Key highlights from Subex Ltd (SUBEX) Q3 FY22 Earnings Concall
Management Update:
- The company commented it took a strategic decision to move to a subscription based model from a licensed based model with HyperSense to easily convert all the upgrade opportunities in a subscription model.
Q&A Highlights:
- Deepak Chokhani from Rave Capital asked about the company’s zero growth over the last 8-9 quarters and the plans ahead. Vinod Kumar CEO said the company had challenges with its core business in 3Q due to the transition and underestimated the challenges of conversion. The new areas where SUBEX started engagement 3-4 quarters back, has started to show good results and is expected to continue going forward.
- Deepak Chokhani from Rave Capital also queried if the company can partner with some global majors to scale up. Vinod Kumar CEO answered the company does have the right kind of partnerships in the geographies to scale the business and have signed up with some global partners in some areas. The company added that its threat intel business is an important piece for it and have signed with almost all major platforms to carry its threat intel. SUBEX also stated that it’s doubling the customers being acquired for new areas on a QonQ basis.
- Pratap Maliwal of Mount Infra Finance asked about the 2Q delays that were reported, if it’s behind the company and also asked about the order book. Vinod Kumar CEO replied that issues related to the open source things have been sorted out. On the contracted backlog, the company said that the backlog has come down and a progress can be seen coming back to the original levels during the current quarter.
- Kumar Singh with JM Investment queried about other expenses going up and in that what’s the contribution for forex loss. Himanshu Singhal answered that other expenses normally stays linear and in 3Q, the company saw some growth in other expense due to increase in travel. Other than that there were few repairs and maintenance and rental expenses on the server going up. On forex, SUBEX said in Q3 there was no major forex gain or loss.
- Kumar Singh with JM Investment also asked that since the company turnover is very meager, why the company is indulging in forex hedging. Himanshu Singhal answered that looking at forex hedging, the company has gained through hedging, which gives SUBEX a cover over normal exposure it has from the forex end. On an yearly basis the company gains about INR 73 lakhs till YTD December. And the total losses for the quarter is INR24 lakhs, comprising of a gain of INR25 lakhs for Q3, which is giving SUBEX a benefit.
- Kumar Singh with JM Investment questioned about the selling of ESOP shares by the employees. Vinod Kumar CEO said the ESOP was allocated way back in 2019 and 2020 and today the sale is post vesting. On the new allotment, people who have left, their ESOPs have come back to the pool and has been reallocated to some key employees in the operating level.
- Anirudha Indurkar of Essvee Consultants asked if the company has lost any customers while transition from license to subscription model. Vinod Kumar CEO replied that there has been no loss of customers. SUBEX added that it has already converted some of them, mainly some groups and some large customers who are already used to doing these businesses.
- Ravi Mehta with Deep Financials asked that since the core segment is a mature business, is the company dealing more with existing customer or adding new ones. Vinod Kumar CEO said the company gets upgrade contracts. And it’s not the license part that gets delayed but it’s the implementation part as the upgrades are not coming through due to moving to the subscription model.
- Rattan Joneja of CoValue Technologies asked about the company’s relationship with Microsoft Sentinel. Vinod Kumar CEO said that with Sentinel, the company has integrated its threat intel into Microsoft’s marketplace and therefore, any customer using the marketplace for Sentinel will be able to find SUBEX’s sectorial threat intel feed and subscribe from that marketplace and consequently SUBEX could get a wider reach.
- Aditya Sharma from ICICI Prudential asked how the company is using the INR120 crores odd of cash balance. Vinod Kumar CEO answered that once the company starts getting to a particular scale with respect to product maturity and product market set, there will be need to scale significantly. And therefore, SUBEX has marked the capital towards those growth initiatives. Also some of the capital will go to finding technologies that are futuristic. And rest will be kept in FDs and things like that.
- Raj Kumar Ojha enquired that why IDcentral is not launched in other countries. Vinod Kumar CEO said that on IDcentral, to make a big inroad into market, there is lot of pre-integration that will need to be done. Also before a launch, a lot of study need to be done of the market and pick the market where there is a need and the infra to launch.
- Raj Kumar Ojha also asked about the progress of blockchain with partner Tech Mahindra. Vinod Kumar CEO said that on blockchain with Tech Mahindra, SUBEX has had some interaction with customers, but there has not been any commercial success yet. However, blockchain has seen success in moving the blockchain on partner settlement and such areas.