Key Rating Drivers & Detailed Description

Strengths:

Established market position with strong client relationship in telecom software service segment: The Subex group provides revenue assurance and fraud management software solutions to its customers amongst other products; which are of critical importance to the customers in the telecom segment. With its ability to meet changing requirement of customers and provide robust support services, the group has been able to secure repeat contracts from its key customers like British Telecom Limted, Telstra International Limited, Optus Systems Private limited etc. CRISIL Ratings believes the group shall benefit from its strong client relationship in the telecom segment over the medium term.

Experienced Management team: The group is managed by Mr. Vinod Kumar who has an experience of more than 4 decades giving strategic direction and turning around entities. Additionally, Mr Vinod Kumar along with his core management teams, have a strong domain knowledge and understanding of software requirements for various end-users, which benefits the group.

Strong financial risk profile: The financial risk profile is strong marked by a comfortable capital structure and robust debt protection metrics.  Due to absence of external debt, the capital structure remains strong and is expected to remain so over the medium term. The group is likely to fund its incremental working capital requirements and capital investments through its internal accruals and cash balances. The interest component primarily being finance lease charges.  Supported by absence of debt funded acquisitions and capital expenditure, the financial risk profile is expected to remain strong over the medium term.

Weaknesses:

Modest scale of operations: The scale of operations is modest as reflected in revenues of around Rs.231.42 till Q3FY23. Subex group has concluded internal restructuring wherein major revenue contributing domains which were earlier handled by the subsidiaries is brought down under the parent company i.e., Subex Limited. This is expected to increase the standalone revenue contribution of Subex Limited. However, at the group level the same is not expected to have any major impact. Subex limited continues to face intense competition in the software application industry which reflected muted growth in the past. Further there are players who are building core competencies around several products/services which overlap with that of this group’s offerings, thereby, exposing Subex group to competition. The moderate scale of operations shall continue to constrain the business risk profile over the medium term.

Customer and end user industry concentration in revenue profile: The group derives almost its entire revenues from the telecom segment. Any slowdown in the telecom segment could adversely impact the group’s ability to add new customers and add new projects from existing customers. This is partially mitigated by launch of new products to other end-user segments like banking and financial institutions. However revenue contribution from these products are currently low at around 5% of the overall revenues. Diversification in end user industry and customer profile resulting in an improvement in revenues shall remain a key monitorable.

Key Financial Indicators

Annexure - Details of Instrument(s)

Annexure – List of entities consolidated

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