. So they wanted to do something so that they have some leverage for us to move faster and close, which we are also intending to do. However, it's the matter of clearing out of sight. So we are in that process. And in that process, at a company law tribunal, they filed in January. And it was absolutely no issue at all. There's 0 issue on that. I can assure you that. And there was no reason to be concerned. And so we did not think it was an issue, it is just a matter of due process that they were playing because it was not accepted at all. So my lawyers argued and then they asked them to make their first argument. And then the COVID came and this thing got stuck. No courts in Telangana State are all working. So the bank's lawyer got creative and then he put in a new order to actually go and open it. They're saying, they call it expedite. They're saying can we open it again. So that is what started circulating in some circles. And hence, there is some questions around that. And we have -- just on 30th of June, we had -- the court met through video, and then they are taking a call whether it should be expedited or not. Either way, there is nothing to be concerned. It's a matter between INR 8 crores or some INR 20-odd crores that they're asking. And it is nothing to be concerned upon. I can personally guarantee you, there is no issue on that, 100%. So that is something I wanted to put it out there so that people get some comfort. Because when you use the name of the tribunal, a lot of people start getting concerned and worried about it. So hence, I wanted to get that out here. Next point is coming to the business side, a bunch of conferences, Digiday conference in Croatia, Dubrovnik, was postponed and then Mobile World Conference in Spain is postpone as well due to the same reason, but our teams have actually met through video conferencing and have been working very hard and trying to continue to develop business and continue to grow that. So on this note, I would like to tell you that as it stands today, it's our business that we have, if we had the additional line, all we have to switch on is from the business we are doing, it can do between 25% to 30% immediately. Immediately, there is available business that can flow through the system, if we had additional working cap. So the problem is not operational in terms of execution, the problem has been the limit on the amount of working capital that is available. So hence, this line of credit becomes very critical on a lot of angles for the company, and we are working diligently and trying to get that done. And I know a lot of people want an update on it. I would like to tell you, it is moving very smoothly. Majority of the DG -- DD stuff is out of the way. But still, we are waiting for the final confirmation letter to come. And once the confirmation letter comes, then the legal documentation starts, which is just a process after which disbursement of funds. So that is how the process stands right now. Now if you want a time line on that, I don't want to give a time line that I have no idea in terms of. We have seen it move very quickly in the last 2 months, very, very quickly. So I am very positive that it will go at the same pace, and we should see results very quickly. That's all I can say right now. And then coming to another challenge, another issue, a lot of people who were concerned about is the impairment. We gave a very detailed explanation about impairment. Again, this has nothing to do with LOC. It has more to do with what we want to do with this company is nothing because this was not required for us to apply for LOC because we are at a very late-stage, that is we are doing it because what we want to do going forward with this company, this becomes very critical. So it's like if you don't exercise, you build up fat or over a period of time, some fat builds up. So there is a way -- and I don't know how good an analogy this is. But as you're building products and as you're building platforms and as you're growing, as you're navigating through a fast-changing tech business, a lot of things have to shift very quickly and some products do stay there, and we are not sure when we'll be using them. And from an accounting practice, it's best to go back and see if we should remove some of this or if there is some advance that we have given it to some publisher and suddenly, if businesses slow down, I mean there's a trickle that is happening, it's a good area to take it off instead of having, so that's what we have done this year. And not to say that we don't do this, we do testing for this impairment every year, it's not that. But this year, given COVID and given what we want to do with the future of the business, we took the knife out to a larger extent to make sure it is more than extra safe in terms of moving forward. We are more nimble. And it is not a problem at all because if you look at INR 3,200 crores after that, it really doesn't matter. It is actually a good thing that we cleaned up. We look much more nimble and more presentable as we go forward. That is the view that we took. And we really believe that it's going to help the business actually move in a much more graceful way and much more easier way going forward. So that is that. Then let me see if there are any other questions I missed out. There's -- I have almost 28 questions I got from all you, and let me see anything else left. There is one -- time line about the audit? Yes, I think I already covered that. Let me see, hold on please. Yes, there's a couple of questions on the business side, interesting actually. What are we doing on the AI? And what is our relationship with edgecase? Edgecase is a sister concern. It is not owned by Brightcom, if that is the question. But we have an arrangement. Once we reach a certain stage, certain milestones, we will have a stake in this company. So that is already put in place. We have agreements in place, and then we are working together to grow their business as well as our AI. So that is the relationship with edgecase. Now coming to pledge details, yes, I think we've just published that. I'm sure some of you might have seen. It's -- that is there. Then coming to -- there are a couple of questions about promoter salaries not reflecting on the books of the Indian balance sheet. Because the salary is taken through a subsidiary and the subsidiary reports it, it's not getting consolidated. That's where it is. Hence there's no other reason because Vijay Kancharla lives in the U.S. and I'm traveling between India and U.S. and that is where it is. So I don't think -- and it's not a huge amount. It is, I believe, reasonable amount. So it's not a big problem, in my view. Coming to other questions here. Okay. Transcripts of conference calls. We will start publishing once the settlement agreement align with sector exchanges, we are ready to do that. That's about all I had. So I will open up for questions. And I request the organizers to have it till 6:15. Let's give everybody at least half an hour time to ask questions, so that we cover most of the things.

