The word ‘turnaround’ featured prominently in the statement given by Subex CEO Nisha Dutt (pictured) immediately following the release of the company’s financial statements for the year ending March 2024.
This has been a turnaround year for Subex. We are heading in the right direction while we continue to repair and rebuild the organization. In FY 2024-25, we will focus on topline growth, extending our offerings and deepen our existing relationships.
The word did not appear four weeks later, when Dutt took to social media to generate enthusiasm for the current strategic direction despite the continuing decline in the company’s share price.
As I complete my first year as CEO & MD, I am proud to share the incredible progress we’ve made. Our financial results for FY 2023-24 mark a significant transformation and a promising future for our company.
Perhaps Subex is now set for profitable growth, but that is not the message that an independent analyst would draw from those figures. An INR1.48bn (USD17.8mn) exceptional write-down of the company’s goodwill resulted in a loss after tax of INR1.92bn (USD23mn). Such a write-down is an admission that management does not believe the company’s FY23 year end book value of INR5.2bn (USD63mn) is anywhere near to justifiable, so they have enhanced their ratios going forward by slimming the book value to just INR3.4bn (USD40mn) at the FY24 year end.
Subex’s management wanted to draw attention to the 11.1 percent year-on-year rise in revenues to INR3.1bn (USD37mn). However, this total remains well below the turnover figures the company routinely generated when it was the market leader for telecoms revenue assurance and fraud management (RAFM) products and services. Non-exceptional costs also rose sharply to INR3.4bn (USD41.5mn) for FY24, an increase of 10.5 percent year-on-year. This meant Subex had already made a loss of INR272mn (USD3.3mn) before accounting for tax and exceptionals. Management could also point to the final quarter being essentially profitable, but long-term observers of this company will know there have been many occasions when a slight uptick in the fourth quarter failed to be repeated afterwards.
These results come against a backdrop of radical upheaval at Mobileum, Subex’s greatest rivals in the RAFM market. The sacking of Mobileum’s former CEO and lawsuits between Mobileum’s investors over fake invoices and misreported revenues should have provided Subex with a golden opportunity to win back market share. But one year after Subex changed their own CEO, it is still unclear how they intend to pursue sustainable growth. Per her own words, Dutt wants to increase the range of the company’s offerings whilst also selling more to existing customers. That appears like a sensible combination of goals at first glance, but what does it mean in practice?
The wording of Dutt’s social media post showed the telltale signs of reiterating previous messages whilst subtly revising them. The penultimate sentence repeated the same three goals as found in the year end announcement, but with a twist.
As we step into FY 2024-25, my focus will be on driving topline growth, expanding our offerings, and deepening our customer relationships as we march towards becoming a Telco AI company. [emphasis added]
One of the advantages of hyping AI as an all-singing, all-dancing solution to every problem is that it can potentially be sold to many different kinds of customers. The stock market buzz surrounding generative AI stems from its apparent versatility. People have claimed to sell AI-powered products for many years; the most recent iterations of the technology are interesting because they supposedly allow much more adaptation than the AI systems of the past. So it is striking that Subex’s message has narrowed to making sales to telcos after they previously pursued new customers in many other sectors. Subex’s Hypersense brand continues to be applied synonymously with its AI products, but the implication now seems to be that investors should no longer expect the promotion of Hypersense to customers in the fintech, e-commerce and financial sectors. Subex also continues to be described as the parent of Sectrio, a separate spin-off brand that was positioned to exploit the boom in security spending on operational technology (OT) and the internet of things (IoT).
The suspicion with Subex is that promises of growth were too often tied to the latest tech hype rather than any advantages the company possesses because of their history of working with certain kinds of customers or by recruiting and retaining developers with particular strengths. Retrenching to a sharper focus on ‘telecoms AI’ may hence be a step in the right direction, if it means cutting expenditure on the development and marketing of products that are unlikely to succeed. But Dutt undermines that message by simultaneously asserting Subex will extend its range of offerings. What are these new offerings in the Subex pipeline, other than the same old offerings plus a larger sprinkling of AI fairy dust on top? The use cases of actual customers that Subex chooses to highlight on their home page are only notable because they are so repetitive. See if you can observe a pattern.
- Business assurance at Swedish telco Telia
- Fraud management at Bahraini telco Batelco
- Business assurance and fraud management at Libyan telco Almadar Aljadid
- Business assurance at Saudi telco stc
- Fraud management at Maltese telco GO
- Business assurance at Maldivian telco Dhiraagu
- Business assurance at Senagalese telco Orange Sonatel
- Business assurance at British telco BT
It has been a long time since Subex’s management team last talked about centering their strategy on supplying telcos with revenue assurance and fraud management products and services, but all the customers they choose to highlight are telcos who have bought from the same old RAFM vein that was the core of Subex’s past success. And therein lies their problem. Subex continues to generate most of its revenues from a niche market that is in decline. As a consequence, Subex’s current annual revenues are less than one-third of what they were at the company’s peak. Why would any investor expect the company to make gains whilst still wedded to a market on this trajectory?
Nobody can fault the Subex management team for not trying. They diversified by adding cybersecurity products to their range and by targeting customers in other industries. Perhaps they did not have the resources to succeed, as neither diversification strategy yielded gains that were significant enough for the current management team to draw attention to them. So instead of playing up the company’s actual strength in a declining market, the management narrative is that Subex’s future lies with selling ‘AI’ to telcos, without any serious attempt to explain what telcos are supposed to do with this AI, or why they should want AI.
Nobody buys AI, except perhaps the investors who like to gamble on every hype cycle. Telcos certainly do not buy AI. They only ever buy what AI or other technologies might do for them. Until Subex can articulate how their future products and services will do something different to their past products and services, then nobody will know how the management team can justify claims to have turned the company around.
