Subex Azure Calling: Q1 sales show over 200% growth

The appreciating rupee has meant depreciating profits for the
Indian software services sector. While the biggies have been able to manage with
rupee denominated contracts and focus on other markets, the problems of the
mid-market software services companies never seem to end.

On the other hand, companies that have significant revenues from
products are typically less impacted by the rising rupee, as their margins are
higher and their product sales are not limited to the US market alone.
Consequently, investors interest is likely to move toward such companies that
have better margins and have greater focus on product revenues.

Among the strong product players in the Indian stock market is
Bangalore-based Subex Azure that has created a niche for itself in the telecom
market.

Subex Azure is a global provider of OSS solutions for telecom
operators for revenue enhancement, fraud management, and delivery of new
services. The company developed the concept of the Revenue Operations Center
(ROC), a centralized and integrated infrastructure for end-to-end monitoring,
measurement, and control of the operators revenue chain. The company also
started software development in 1998 prior to going public in 1999. The company
has established offices in the US, UK, Canada, India, Singapore, China,
Australia, and Dubai.

Subash Menon, founder chairman, managing director and CEO,
founded Subex in 1992 and has been its CEO since its inception. Under his
stewardship, Subex has transformed itself from a Systems Integrator in the
telecom hardware space to a leading player in the telecom software space with a
niche focus on revenue maximization. The company has successfully launched
several products telecom software with over 150 customers across more than sixty
countries in six continents. Also, he was the key man behind successful IPO in
1999 and seven acquisitions, the latest one being the acquisition of Canadian
company Syndesis. He has recently been appointed as the chairman of the Product
Forum of Nasscom.

The shareholding pattern stood promoters hold 8.73% and
corporate hold 5.96%, FII hold 24.22%, FI hold 18.19%, individuals hold 12.2%,
and shares against depository receipts stood at 30.69% of the company as on June
30, 2007.

For the FY 07, revenues stood at Rs 340.9 crore, an increase
of 88% compared to 181.43 crore for the FY 06. Profit after tax was Rs 67.57
crore for the year ending March 31, 2007, an increase of 79% compared to 37.85
crore in the FY 06. The product revenue increased by 96%. The revenue
composition was 67% from products and 33% from services.

During the year, Subex launched Symphona V9.1, the latest
version of its inter-party management system. The company also completed FCCBs
and the GDRs aggregating $180 mn. The FCCBs and GDRs, representing its equity
shares of Rs 10 each were listed on the London Stock Exchanges Professional
Securities Market (PSM) for trading from March 14, 2007.

The company has over seventy mobile operators as its customers,
and won contracts from thirteen new customers in FY 07. These thirteen
contracts are with telecom operators with EMEA accounting for nine of them.

Subex Azure announced stellar Q1 results for the quarter ending
June 30, 2007 with revenues of Rs 131.66 crore, up by 202.19% from Rs 43.57
crore in same quarter previous year. Profit after tax stood at Rs 21.56 crore,
up by 381.78% from Rs 44.75 crore during the same quarter last year. The revenue
from products segment for this period stood at Rs 100.42 crore, an increase of
377.33 % from Rs 21.04 crore a year ago. The revenue from services for the
quarter stood at Rs 31.24 crore indicating a rise of 38.66% from Rs 22.53 crore
in the previous year. The contribution to total revenue from services was 23.73
% and from products segment stood at 76.27% respectively.

During this quarter, Subex bagged contracts to provide fraud
management and revenue assurance solutions from Global Vision Telecom in Nigeria
and Congo. Similarly, the company has been selected by Soul Australia, a
telecommunications company, as the exclusive OSS partner for a large-scale
operations systems transformation project. Recently, Subex launched Concilia
V9.2, the latest version of its leading Interconnect Billing System. Subex also
bagged order to deploy its fraud management bureau for Melita Cable.

Recently, Subex revised its guidance for FY 08 to 7%
downwards projection. Company now expects revenues of Rs 520 crore compared to
Rs 615 crore earlier projected. The company also expects its profit after tax of
Rs 104 crore compared to Rs 155 crore of net profit earlier projected. This
comes in the wake of a key customer in North America postponing purchase
decisions.

The shares of Subex trade at Rs 422, discounting its earning for
2008 by 13 times. The share has been declining with the rest of the software
stocks in the recent past, further dampened by the lowered guidance announced by
the company. However, this is not a reflection of the medium and long-term
future of the company, and its traction with customers otherwise remains strong.
Outperformer.

Sushanto Mitra

The author is director, Techcap India

sushanto@techcapIndia.com

The views reflected here are of the author and not of this publication.

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