Future imperfect
Subex Azure, a provider of revenue assurance and fulfilment solutions to global telecom operators, is expecting 15% reduction in its estimated revenue and a 33% drop in net profit from its products business for FY08.
By Ravi Ananthanarayanan & Ranjit Shinde, TNN |
Subex Azure, a provider of revenue assurance and fulfilment solutions to global telecom operators, is expecting 15% reduction in its estimated revenue and a 33% drop in net profit from its products business for FY08. The Rs 340-crore Bangalore-based company has cut its forecast following postponement of orders from one of its biggest clients in the US.
The higher reduction in profit vis-a-vis topline indicates loss of a high margin business. The market is treating it as bad news and consequently the stock price dipped 13% on BSE on Monday.
For FY08, Subex expects product revenue of Rs 520 crore (earlier estimated at Rs 615 crore) and net profit from the segment to be Rs 104 crore (Rs 155 crore). Expected revenue maximisation solutions will see a drop of 15%, while sales from fulfilment and assurance solutions will likely be lower by 25%. The component of its product revenue from British Telecom will remain unaffected at Rs 88 crore.
The development will also clamp its net profit margin at the previous year’s level of around 20%. It had earlier anticipated 500 basis points improvement in its net margin. Operating margin on the other hand was expected to rise 900 basis points to 31.5%. The projections were based on the likely improvement in the profitability of Syndesis, which it acquired last year.
Subex has termed the development as a client-specific decision. It does not foresee any reduction in revenue and profit from other customers. This is evident from the fact that even after the downward revision, it expects its revenue and profit from the products segment to more than double from the FY07 levels. It expects a steady rise of 8-10% from its services business, which formed one-third of revenue in FY07. This mainly consists of providing contract employment to AT&T.
At the current price of Rs 445 and considering the revised guidance, Subex is trading at about 14 times its FY08 estimated P/E. Had it maintained its forecast, its P/E would have been close to 10. Given this, the worst may not be over yet for the stock.
The higher reduction in profit vis-a-vis topline indicates loss of a high margin business. The market is treating it as bad news and consequently the stock price dipped 13% on BSE on Monday.
For FY08, Subex expects product revenue of Rs 520 crore (earlier estimated at Rs 615 crore) and net profit from the segment to be Rs 104 crore (Rs 155 crore). Expected revenue maximisation solutions will see a drop of 15%, while sales from fulfilment and assurance solutions will likely be lower by 25%. The component of its product revenue from British Telecom will remain unaffected at Rs 88 crore.
The development will also clamp its net profit margin at the previous year’s level of around 20%. It had earlier anticipated 500 basis points improvement in its net margin. Operating margin on the other hand was expected to rise 900 basis points to 31.5%. The projections were based on the likely improvement in the profitability of Syndesis, which it acquired last year.
Subex has termed the development as a client-specific decision. It does not foresee any reduction in revenue and profit from other customers. This is evident from the fact that even after the downward revision, it expects its revenue and profit from the products segment to more than double from the FY07 levels. It expects a steady rise of 8-10% from its services business, which formed one-third of revenue in FY07. This mainly consists of providing contract employment to AT&T.
At the current price of Rs 445 and considering the revised guidance, Subex is trading at about 14 times its FY08 estimated P/E. Had it maintained its forecast, its P/E would have been close to 10. Given this, the worst may not be over yet for the stock.
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