Subex Ltd – A turnaround story from being debt laden to debt free stock

“Return on Investment (ROI) from AI investments has been a topic of debate within the telecom industry. Most organizations today fall short of reaping the full potential of AI due to a multitude of reasons stemming from gaps in skill management, domain expertise, and use case definition. We believe that in today’s data-driven ecosystem, it is imperative for AI investments to align with business objectives, for which democratization of AI will be mission critical.”

– Mr Vinod Kumar, Managing Director and CEO, Media release – WMC’22

Stock Data:

Ticker	SUBEXLTD
Exchange	BSE and NSE
Industry	IT- Software

Price Performance:

Last 5 days	0.78%
YTD	-4.59%
Last 1 year	-16.25%

Company Description:

Incorporated  in 1992, Subex Ltd is a software product company which works in the space of Digital Trust which means that it is focused on privacy, security, risk mitigation, predictability and confidence in data mainly in the telecommunication space focusing on products to communications Service Providers(CSPs) globally.

Product Portfolio: 

Subex offers products based on Digital trust. So, Digital Trust is a concept that enables users to carry out business transactions in a safe, secure, ethical, and reliable manner. Some of the products the company offers are Revenue Assurance, Network Analytics, Fraud Management, Identity Analytics, Partner Ecosystem Management, IoT Security, Analytics Center of Trust, and Anomaly Detection. 

Subex helps its customers maximize their revenues and profitability. With a legacy of having served the market through world-class solutions for business optimization and analytics, Subex is now leading the way by enabling all-round Digital Trust in the business ecosystems of its customers. Focusing on risk mitigation, security, predictability, and intelligence, Subex helps businesses embrace disruptive changes and succeed with confidence in creating a secure digital world for their customers.

Through HyperSense, an end-to-end augmented analytics platform, Subex empowers communications service providers and enterprise customers to make faster, better decisions by leveraging Artificial Intelligence (AI) analytics across the data value chain. The solution allows users without coding knowledge to easily aggregate data from disparate sources, turn data into insights by building, interpreting and tuning AI models, and effortlessly share their findings across the organization, all on a no-code platform. Subex also offers scalable Managed Services and Business Consulting services. 

Clients:

Some of the major Clients of the company includes – Airtel, Optus, VI, Jio, etc. Interestingly, the company provides services to 75% of the world’s top 50 telecom companies. They have a 98% customer retention and approximately 60% of revenue is annuity/recurring.

Research and Development:

The company has been spending diligently on R&D Expenditure as a percentage of revenue. Since it now stands at 9% in FY22 vs 6% in FY20 (Spent INR 31 Crores in FY20 vs 23 Crores in FY20). With improvising revenue the R&D expenditure would also increase that would serve as a major CAPEX by the company.

Restructuring plans:

By March 31, 2022, Subex completed the restructuring of Subex Assurance to Subex Limited. Another exercise was the successful shift of revenue maximization solutions to the parent company. The RMS Business of Subex Assurance LLP was transferred to the Company by way of slump sale, for a lump sum consideration of 95 crores

Financials:

What we like:

1. The turnaround story to become debt free:

From the 1990s to the 2000s the company acquired companies using equity and its revenue grew at a compounded annual rate of 33 percent between 2000 and 2007.

However, the downfall started with the acquisition of Syndesis as they changed their acquisition strategy from acquiring companies through stocks to using cash of an amount of $165 million, which was largely funded through borrowings. Since then the company has been paying off debt and has become debt free in FY21.

2. Subex recently announced a patent that allows for revenue maximization:

After the 5G and IOT transition, tremendous amounts of data will be generated across nodes, IoT sensors, wearables, and connected devices. Hence, to convert this data into actionable insights even faster, AI models must also move to the edge. Subex’s patent pushes business optimization processes to the edge so that telcos can identify and resolve problems such as revenue leakage and fraud much faster, thereby plugging losses. With telcos turning their sights on 5G and IoT, this need is only growing and will help Subex in the growth of its topline.

3. Subex has improved revenue visibility in nearby future as it ties deals:

The company has been in touch with Dhiraagu (Leading telecom operator for Maldives) for integrated Revenue Assurance and Fraud Management with a 5-year contract plan. Recently, Jio Platforms has partnered with Subex HyperSense AI to augment its 5G product line. Also, Subex extended its partnership with Robi to upgrade its existing integrated Revenue Assurance and Fraud Management (iRAFM) system.

4. Since FY21, te company has been working hard on improvising its technology services:

Subex has joined the O RAN Alliance, to support the development and standardization of Open RAN (radio access networks). The company is working with Skylab to offer IoT and OT cybersecurity solutions and services to the maritime sector. It has announced the launch of HyperSense, an end-to-end Augmented Analytics platform which has helped Subex gain a lot of corporate deals.

Factors to consider:

1. The company has zero promoter holding.
2. The company attracts negative market sentiments which makes it an unattractive play among the investors.
3. At present time the financials of the company looks poor but with the company heading in the right direction under robust management leadership, this will surely improve. 

Industry Analysis and Conclusion:

2022 witnessed the world to continue reeling and adapting from the global pandemic. During the period, the relevance of connectivity continued to be at the forefront by enabling social and economic interaction and providing ways for enterprises to operate. With the increased dependence on remote connectivity, 2022 witnessed a rise in the number of mobile internet subscribers, now reaching 4.2B people globally.

As the world continues to emerge from the pandemic, connectivity and the telecom world will continue to play an important role in the way people interact, businesses operate, and in helping economies recover and become more resilient. With the dependency on connectivity increasing, investments towards the network has been a major focus for CSPs; with investments in newer technologies such as 5G and IoT taking center stage. 2023 will be a landmark year for 5G, with the total number of connections expected to reach 1B in the year.

Of course, with the increased focus in technologies such as 5G and IoT, the avenues for enabling enhanced productivity, new critical services and social interaction are only set to increase leading to a rise in the need for new partnerships, new requirements for assurance, and new forms of risk.

5G is at hand and for CSPs, it will present a host of new opportunities, exposure into new verticals, the expansion of both the retail and enterprise segments, and so much more. At the same time, 5G will also come with it, a plethora of new risks and challenges and a strain on the already high Capex Intensity. Subex, as a leader in the space of Digital Trust, is uniquely positioned to help telcos to embrace their journey to 5G.