Brightcom Group Limited (532368) Earnings Call Transcript & Summary

Good evening, ladies and gentlemen. I'm Ridya, moderator for the conference call. Welcome to Brightcom Group Limited Investor Conference Call. The duration of the call will be for 1 hour. We have with us today Mr. Suresh Reddy, Chairman and Managing Director; Mr. Narayana Raju, Chief Financial Officer; Mr. Satish Cheeti, President and Division Chief Brightcom Audio; Mr. Peshwa Acharya, President, Group Strategy, Brightcom Group Limited. [Operator Instructions] Please note, this conference is recorded. Before we go ahead with the conference, Brightcom Group would like to mention that during the conference call, certain statements in this call, reflecting Brightcom's future growth prospects or forward-looking statements which involve a number of risks and uncertainties that could cause results to differ materially from those and 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 hand over the floor to Mr. Suresh Reddy, Chairman and Managing Director. Thank you, and over to you, sir.

Thank you. Good afternoon, everybody, shareholders, investors, prospective shareholders, the entire BCG family. First of all, I'd like to wish you all a very good afternoon, and a very, very happy and healthy and prosperous New Year, 2023. Also would like to express my gratitude, gratitude is a very important thing, to all of you for being with us and to all our team members, staff, executive management and Board members who have been through the journey and have helped us grow the company over the years. The purpose of today's call is directly to answer a few questions. Getting a lot of questions from various people, various shareholders to our IR department, both through our contact center and through our email center. And I was requested to see if we could clarify some of these things. In fact, I think there was a group of 10 shareholders who also wanted to have a separate call to clarify their questions. And I hope they are on the call today. So we felt, again, in the interest of larger governance, it's probably best to do a larger call. There's no other reason. So instead of answering individual questions might as well do to our well-established investor call. So this is one of those experiments to improve governance and improve better connection and transference in between the company and all of you. So first of all, I'd like to thank you all for taking time on a Saturday to be on the call, and I really appreciate you of that. So in order to make this more efficient and to have clarity on some of the outstanding questions that have been coming up, once the commentary and the discussion with 4 different sections. Mr. Raju, our CFO, will primarily talk about questions related to MediaMint acquisition, subsidiary results. and related areas. Mr. Satish would talk about the future Audio business that we are trying to do, where we stand in terms of acquisitions and things like that. And Mr. Peshwa would answer questions around Daum settlement and response mechanism that we are trying to implement and trying to improve every day. While you know it's still going through its own growing pains, I think we will get there. Rest of the questions, I will try to answer, and then we'll open up for questions. This is broadly the idea, going to be a short call. And I only would like to say that let's try to be civil with each other today, okay? So that's the broad idea. Mr. Raju, if you can take over and then go through the process, please.

Yes, sir. Thank you. Hello, everyone. Good evening and a very happy new year to you all. So as Mr. Suresh was telling, we basically -- let me start with providing a status of the current project. We have information sought by the regulators to the best of our abilities and promptly. Given the fact that it is a bit -- given the fact that it is a detailed information for 6 years and 10 subsidiaries, the authorities seem to be working through them. We are waiting for the [ report ] on the information that we've already submitted. One thing we need to understand is and also to appreciate is the fact that the SEBI and Deloitte team has to go through a high volume of data. So it's taking -- it may be taking a little longer time. Also, one more thing is our business model is unique. I mean it's not like a conventional business. So there will be certain items -- the accounting treatment related to certain items will be quite different from conventional businesses. Coming to status of the annulment of shares issued to MediaMint founders. We received a couple of questions if there is any cash payment was made for the transaction and what's the status of this year annulment process. So the process of annulment needs just to file an application with the exchanges and the NCLT to get an official approval. And once that is done, we'll be filing it, the application with the other set of companies. So we have been advised by our legal counsel that NCLT route is the only way to annul the issued shares in the listed company. And as a deal was not fully consummated, no cash was paid by us to MediaMint people. One more question was regarding subsidiaries, audited financial subsidiaries. As you are aware, all our consolidated group company financials are audited to the best standards of our auditing by our auditors in line with all the loader and company FS requirements. I mean, specifically to individual foreign subsidiaries in various parts of the world, it just then follows governance mechanism as applicable in their country of operation. The appropriate audited financials are available at the corporate headquarters of the group. Also to give you comfort, one of the most important subsidiaries in Israel is audited by EY Israel. We have not uploaded the reports due to certain outstanding legal disputes from the past. We will do the needful once we get past them. There was one more question about details on the notification shared by the company authorizing CFO to settle on behalf of the company. This settlement was for an old case regarding the share transactions made in the past. And there was multiple questions on updates regarding the shares traded on the 5th and 6th of December. They're not getting settled. In this regard, I'd like to say that the company or the promoters were not involved in the issue. Our outstanding -- our understanding is that this is an issue from the exchanger side. And that exchangers or your broker will be able to help you with this. All the company is able to do at this point of time is to keep following up on behalf of our shareholders with the exchangers. So these are the questions from my side -- answer from my side. And I now hand it over to Mr. Satish Cheeti to give -- answer his section. Thank you. Satish, sir, over to you.

