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Bangalore-based Subex has been affected by delays in customer commitments. However, we believe that this is a temporary phenomenon and in the medium- and long-term, the companys prospects remain upbeat.

Subex (earlier known as Subex Auzure) is a global provider of operational support software (OSS) solutions for telecom operators to achieve improved operations and deliver new service experiences to subscribers. The company pioneered the concept of revenue operations center (ROC)a centralized and integrated infrastructure for end-to-end monitoring, measurement and control of the operators revenue chain.

Subex started software development in 1998 and discontinued the hardware business after it went public in the year 1999. The company has established offices in the US, Canada, the UK, India, Singapore, China, Australia, and Dubai.

Subash Menon, founder chairman, MD and CEO, founded Subex in 1992, and has been its CEO since the inception of the company.

As on September 30, 2007, promoters of the company held 9.3% shares while FIIs held 27%. FIs held 15.6% while individuals and others held 48.1% of the shares. Recently, the company changed its name from Subex Azure to Subex.

For FY 07, the companys revenue stood at Rs 340.9 crore, an increase of 88%, compared to Rs 181.4 crore for FY 06. For the year ended March 31, 2007, the PAT (profit after tax) stood at Rs 67.6 crore, a 79% increase, as compared to Rs 37.8 crore achieved during the previous year. The product revenue increased by 96%. The revenue composition was 67% from products and 33% from services.

During the year, Subex launched Symphona V9.1, the latest version of its inter-party management system. The company also completed FCCBs and GDRs aggregating a sum of $180 mn, and was listed on London Stock Exchanges Professional Securities Market (PSM) for trading on March 14, 2007.

During FY 07, Subex acquired Syndesis, a leading global provider of telecom OSS solutions, based out of Toronto, Canada, in an all-cash deal worth $164.5 mn. The company also opened a new office in Dubai, the UAE, to tap the Middle East market. The company successfully deployed its fraud management and revenue-assurance systems at MTC Namibia and Safaricom, the Kenyan mobile services provider.

Subex announced an improved third quarter results for the quarter ended December 31, 2007. The companys revenues stood at Rs 142 crore, up 34% from Rs 106 crore reported in the corresponding quarter in the previous year. The company suffered a net loss of Rs 4 crore, against a net profit of Rs 19 crore reported during the corresponding quarter in the previous year.

Subex has an order backlog of $30 mn for the fourth quarter of FY 08 and expects to enter FY 09 with an order book of $90-95 mn. During the quarter, Subex bagged a contract from Econet Wireless, Zimbabwes largest telecommunications group, and Telekom Slovenije, Slovenias leading telecom operator, for deploying Nikira, a fraud management system, and Moneta Revenue Assurance products.

Subex launched Syndesis Business Ethernet Fulfillment Solution, a new offering designed to simplify provisioning for the operators providing feature-rich Ethernet services to enterprises. Also, during the quarter, Subex successfully completed the integration of its Syndesis acquisition.

Subex also launched the latest version of Nikira V6.1, a leading fraud management system with enhanced roaming fraud management capabilities in accordance with the NRTRDE standard guideline laid down by the GSM Association. Recently, Subex won a contract for providing fraud management and revenue assurance solutions to Umniah, a mobile operator in Jordan.

Subex was also felicitated by Sun Microsystems with the Partner of the Year Award for the best independent software vendor (ISV) for 2007. Based on recent prospects, the company revised its guidance for FY 08 to 7%. The company now expects revenue of Rs 520 crore compared to Rs 615 crore earlier projected. The profit after tax of Rs 104 crore from its products business compared to Rs 155 crore of net profit earlier projected. This comes in the wake of a key customer in North America postponing its near term purchase commitments.

Shares of Subex currently trade at Rs 278, discounting its 2009 earnings by eight times. While product companies typically trade at a premier over its services counterparts, the recent change in its prospects and lumpy sales have hit the stock hard. We, however, believe that this is a temporary blip in the companys operations and the company will be able to stabilize operations in the near term. The stock seems to have scope for appreciation in the medium term. Outperformer.

Sushanto Mitra
The author is director, Techcap India
sushanto@techcapIndia.com
The views reflected here are of the author and not of this publication. No liability is accepted for losses based on the information presented here

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