Brightcom Group reports net loss of ₹242 crore in Q3 FY24, auditor raises concerns

Brightcom Group on Saturday announced results for the quarter ended December 30, 2023. Although the company posted a net loss, its revenue fell 85% compared to the same period last year.

Brightcom Group attributes the good run to the war in Israel, the departure of its CEO and CFO, the “negative media coverage” following the SEBI order and the numerous challenges the board faced due to this turn of events.

Brightcom Group’s income statement shows a net loss of ₹242 crore for the October-December quarter of the previous fiscal year. This is compared to a net profit of ₹544 crore that was reported in the same quarter of FY23.

Revenue for the reported quarter fell 84% year-on-year to ₹453.2 crore. Earnings before interest, tax, depreciation, and amortisation fell 95% year-on-year to ₹40 crore, while EBITDA margin declined to 8.9% from 28.5% in the year-ago quarter.

Changes in the Management Board

Brightcom Group highlighted in its post-earnings note that the “unexpected departures” of its CEO and CFO following the SEBI order led to a “temporary disruption” in the continuity of the company’s strategic vision. While they appointed new executives to the positions, the transition period contributed to delays in decision-making and execution of key initiatives.

The company also said the reported quarter was the best overall in terms of revenue share and therefore the delay in decision-making impacted the overall results.

Brightcom Group CEO P Suresh Reddy and CFO Narayana Raju resigned in August after regulator SEBI banned them from serving on the board. Investigations uncovered a series of irregularities in the company’s accounting and financial statements.

Impact of the War on Israel

Brightcom Group said Israel is one of its key operational centers, and the outbreak of war has led to significant disruptions to the company’s operations there, although it did not clarify what percentage of the company’s total revenue comes from Israel.

Negative advertising

The company also blamed negative media coverage that focused on the governance issues it faced and subsequent regulatory challenges for leading to a “loss of trust among stakeholders,” which the company said hampered operations and created challenges in attracting new customers.

Strong relationships and the road ahead

Brightcom Group claims to have strong relationships with over 200 advertising agencies, including big names such as Ogilvy, Havas Media, Mediacom, Mindshare, as well as brands such as Visa, Samsung, Coca-Cola, Microsoft and the BBC.

As we read in a statement by Brightcom Group, this fact, as well as the strategic changes initiated by the company and the appointment of new directors, played a fundamental role in getting the company back on track.

“We are confident that these actions will restore stability and propel us into the next phase of growth,” the company said.

Auditor raises concerns

The notes to the accounts made available by the auditors of Brightcom Group disclose that the periodic financial statements of the company’s branches and subsidiaries by the branch and other auditors were not furnished to them and therefore were not audited by them. Consequently, the disclosures concerning these statements are based solely on the management report.

It was further revealed that the auditors were unable to determine the number of shares or the percentage of shareholding in relation to the total amount of public shares, or the number of shares together with pledged shares in relation to the founding group’s shares in the company.

Brightcom Group shares were suspended from trading in June this year and since then the company has not disclosed its shareholding structure for the April-June period. Based on the latest publicly available information, Brightcom Group had over 6.5 lakh small shareholders or those with an authorised share capital of less than ₹2 lakh.

Further disclosures reveal that the legal process to infringe on the investment worth ₹168.86 crore in Vuchi Media Pvt. Ltd. and cancel the allotment of 1.4 crore equity shares to the said company, consequently to cancel the agreement, is still pending.

The auditors said the financial statements for this year have not yet been adopted by shareholders at the general meeting, which is yet to be held.

“Taking into account the above pending legal and other regulatory requirements and the comments contained in the report, we are not in a position to express a comprehensive final opinion,” auditors DSP Reddy & Co. said in their final conclusion.

Brightcom Group had earlier this month said it would file an application for lifting the suspension of trading on the BSE and NSE after the announcement of pending quarterly results and holding of the annual general meeting. However, no timeline was given in this regard and the company is yet to announce results for the March quarter of the previous financial year and the June quarter of the current financial year.

Brightcom Group shares are currently placed in the trade-for-trade segment, meaning they cannot be traded during the day. These shares, currently in the “Z” category, can only be traded on the first trading day of each week for six months.