Brightcom shares hit lower circuit for 4th session; What's next for this Shankar Sharma stock?

Shares of Brightcom Group continued to hit the lower circuit for the fourth straight session. The Shankar Sharma owned stock has been troubled lately ever since the capital markets watchdog Sebi has issued a show-cause notice and interim order against the company.

The notice by the market regulator has alleged a major fraud in the company's financial statements. Sebi said that Brightcom Group overstated its profits of Rs 868.30 crore for the year ended on March 31, 2020, by understating expenditures and using irregular accounting practices.

Shares of Brightcom Group were locked in the lower circuit limit of 5 per cent to Rs 12.57. The scrip had settled at Rs 13.23 in the previous session. It has been hitting lower circuits for the last four sessions in a row, eroding 21 per cent of investors' wealth.

Shares of Brightcom Group have tumbled 56 per cent in the year 2023 so far, while the stock has plunged 65 in the last six months. The stock is down about 87 per cent in the last one year, when it hit its 52-week high at Rs 93.25.

Sebi also flagged concerns and made observations about the irregular and incorrect filing of shareholding pattern of the company. Sebi said that the figures were not rightly reported, violating the norms.

"The scale of fraud is indeed large. The company attempted to camouflage accounting entries in excess of Rs 1,280 crore during 2018-19 and 2019-20 to give a distorted picture of its financial position," said Sebi in its order. Sebi's probe found that Brightcom Group's resulted in an inflated bottom line due to over capitalisation of the intangible assets.

Despite this steep fall, shares of Brightcom group have delivered a return of 450 per cent in the last five years, while it is still 700 per cent above its Covid-19 lows.

Seasoned investor and Dalal Street veteran Shankar Sharma owned 2,50,00,000 equity shares or a 1.24 per cent stake in the company, as of December 31, 2022. The company is yet to announce its shareholding pattern for the March 2023 quarter.

Incorporated in 2000, Hyderabad-headquartered Brightcom Group is in the business of ad-tech, new media and digital advertising with offices in the US, Argentina, Brazil, Chile, Uruguay, Mexico, UK, France, Germany, Sweden, Ukraine, Serbia, Israel, China, and Australia, and with representatives or partners in Poland, and Italy.

Analysts continue to remain cautious over the shares of Brightcom Group and they expect that the stock may continue to fall in the near term. Ravi Singh, Vice-President and Head of Research at Share India, expects the selling pressure to continue in the stock and it is likely to test Rs 5-levels amid the negative sentiments.

Kranthi Bathini, Equity strategist at WealthMills Securities said that the company was always under suspicion following its hyped growth in profits and revenues. Sebi's probe has highlighted the same fact but investors are now trapped.

Gullible investors, instead of mimicking celebrity names of Dalal Street, should understand the underlying business, fundamentals and valuations of the company before investing. One should carry their own research before falling prey to such hyped stories.

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