[Operator Instructions] First question comes from Praveen Khurana, an individual investor.

Sir, just a couple of questions. The first was in January, you recall, you had mentioned about an orderly exit for Oak in their investments. Did that go -- rise somehow or what really happened where that they didn't honor...

See, I know this question has been sent also. I am in two minds, sir, to answer that because it involves another party. I am not sure if I can talk about beyond that as there...

Okay. Then don't. I mean, you are sensitive to them.

At a very high level, I can tell you, Oak relationship had been there for a long time. They are not like the other peers, which is what we informed the market as well. Another thing is they actually destroyed the value of the company by actually continuously hitting the -- those culprits. You can see they are not doing that. They are trying to figure out a way. And I think they are lining up -- we lined up some, they are also lining up some blocks that they're able to get it up. I don't think it's -- we are going to do any damage to the stock. So I'm not very concerned. We continue to figure out how we can -- because good news is once some big holders, such as Oak who is actually forced to sell, not because of any reason, because they're closing down, their fund goes away, that [ power bill ] sword on your neck goes away. It's good for the company. So that's where we are very actively working with them. But you know the stock price changed, so lot of things happened, I guess, that's all I can tell you.

I see. Because you know our understanding, I think, was that 30th of June, the fund was winding up and they had to exit by that particular period of -- by that date as such. So obviously, then maybe that might not be the case.

I didn't understand the last part, sorry.

Some of the shareholders were under the impression that the Oak, the fund holding the stock had to wind up by the middle of June, which is why they had to get rid of the investment because their tenure or the period was over.

See -- yes. I know that's great, sir. But yes, they are on the way out there. This particular fund, I think it's called Fund 14 inside Oak, and pretty much they are winding down, and it's been -- the fund life gets over, so it's whole private equity firm. They invest, they wait for so many years, and then they have to return the funds back to their LPs, which is one them. Yes. So I don't think it's any other issue because they have been very supportive all through. And I believe they will continue to be sensitive to the stock and the company.

I see. Okay. Just 2 quick additional points. I've also been reading on the forum. The audit of the Israeli company, Online Media Solutions, is that done by Ernst & Young? And is there an ongoing annual audit that they conduct?

Yes. Absolutely. It is done every year by Ernst & Young. And sometimes the audit report, I think in the past, we have had challenges, but audit reports -- and they also -- there year ending is March as well. So when we acquired all these companies, we changed the year ending for all of them and their numbers...

Yes. To March.

They take longer than -- because it's a private company than what happens with us, and so we'll go with the numbers. Numbers have never changed. It's just that we got the reports later. And obviously, auditors have to put it in there. It's nothing else. So we have audit reports from EY for [ 1 year ], which is almost 38% of the company's [ revenue ]. That's what I can say.

Right. Okay. Fine. Last question, if you don't mind. Is these 12 subsidiaries that you are consolidating, is it we put under the umbrella of a new company that will be incorporated? Or would it be 1 of listing companies that becomes a kind of holding company for all those?

We will create a new company, which will be 100% held by the parent, which is us. And that is just structure cost, nothing of concern, sir. That's all.

Fair enough. I see. And of course -- and we hope to obviously complete that exercise within the next few months, I presume?

You know that is the easiest part. The part we are trying to do is get those all together under 1 -- I mean, putting all financial statements of this company. Yes, correct -- that's soon enough.

And would that also then entail in an audit of that by -- with BDO Global who have been appointed?

Yes. So we're trying to get -- we basically -- have try to get an audit report from a very renowned New York-based audit firm.

