Subex reports 475% Net Income growth while 10.1% Revenue decline

24 May 2016 • About Subex ($SUBX) • By InTwits

Subex reported FY2016 financial results today. Overall the company's long term financial model is characterised by the following facts:

Subex is a company in decline: FY2016 revenue growth was -10.1%, 5 years revenue CAGR was -7.7%
Subex has low CAPEX intensity: 5 year average CAPEX/Revenue was 1.0%.
The company has potentially unprofitable business model: ROIC is at 6.3%
It operates with medium-size leverage: Net Debt/EBITDA is 2.2x while industry average is 2.2x

Below you can find a comprehensive analysis of the key data driving the company's performance and stock price.

Subex ($SUBX) key annual financial indicators

mln. INR	2012	2013	2014	2015	2016	2016/2015
P&L
Revenue	4,778	3,073	3,401	3,598	3,234	-10.1%
SG&A				33	29	-12.3%
EBITDA	1,303	524	846	849	643	-24.3%
Net Income	318	-599	-116	102	587	474.9%
Balance Sheet
Cash	5	444	430	484	851	75.6%
Short Term Debt	6,018	1,939	1,602	1,469	1,861	26.7%
Long Term Debt	0	5,377	6,024	5,777	434	-92.5%
Cash flow
Capex	34	13	37	63	33	-48.3%
Ratios
Revenue growth	-1.0%	-35.7%	10.6%	5.8%	-10.1%
EBITDA growth	0.6%	-59.8%	61.6%	0.3%	-24.3%
EBITDA Margin	27.3%	17.0%	24.9%	23.6%	19.9%	-3.7%
Net Income Margin	6.7%	-19.5%	-3.4%	2.8%	18.2%	15.3%
SG&A, % of revenue				0.9%	0.9%	-0.0%
CAPEX, % of revenue	0.7%	0.4%	1.1%	1.8%	1.0%	-0.7%
ROIC	16.4%	5.6%	8.7%	8.6%	6.3%	-2.3%
ROE	18.2%	-32.8%	-5.8%	5.3%	12.5%	7.2%
Net Debt/EBITDA	4.6x	13.1x	8.5x	8.0x	2.2x	-5.7x

Revenue and profitability

Subex's Revenue dropped on 10.1% in FY2016. Having declining revenue the company managed to increase EBITDA margin. EBITDA Margin jumped on 10.5 pp from 4.0% to 14.5% in FY2016.

SG&A as a % of Revenue showed almost no change in FY2016.

Net Income marign surged on 15.3 pp from 2.8% to 18.2% in FY2016.

Capital expenditures (CAPEX) and working capital investments

The company's CAPEX/Revenue was 1.0% in FY2016. CAPEX/Revenue increased slightly on 0.58 pp from 0.43% in FY2013 to 1.0% in FY2016. For the last three years the average CAPEX/Revenue was 1.3%.

Return on investment

The company operates at good ROE (12.55%) while ROIC is low (6.35%). ROIC decreased on 2.3 pp from 8.6% to 6.3% in FY2016. ROE increased on 7.2 pp from 5.3% to 12.5% in FY2016.

Leverage (Debt)

Debt level is 2.2x Net Debt / EBITDA and 3.6x Debt / EBITDA. Net Debt / EBITDA dropped on 5.7x from 8.0x to 2.2x in FY2016. Debt dropped on 68.3% in FY2016 while cash jumped on 75.6% in FY2016.

Valuation

The company's trades at EV/EBITDA 2.2x and P/E 0.0x while industy averages are 15.6x and 19.1x.

Appendix 1: Peers in IT Software Products

Below you can find Subex benchmarking vs. other companies in IT Software Products industry. It's shown for the period of 5 years for the key financial metrics. Each table has median value for all the companies in the industry together with individual financial data of the top-5 companies in the industry by particular financial metric.

Subex stock price chart

Subex financials

mln.	FY2010	FY2011	FY2012

Revenue	4,631	4,828	4,778
EBITDA	966.3	1,295	1,303
Net income	1,003	787.8	318.4
CAPEX	49.469	40.150	33.620
Debt	6,342	5,457	6,018
Cash	34.931	23.600	5.178

About Subex

Subex Limited provides business and operations support systems (B/OSS) solutions for communications service providers (CSPs) in the telecom sector worldwide. The company offers revenue operations center (ROC) services for CSPs through coordinated operational control. It provides ROC Revenue Assurance, a revenue assurance solution to tackle critical challenges in the revenue chain; ROC Fraud Management, a solution for the prevention of fraud by eliminating known frauds, reducing fraud run time, and augmenting internal controls; and ROC Credit Risk Management solution to assess and mitigate risk presented by subscribers. The company also offers ROC Partner Settlement, a solution to operators for the settlement of charges with their network and content partners; ROC Route Optimisation tool to operators to manage network cost information supplied by other operators; and ROC Cost Management, a solution to monitor and manage the cost of partner services. In addition, it provides ROC Asset Assurance solution to manage telecommunications assets; ROC Data Integrity Management solution to provide quality data for CSPs; and ROC Capacity Management, a solution to prevent an availability or performance impact on business critical applications due to capacity issues, as well as ROC Cloud, a software-as-a-service delivering ROC to small and medium telcos. Further, the company offers managed services to improve the operations of CSPs; and consulting and specialist services provide advices to clients through CSPs for managing and improving businesses, and return on investment managements. The company was formerly known as Subex Azure Limited and changed its name to Subex Limited in December 2007. Subex Limited was founded in 1992 and is headquartered in Bengaluru, India.