Okay. Thank you, Mr. Raju, and good afternoon to all. Just want to give a brief update on the status of our audio acquisition. We continue to be extremely keen on developing an enhanced digital audio capability. Given that we are working on various steps to complete the transaction, it may not be prudent or possible to update day-to-day developments. However, we can broadly say that all due processes are being adhered to and followed thoroughly towards completing these transactions. We'll keep the investor community informed when we conclude the same. We'll provide the next update on the -- in the upcoming investor call scheduled in February. That's all from my end. I'll hand it over to Mr. Peshwa.

Thank you so much. Thank you, Satish. Good afternoon, and good evening wherever to all of you, each of you, once again. So this is Peshwa Acharya. I wanted to update you on a few questions and queries which were around the Daum settlement. So that was one of the things. So as you'd appreciate matters between companies, especially that operate in different countries, take time to settle and come to the final understanding. The discussions are actually going on -- still going on with the present owners of Daum, and this is actually on a weekly and monthly basis. We are constantly getting it. And one of the challenges was to identify a vehicle for payment between India and the countries, which is Korea. That was one of the challenges. And we have now decided to walk through a classic trade finance route of SBLC from bank that has both India and Korean connection. So this was a little bit of an executional bottleneck. The paperwork is being done now. Though we are not committing any deadlines now, but the management perceives that the settlement will be -- will not be unfinished for a long time. So that's so far as the Daum closure settlement point. I think there were a few questions around quantum computing and update on Quantum Lab. It's a strategic move for our company to enter into quantum computing, which is really one of the future technologies. And funds and efforts have been allocated to Brightcom-Qulabz, Innovation Lab as we have kind of nomenclatured it right now. And once the company can leverage the quantum computing in its business, it will let its investor know through all our public media and public communication. So that said, update as of now. I think the third set of questions and queries were a little bit about the communication and investor relations, so one of the things which we have is we are requesting, please contact the company regarding your queries through our Investor Relations e-mail ir@brightcomgroup.com. So that is one of the kind of methods. We have also recently opened a number called Investor Relations contact center. And this is essentially to address the queries of our shareholders. I think all the necessary documents are being shared. And as we speak, we are establishing a more robust response mechanism. And as it unfolds, please do give us your feedback and how we can improve this response mechanism in the coming months. So thank you. That's from me. And with this, I would like to hand it back to Suresh.

Thank you, Peshwa. So I think that covers a lot of questions. I know there are quite a few more. There are 2 ways to go about it. One is let the questions come through, and then we answer them as a group. But broadly, just before I do that, I'll just try to address one consistent question by a lot of people. This is about the share price correction and what is the reason behind it and such. So let me kind of take a step back and tell you our approach at this. The company, if you look at it in terms of business has performed very well. First 6 months, the results are already you have seen that have been ahead of the guidance of 40% growth we talked about this year. And the next quarter is also looking good. We will publish the results sooner than normal. We're trying to get that out very soon. And then other reasons are, of course, the global markets have been slightly choppy, especially for tech companies. So that has caused all the tech companies to drop. I don't want to take an excuse behind that. Other than that, there are also some outstanding issues that took larger -- more time than what we anticipated. So we maybe went a little ahead of this thing to go ahead and talk about that. I personally take full responsibility for being ebullient at times when we noticed rapid progress in an urgency to inform you all. And as a company, we believe that we have to take a more come out stand on such things. So this is one thing that could have caused anticipation and some amount of disappointment. And -- but as the team has just updated you, we are working diligently to make the group come out of all the ghosts of our past and shine, shine brightly in 2023. We feel that we put so many years of effort and so many years of energy into the company. All the teams have worked very hard to bring the company to this state. And I'm very positive we will start seeing a market that will start recognizing our effort and energy. I'll leave it at that. This is a very broad, high-level answer to some of the lot of questions that came up. And let's go to the question and answers, and then we'll try to answer the questions as they come on.