Next question comes from Patrick Mathias, an individual investor.

So I had a question, which has been partly answered, so extension to that on LOC. Have we already formed the entity that is needed to consolidate? If not, do we form it after the LOC is cleared? Second is that since there is some dependence of the LOC on the Daum interdependence, on the Daum closure, if at all, then what are the type of time lines that tentatively we can assume or expect in terms of LOC being approved and made workable or functional? That's question number one. Question -- yes, sure.

I will answer this, Patrick. So the -- we have approval already. It has already been approved. Now what is the stage 2? Based on the information and what we -- what they call a note that we put together, they approve it. Once that is approved, stage 2 is they want to verify facts, which is the due diligence process as you are well aware, Patrick. So the due diligence process is on. And parallelly we are doing this, 12 companies under 1, but these are not interconnected. While it is good practice because we're not just close with this 1 LOC, we want to continue to go forward, so we felt it is a smart thing to do. In fact, if you want to do something going forward, this will be a good option to have. So this and this are independently happening, okay. That is number one. Number two, connection to Daum, right? We do have funds -- obviously, part of it has to be used for payment, Axis part of it has to be paid for initial payment of Daum. So we are trying to see -- should we have a parallel track in case -- we should try to have a parallel track, but I feel very confident that they are fairly close to the LOC, and we just have to step through those stages. And I would not -- I mean, if you want me to give you an exact time line, I would not be able to because given how these things work and where the world is. But I'm a lot more confident, a lot more closer, in my view, than last conversation we had through this call. We're much closer. I feel confident that we are -- we -- and the point is it is approved since then. We got approval, the DD process has started since then. So it is moving very quickly.

Okay. Can I ask a second question, please? A short one?

Yes. Go ahead, go ahead, please.

Yes. On Daum, is it possible at all to conclude Daum without a physical meeting?

It is possible. Obviously. It is possible that you have to trust them and they have to trust us. It's not like -- they asked us to send the money. My worry is we send the money and then they don't sign and send, what do we do? We are asking to send a signed settlement to us, and then we said we'll send the money, then they don't trust us. So it is -- it's one of those situations. Usually, in that cases, you sit across the table, you sign, you give the draft, I will do a transfer across the table, and it is done in the presence of lawyers. We are not able to do that. Then we said, let us figure out a way to do it through the [ way of lawyer ] and have somebody go there to drop off a cashless check. But somehow right when we got close to it, New York just went through the roof in terms of number of new COVID cases. And we didn't feel comfortable to have anybody even flying to New York at that time. Because people who can get the cashless check and go there are in Boston [Technical Difficulty] about block. But I don't think it's so much to be concerned about. We'll get there.

Okay. And Axis debt, you mentioned that as per the earlier OTS, we had to pay around INR 8 crores, whereas Axis is asking possibly for INR 20 crores. So is there a parallel discussion that is going on, on Axis debt outside of court...

Yes, yes. Pretty much, pretty much. Yes.

Then between the court process and parallel conversations or discussions that is going on, can we expect that this issue gets sorted out in the next...

We are working very hard, I can assure you that, Patrick, to get all these issues sorted out as soon as we can. We have no reason to delay any one of them. Sometimes you run into a hard place in terms of negotiation. But now I think we are more motivated with respect to Axis to get this offer back with us. We have had enough of this nonsense, and we try to figure out a way to get that out. In fact, we were to talk before the 30th also, but you know towards the end of the month, the executives were busy with the year-end closing and all that. Now basically, starting conversation. So it's very much in the play. We have been talking to them. There's no -- and we -- as soon as something happens and if there is a settlement, I will inform the market as well immediately just to give comfort. We'll make sure the information goes to the market.

Next question comes from Shankar Rao, an individual investor.

Congrats for good and stable numbers, sir. Yes. I have actually 2 -- little few questions, sir, which will -- there is an impairment loss of INR 800 crores approximately, out of INR 3,000 crores, total assets, which is equal to maybe more than 22%, I think.

Yes, correct.

Yes. And one more thing, how much time it will take to sit around the table with Daum, sir, to sign an agreement and pay? How much time? I think from now, if it starts, it may take 1 month, 2 months to sign across the table. And another question, sir, and I'm extremely sorry. I am asking about this question because it is...

No, no. Let it -- it's a great question. Yes, please continue.

Yes, sorry, I'm asking this question because this...

No, no. Be sure. There is nothing wrong.