Brightcom Group shares end 5% higher for second straight session; here’s why

Shares of multibagger Brightcom Group Ltd closed 5% higher for the second session today after the firm said it was in the process of taking remedial steps to improve its financial disclosures. Brightcom Group stock was stuck in the upper circuit of 5% at Rs 21.57 today against the previous close of Rs 20.55 on BSE. In the previous session too, the stock was stuck in the upper circuit of 5%. It ended higher at Rs 20.55 on the BSE on Tuesday.

The small cap stock has declined 26.63% on a year-to-date (YTD) basis and fallen 60.75 per cent in a year.  However, the stock has rallied 91.73% in a month. The stock has been a multibagger over the last three and five years, respectively. It has gained 409% in three years and 916% in the last five years. Seasoned investor Shankar Sharma owned 1.24% stake or 2.5 crore Brightcom Group shares at the end of March 2023 quarter.

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In terms of technicals, the relative strength index (RSI) of Brightcom Group stands at 71.2, signaling the stock is overbought. The stock has a one-year beta of 0.9, indicating low volatility during the period. Brightcom Group shares are trading higher than the 5 day, 20 day, 50 day and 100 day moving averages but lower than 200 day moving averages.

Total 11.38 lakh shares of the firm changed hands amounting to a turnover of Rs 2.45 crore. The stock hit a 52-week high of Rs 57.70 on July 25, 2022 and fell to a 52-week low of Rs 9.27 on June 28, 2023.   

The clarification was made after a report questioned the company's accounting procedures, reporting, corporate governance, and other areas.

The company's exchange filing stated that the media filing focused on financial issues, such as an interim order and a show-cause notice issued by the Securities and Exchange Board of India (SEBI) addressing the company's financial records. 

The company in a clarification to the bourses said, “We are writing to you today to address the concerns raised in a recent article published by an online financial publisher, on 2 June 2023, regarding our company's financial reporting. We want to reassure you about our commitment to upholding the best standards of corporate governance and financial reporting/transparency," said the company in an exchange filing. 

Here’s a look at the six allegations made in the media report along with the company's responses to each of them. 

1. The subsidiary financial information of the company appears to be closed and inaccessible, according to the media report. In response, the company said that it has posted the audited financials of its significant subsidiaries on its website, where they are now completely public and accessible. 

2. According to the auditor's statement, the financial accounts of 14 of the 16 subsidiaries were not audited, as was noted in the media report. In response, the company stated that because of the complexity of its operations across numerous nations and legal systems, it must adhere to local regulations in each subsidiary, necessitating the involvement of multiple auditors for the audit function. 

The company claimed that in the end, the statutory auditor consolidates the subsidiary accounts and examines the company's standalone financial statements. 

Additionally, the company said one can be sure that Brightcom Group complies with all legal obligations and follows the world's best corporate governance practises, providing full disclosure of the financial information for all of its Group companies in its consolidated financial reports. 

3. The report stated that asset impairment was not recorded as a cost in the P&L, and that overall comprehensive income for FY20 was Rs 177 crore. According to the company, 10 subsidiaries were required to recognise an impairment impact totaling Rs 868.30 crore in accordance with local legislation in their respective nations/jurisdictions. It was not expected to have a direct effect on the parent company's profit and loss statement. 

4. The news report also raised concerns about the type of assets that resulted in such a high impairment charge. According to the company's response, it continuously invests in its AdTech platforms to keep up with the rapidly evolving tech world. This includes updating current products and creating new ones. Depending on where the product development is in the process, the cost associated with these activities is correctly recorded. 

“It falls under categories such as other current assets, intangible assets under development, and other intangible assets, depending on the stage of development and launch. Asset impairment charges are complex accounting treatments, and we assure you that all instances have been handled diligently with appropriate professional judgement," said the company in its exchange filing. 

5.  The media report mentioned the alleged ambiguity around the components of the balance sheet's 'other advances' head. The company clarified that it was actively improving its reporting to give a more thorough explanation of the 'others' category and to ensure that the accounting principles are more precisely and clearly stated. 

6. The media report also mentioned the tax obligations of the company while having a lot of cash and payment defaults to Axis banks. The company said that the third-party collateral owners' withdrawal of support caused the loan recall problem, which compelled the company to stop the loans. By March 2021, they had paid off these loans. It further stated that it is pleased to report that the company has been debt-free ever since. 

Brightcom Group consolidates ad-tech, new media and IoT (Internet of Things) based businesses across the globe, primarily in the digital eco-system. Brightcom's consumer products division is focused on IoT. The company has a presence in the US, Israel, Latin America ME, Western Europe and Asia Pacific regions.