Subex Climbs the Cliff

Although I am a European, I am glad to see that an ambitious Indian businessman can take on the rest of the world and be a success. There should be no geographic barriers to talented entrepreneurs. The turnaround of Subex shows Subash Menon, Subex’s founder and boss, still deserves to be ranked in the top league of self-made businessmen. If you had asked me a year ago, I might have questioned if Menon would still be at the head of the business he created. When things turn sour, heads roll, and even the man who gave his name to the business can become dispensable. Menon kept his head during the dark times, and we can now see the results.

Subash Menon established himself to be pioneer of the Indian software business. Not content to buy up small firms, he was prepared to set his sights higher and look for big deals overseas. Subex’s purchase of British firm Azure was a success. Subex’s purchase of Canadian firm Syndesis was not. It would be a shame to see a success story like Subex ended by one big miscalculation, so it is a relief to see the business is getting over the indigestion caused by swallowing the overpriced Syndesis. In the past, I have been keen to look past the upbeat stories about Subex and examine the less than healthy fundamentals following the acquisition of Syndesis. Now, the situation is reversed. Not enough credit is given to Subex’s management for slimming their business down and getting it into shape. For me, the most telling sign that Subex keeps moving in the right direction comes from the ratio of EBITDA to revenues. Take a look at the trend revealed by these figures:

EBITDA/total income quarter ended Dec 08 = 21.4%
EBITDA/total income quarter ended Dec 09 = 22.7%
EBITDA/total income 3 qtrs ending Dec 08 = 13.3%
EBITDA/total income 3 qtrs ending Dec 09 = 18.6%

If you want to read more about the story of Subex’s revival, I recommended you look at this article from livemint.com. In it, we hear Subash Menon say his firm had ‘fallen off the cliff’ after the purchase of Syndesis. Most tellingly, he pinpoints the mistake of financing the purchase using debt instead of equity. In his words:

“The learning is that a software company should essentially use equity for acquisitions”

It takes a big man to make a big mistake, fix it, and admit to it. After falling off the cliff, Subex is now climbing back up it. Having survived their fall into the abyss, Subex and Subash Menon are set to get right back on top.