After rallying over 100% in 19 sessions, this stock hit 5% lower circuit

Shares of Brightcom Group were locked in a 5% lower circuit at ₹33.32 on both the BSE and the NSE on Thursday, snapping twelve sessions gaining streak. The smallcap stock was hitting 5% upper circuit limit for the last twelve trading days and surged 79% during the same period, from ₹19.58 a piece on June 5 to ₹35.07 on June 21. In the last nineteen sessions, the stock price of the digital media solutions company more than doubled, from ₹16.17 on May 26.

Ending its twelve sessions gaining streak, Brightcom Group shares opened higher at ₹36.80, up 4.9% against its previous closing price of ₹35.07 on the BSE. However, the stock lost momentum and slipped 5% to touch its lower circuit limit of 33.32 level. The stock witnessed volatility today, with the share price falling as much as 9.5% from day’s high. On the volume front, 140 lakh shares changed hands over the counter on the BSE compared with two-week average volume of 82.15 lakh stocks. The market capitalisation stood at ₹6,723.7 crore at the time of reporting.

At the current price level, the stock of the digital marketing company trades 42% lower than its 52-week high of ₹57.70, touched on July 25, 2022. However, the stock has rebounded strongly from its 52-week low of ₹9.27 hit on April 28, 2023, surging 260% during the period under review.

The stock witnessed sharp volatility in the last two months, especially in April, after the Securities and Exchange Board of India (SEBI) issued an interim order cum show cause notice against Brightcom Group and its directors for allegedly committing accounting fraud and manipulating the company’s financial statements. The market regulator said that the Hyderabad-based company attempted to camouflage accounting entries in excess of ₹1,280 crore during 2018-19 and 2019-20 to give a distorted picture of its financial position.

The regulator in its statement said that the non-compliances resulted in an understatement of expenditure and hence, overstatement of profits during each of the financial years during the investigation period.

By all yardsticks, the ‘accounting shenanigans and dubious accounting practices’ were to mislead investors, the market watchdog had said, adding that the scale of ‘fraud’ was indeed large.

SEBI noted the company's promoter group directly benefited as a result of the ‘manipulation’ of financial statements.

In 2021-22, Brightcom Group made preferential allotment of equity shares to 79 allottees and raised ₹836.38 crore. SEBI said these allottees included four entities that subsequently became part of the promoter group. However, prior to the preferential allotment, the promoter group sold shares when the average price of the scrip was much higher than the effective allotment price.

As per the SEBI, the promoter group entities offloaded their shares in Brightcom Group throughout the investigation period and increased their shareholding after the investigation period at a much lower price, which directly benefited themselves from the said violations.

The market regulator alleged that the Brightcom Group concealed the correct shareholding pattern during the investigation period, when the promoters were off-loading shares, thereby keeping public shareholders in the dark about a reduction in their shareholding.

For the March 2023 quarter, Brightcom posted a net profit of ₹229.15 crore, up 2.73% against ₹223 crore in the comparable quarter last year. On a quarterly growth basis, profit fell 57.87% from the December 2022 quarter (Q3FY23). The revenue jumped 10.44% YoY and declined 52.22% QoQ to ₹1,368.50 crore in the Q4 FY23. For the financial year 2022-23, the company posted a net profit of ₹1,371 crore and a total income of ₹7,390.30 crore.

(DISCLAIMER: The views and opinions expressed by investment experts on fortuneindia.com are either their own or of their organisations, but not necessarily that of fortuneindia.com and its editorial team. Readers are advised to consult certified experts before taking investment decisions.)