It takes me a while to digest the financial results released by vendors, and that was also true of the press release for the first quarter of Subex’s 2016-17 financial year (FY17). But after looking carefully at the numbers behind it, my conclusion was much the same as for previous quarters. In a marketplace where there are significant obstacles to growth, Subex grinds out modest profits whilst managing costs to keep them in line with revenues.
Subex’s message concentrated on how their numbers had improved year-on-year, but Q1 FY16 was a weak quarter so the comparison is flattering. It is fairer to observe that if the rest of FY17 is in line with Q1 then this year’s performance will match last year’s, delivering about USD50mn of revenues and a basic profit, though the latter will be heavily influenced by foreign exchange movements that are outside of Subex’s control.
The best news for Subex has been negotiating the end of the overhang from convertible bonds, which have now been exchanged for equity. Shareholders want returns just like bondholders do, but dividends only get paid when there is money to pay them, and this means Subex’s management team has more space to breathe. Perhaps they will take this opportunity to invest in developing their product range. Some may doubt my logic, but I believe now could be a good time for Subex to take on a limited amount of additional debt, if they use it to revamp their offerings. They have decent RAFM products but the world of telecoms keeps changing and Subex needs to be thinking about the future need of telcos too. Subex should also be able to borrow more cheaply now, and that is underlined by the decision of one agency to upgrade Subex’s debt ratings, as reported in the press release:
India Ratings and Research (Ind-Ra) has upgraded the ratings on Subex Limited’s bank facilities as follows:
Fund based limits: upgraded to Long-term ‘IND BBB+’/Stable from ‘IND BBB/Stable‘.
Non-fund based limits*: upgraded to Short-term ‘IND A2’ from ‘IND A3+’
Will Subex spend money on developing new products? Only time will tell, but CEO Surjeet Singh did hint at increased innovation during a recent TV interview. As good as they have been at managing expenditures, Subex has not seen top-line growth for years. The RAFM market needs a shake-up in general, and so do some of the vendors competing in that space. Now that Subex has been released from the cost of historic mistakes, this would be a good time to invest in the future.