Are you on the lookout for investment opportunities that seem too good to be true? The Brightcom Group might ring a bell, as this company once boasted impressive revenue and profit growth rates along with an enticingly low P/E ratio. However, as we delve deeper into this story, you’ll discover that appearances can be deceiving.
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About Brightcom Group
Incorporated in 2010, Brightcom Group Ltd (formerly Lycos Internet Ltd) offers digital marketing solutions to businesses, agencies and online publishers worldwide.
The Brightcom Group’s Rise and Fall
Between FY18-23, the Brightcom Group experienced remarkable growth, with revenue and net profit soaring by 26% and 28% annually, respectively. It also maintained a steady ROCE of approximately 25%. To top it off, the stock was available at a seemingly incredible P/E ratio of just four times. But don’t be too quick to jump on the bandwagon – here’s why.
SEBI Investigation
During FY20 and FY21, the Brightcom Group conducted four rounds of preferential allotment, purportedly raising ₹868 crore. However, SEBI received multiple complaints alleging that this capital had been raised from and shares issued to entities with direct or indirect connections to the company. What’s more, these funds were subsequently lent to the company’s own subsidiaries.
The plot thickens when we look at a recent development involving the Securities and Exchange Board of India (SEBI). On August 22, 2023, SEBI issued an order against the Brightcom Group, shedding light on various irregularities that have come to the forefront. These irregularities raise significant concerns about the company’s practices and financial integrity.
SEBI’s investigation uncovered a web of financial misconduct, including the circulation of funds to create a false impression of capital receipt, the issuance of warrants and shares without full receipt of funds, fund diversion, and the submission of false documents to SEBI. Additionally, the audit of the company’s bank statements revealed that the company had only received partial payments against the claimed total.
Brightcom Group – Suspicious utilization of raised funds
The company asserted that it had loaned around 95% (₹824 crore) of the raised amount to its subsidiaries for product development initiatives. However, SEBI’s investigation revealed that the actual amount loaned was only ₹351 crore, raising questions about the remaining ₹868 crore’s whereabouts.
In a surprising twist, the Brightcom Group announced in April 2022 that Chairman and MD Suresh Reddy had become a partner in all four firms involved in the preferential allotments, effectively classifying them as promoter group entities. This move significantly increased promoter shareholding from 4% in December 2021 to nearly 19% in March 2022.
Brightcom Group – SEBI’s action
SEBI is still investigating the transactions of all participating investors, but for the 22 investors scrutinized so far, the amount to be received was ₹245 crore. Astonishingly, only ₹53 crore (about 22%) was actually received. Consequently, SEBI has banned Suresh Reddy from dealing in the securities market and barred him from holding a director’s post in any listed firm.
Financial reports and details can be accessed from company website here
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Disclaimer:
This is not a stock recommendation. All efforts have been made to correctly represent facts and figures in the post. Investors must therefore exercise due caution while investing or trading in stocks. NSE Options.in or the author are not liable for any losses caused as a result of the decision based on this article. Please consult your investment advisor before investing.