[Operator Instructions]. First question comes from [ Veebha Karay ], an individual investor.

Hello.

Yes, Mr. [ Veebha ], Please go ahead.

Yes sir, good afternoon and a very happy new year to everyone. Sir, my question is there is that forensic audit. It's taking like a much longer time. It has been already like around 1 year so to all the investors and everyone is waiting for that. And we'd like to know how long more it continues, sir. You can say it's like a government process and then the SEBI. And there have been examples in the past where it has taken like more than maybe 3 years, 4 years. In one of the cases I was reading, it took even 6 years to complete the forensic audit. So my suggestion is this like our -- maybe it's a suggestion from any other investor as well. So why don't like BCG hire any other independent consultant like E&Y or KPMG to do its annual separate audit where it can audit all its subsidiaries and give like a [teasing] state on everything, including the impairment issues, which was raised by SEBI. So that forensic audit is going on, but still, it will have some authoritative approvals, that okay, BCG is clean and it has been done -- the clean-chit has been given by an authorized party. So that will instill confidence in these investors, okay, if there is some sort of indication that it was [ given ] the clean-chit on the audit issues. So if that is possible, sir, like will be -- would help further [indiscernible]?

Interesting point. Let's -- we will evaluate and see how we can do it. Given also what has happened is bandwidth is getting stretched and we're answering questions and managing operations and such. So we will see how to do it. We're hoping something -- if something sooner comes, then we wouldn't have to put or invest all the time and energy to prove it. But to your point, we are waiting for this Daum payment to be done and be done with it, then we will be in a position to upload the audited financials that we have already submitted to the SEBI onto our website, so people can get comfort from there as well. So that is one option. We want to do once the Daum, which is hopefully much sooner than -- in our control than what will happen with [indiscernible]. That is one [indiscernible] also we have been looking at.

Okay. But at least can at least think...

This is a good point. Yes, this is a new suggestion. I have to take it back to my audit committee and my Board and see how they feel about it. Again, we have to look at bandwidth, people, all those things. We will definitely consider it, Mr. [ Veebha ]. No question. It's a good suggestion.

And sir, one more question, if I can. There was dragging of pledging of shares that happened. And because of that, the promoter shares holding was showing as less. So in the future, when do you expect those shares to exactly appear in the promoter shareholding? Or do you expect like the promoter shareholding will increase or maybe because of the pledging issue that has happened. So what are your thoughts on that?

Yes, again it's -- this is again a bit SEBI and then we are also fighting to get back shares and things like that. So it's a very difficult answer to give. I wish I could tell you. But in terms of -- they're not sitting it any one person right now, and they're not going to come into the market and spoil the party. That much I know. So whoever has to give it back to us, they'll have to buy in the market and give. So if that happens, I will be the happiest person because my holding will go up. But we have to see how that will play out.

The next question comes from Tushar Jadhav from AffinityX.

First of all, happy new year. Am I audible?

Yes, very audible. Please go ahead.

Yes, sir. Actually, I have shared you the list of questions. Like now you have said that in quarter 4, we will have a DII meeting. So what is the update on it?

Let me answer that. I mean -- I think best answer would be from Mr. Raju. He is working on Strategy there. Mr. Raju, maybe you can tell us. Between Mr. Raju and Peshwa, they are working out a way. I'll let them answer this.

I mean, coming to the industry calls and other things, we are having this concerted strategy, trying to get more DIIs and FIIs on board. So we expect them -- we are looking forward to them to stay with us for a longer period. And once we get a few insights into that, we'll tell our long-term strategy on how do we go about onboarding them and keeping them stay with us together for a long time. So the effort is on, for sure. We'll keep you posted as we progress.

