Bangalore: Telecom software maker Subex Ltd will miss its revised earnings forecast for the current fiscal and report losses, as reduced spending by a key client and the costs of integrating Syndesis Ltd, a Canadian firm it bought in January 2007, continue to be a drag on operations this fiscal year.
Subex, which provides clients such as British Telecom Plc. and T-Mobile Systems solutions to improve productivity and respond faster to their customers, had initially forecast its fiscal 2008 revenues from its product business at around Rs615 crore and net profits at Rs155 crore at the beginning of the current fiscal.
Following a squeeze in revenues from a top client, AT&T Inc. in the US, which postponed capital spending, Subex revised its annual product revenue forecast to Rs520 crore and net profit to Rs104 crore in the September quarter.
But Subash Menon, founder chairman, managing director and chief executive officer of Subex, who described fiscal 2008 as “a terrible year”, said Subex would not even be able to meet the revised forecast and would end the year with losses. “That’s (meeting earnings forecast) not happening this year. We are focused on how to get back to a normal situation next year,” Menon said, without predicting losses.
For the nine months ended December 2007, Subex reported a consolidated net loss of Rs17.5 crore on revenues of Rs434.3 crore as against a net profit of Rs39.9 crore on revenue of Rs260 crore in the same months the previous year. Product sales for first nine months of fiscal 2008 accounted for Rs283.2 crore with some Rs93.5 crore coming from telecom maintenance and support services the Bangalore-headquartered company also provides. The remaining Rs57 crore is other income.
No silver lining: Founder chairman, managing director and chief executive officer of Subex Ltd Subash Menon. (Photo: Hemant Mishra/ Mint)
The firm plans to spin off its services division into a separate company—Subex Technologies Ltd—and exit it likely next fiscal year.
Subex had acquired Toronto-based Syndesis in a $164.5 million (Rs726.43 crore then) deal in January 2007, and completed the integration recently. “We underestimated the cost and efforts involved in the complexities of transitioning the business and there was some duplication of costs after we had to shift people from one business unit to another,” Menon said.
Subex has orders worth $330 million in hand which means that it is likely to start next fiscal year with an order backlog of $90-95 million. With the telecom sector largely untouched by the current recession in the US, it expects to bounce back in fiscal 2009. However, Menon cautioned that if consumption is affected broadly, as in other industries, demand for telecom services, too, could get affected.
“Investors perceive this (not meeting revised revenue forecast) as exceptionally negative,” said R. Ravi, equity analyst at Karvy Stock Broking Ltd, who tracks Subex. “Revising the revenue forecast multiple times during a year and not meeting it will make investors lose confidence in the company in the long term.”
Shares of Subex ended Friday at Rs191.55 each on the Bombay Stock Exchange (BSE), close to its 52-week low of Rs183. The Subex scrip has shed close to 31% in its value over the past month on BSE.
With the dropping share price, Menon agreed, an issue of foreign currency convertible bonds for $180 million that Subex made last year was “a big overhang”, adding there was no immediate redemption pressure. “The redemptions will happen in 2012 and the company has already factored in the interest outgo which amounts to $4 million per year,” he said.
Subex, which counted the Syndesis buyout its seventh acquisition in as many years, earlier bought the UK’s Azure Solutions Ltd in an April 2006 $140 million stock deal.
Two other key buyouts in the past include a fraud management services unit of Alcatel-Lightbridge in 2004 and Canada’s Magardi three years earlier.