Brightcom Group shares locked in 5% upper circuit; What is fuelling the rally?
Brightcom Group shares locked in 5% upper circuit after the company clarified it would take remedial measures to better its financial disclosures.
PremiumBrightcom Group shares were locked in 5% upper circuit in the last two trading sessions after the company clarified with the exchanges that it would be taking remedial measures to better its financial disclosures. Brightcom shares were frozen at the BSE's upper price circuit of ₹21.57 per share, on Wednesday.
This clarification from the company was made on Monday in response to an investigation report that raised questions about the company's accounting procedures, reporting, corporate governance, and other areas. The company's shares on Monday ended a five-day gaining streak.
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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.
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"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 are the six allegations made in the media report on the company, 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 stated 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.
Further, the company said that 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 said that asset impairment was not recorded as a cost in the P&L, and that overall comprehensive income for FY20 was ₹177 crore. According to the company, 10 subsidiaries were required to recognise an impairment impact totaling ₹868.30 crores 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 ambiguity around the components of the balance sheet's 'other advances' was emphasised in the media report. For which the company stated that it is 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 expressed concern about tax obligations while having a lot of cash and payment defaults to Axis banks. The company reacted by saying 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.
Also Read: Brightcom shares hit 5% lower circuit after Sebi's showcause notice on alleged fraud
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