Yes. Yes. One more question...

So I just want to add one input. This is Peshwa here.

Yes, Peshwa, go ahead. Yes.

One more input to, I think, Mr. Tushar Jadhav, he asked this question. Is that correct?

Yes, right.

Yes. So one more input for Mr. Tushar Jadhav and for the rest, which is, in terms of each of the [ BSI and FSI ], actually, FIIs still have their own set of protocol and the way they invest in companies and the right investment philosophy is actually to invest in companies for a certain period. And like Mr. Raju said, we are kind of doing the process. And so I just wanted to tell you that each one has a different set of protocol and a set of things they look at, and I think we are actively into it. That is the only comment I wanted to say.

Yes, sir. One more question is, the company is doing great in terms of growth, but the valuation is not reflective. The company has huge reserves and FCF. Is there something we are planning to reward our investors? We can come up with like Brightcom trust to buy the stake from the open market or we have a ESOP trust to buy 5% stake or we can commit for a buyback. That is also one of the options.

Correct.

That's it.

All these are being evaluated. We were waiting for the new year to come in. Definitely, all these are looked at, so we do have funds in the bank, and then we have various alternatives. In fact, we set up an employee stock option plan [ back ]. Have not yet started doing anything on that, and that needs to be also activated. But the point is that we have raised funds to grow the company. So that trade-off we are trying to figure out. And if the general sentiment and the move starts to go in the right direction, we would rather conserve the cash to actually build the business. So that has been our preference. I think I've mentioned that in the past. But we are looking at all alternatives now.

The next question comes from Mr. [ Kapil ], an individual investor.

Hello, am I audible?

Yes, sir. Please go ahead.

I have basically 3 questions. My first question is regarding the Intent IQ partnership that we have heard some [ things today ]. But basically, the additional benefit that we got last quarter in terms of revenue and what kind of partnership revenue sharing based or service based that we have with them?

That breakup, I unfortunately don't have it handy. Let me get back to you, maybe we'll try to upload that. I don't have it handy with me, sir.

Okay. And what do you kind of...

This actually has to come from our subsidiary in the [indiscernible] in Israel, they will have the breakup, and we want to see how much. It's a very good point. We don't -- I don't have personally that breakup. I'm sure within the finance team, they are working on it. So I will get back to you.

What is the partnership model that we are sharing, it's revenue based or service based?

Depends upon the kind of advertising campaign there is. If we are doing impression-based which is fixed payout, then there is a mix of a flat fee plus performance. And then if it's totally performance, then they're also going to do performance. So it's a mix, I mean it's a very complex agreement. But the idea is the collaboration should help us in monetizing unmonetizable traffic, as you clearly understand. Because once you are able to monetize this traffic, so your publisher -- more publishers will come to you and even they have more traffic flowing through. That was the idea, given where the world is going, with non-cookie environment and such is very powerful.

Okay. My second question is regarding the equity dilution. We have seen that around 100% equity dilution in the past, and we understood that due to low free cash flows, we needed for growth, where there was any growth inorganic or to get some strategic investors. But my question over here is why we go with so high equity dilution at such low PE and didn't consider depth as an alternate or we could have balance of both?

See, we were just coming out of a bad debt situation, Mr. [ Kapil]. 2021, we paid of all kinds of bad upward situations that we were in. We became debt-free. Today, we are a debt-free company. I value that more given whatever happens in the market, nothing can touch us because we are a debt-free company. We have a positive free cash flow company. So we are in a very, very solid ground. If there is debt, it is always [dangerous] especially in tech companies. So we are not a cement factory where we are setting up some large manufacturing unit and that gets paid out. So it's -- so we have taken a strategic decision to kind of stay out of debt as much as we can. It put us back by many years. So once burned, twice shy. So it is the reason why we stayed out of debt. And it is okay, dilution is all right. I think longer term, it will all play out well. People at that time should really look at when the dilution will happen if I were to -- whatever. Even at this multiple today, they are at close to 7x the money they came in that. So I still believe it was the right decision.

Okay. I just have an opinion that why we didn't consider debt. And what is the issue with bad debt? I didn't get...