Subex is in the Midst of a Cash Crisis

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Subex - Latest results

(in Cr.)
Sep-11
Jun-11
FY10-11
Revenue
78.54
79.52
326.12
Net Profit
-29.54
4.92
71.51
EPS
-4.26
0.71
11.32
Cash EPS
-4.13
0.85
11.12
OPM %
-24.39
20.26
35.6
NPM %
-37.6
6.19
21.93

Subex in Trouble

 
 
 
Weekly H/L
33.05
30.1
Monthly H/L
37.1
28
52 Weeks H/L
85.75
28
 
( 4 Jan 11 )
( 16 Nov 11 )
Delivery / Var+ELM %
52.56
18.58
 
 
 

Subex in Trouble

Subex - share price movement
Subex - share price movement | Source

Subex in Trouble


Q2 results bad

Subex has reported poor results for the quarter ended 30.09.11 compared to the quarter ended 30.06.11. Revenue is more or less flat at Rs.78.54 crore. Revenue for the full year 2010-11 was at Rs.326.12 crore. Net profit of Rs.4.92 lakh in the previous quarter turned into net loss of Rs.29.54 crore. For the year 2010-11, the company reported a net profit of Rs.71.51 crore. The shares of Subex are traded in the Indian stock markets at Rs.30.30 now (BSE 14.12.11). The highest price recorded by the shares of Subex in the last one year is at Rs.85.75 (04.01.11) and the lowest price is at Rs.28 (16.11.11). In other words, the present market price of Subex is close to its lowest price in the last one year. This gives a temptation to the investors to buy the shares of Subex at the current market price. Can one invest in the shares of Subex at the present market price? Let us analyze.

FCCB crisis looming large over its heads

The company is involved in a Rs.600 crore FCCB (Foreign Currency Convertible Bonds) crisis. The company is exploring options to tide over the crisis. Already RBI and Crisil have warned Indian companies of redemption difficulties amounting to $5 billion in the next 12 months. Many Indian companies had raised foreign money through various instruments in the past and are struggling now to repay them. The companies availed foreign loans because of the low interest rates abroad. But now when the rupee is skyrocketing against the dollar, these companies realise the foolishness of their decisions. Subex is no exception to this foolishness. Subex was once upon a time looked up respectfully as an Indian software product company. Now it is begging before the investment bankers to help it to tide over from its difficulties. Five years back, Subex availed FCCB to help its overseas acquisitions. Its FCCB bonds are maturing in March next year and the company should keep ready $131 million for redemption. The company is exploring the option of private placement of its shares to raise the required money.

Misfortune never strikes singularly

Subex finds even this option difficult in the midst of falling share price in the stock markets. There is a saying ‘misfortune never strikes singularly’. It seems to be true as far as Subex is concerned. While the rupee is falling, so also are the stock indices and industrial output. In other words, the macro economic situation is not conducive for small companies like Subex to raise big sums now. Subex is not a cash rich company either. Its cash kitty is around Rs.6 crore, which are peanuts. The conversion rates for the FCCB are very high at Rs.656 (first tranche) and Rs.80 for the second tranche. The present ruling price of the shares is only around Rs.30. It may fall still further. But the company will be happy if the bond holders opt for conversion of their bonds into shares as that will not involve any cash transaction. But it is unlikely and the bond holders will reject the conversion option and press for cash.

Promoter holding low

Promoter holding in the company is at a low of around 11%. Raising fresh capital from the public in these troubled times is virtually next to impossible. The only option is to negotiate with the bond holders to extend the maturity date of the bonds. Apart from the foreign debt, Subex also has Indian debt amounting to around $25 million. Subex’s CEO Subash Menon is keeping his fingers crossed to explore various options. The company slipping into the red will not help him. Just at a time when the company needs funds, its balance sheet has turned red. It will scare away potential investors.

Selling business unit for cash

The company is the provider of business support systems (BSS) for Communication Service Providers. It has disinvested its activation business and has concluded an asset purchase agreement with NetCracker, a NEC group company. Subex acquired the business in 2007 from Syndesis Corporation. The business brought $15 million revenue for Subex in 2010-11. It is plain commonsense to conclude that Subex has sold the business to raise part of the funds required to clear its FCCB commitments.

Selected for fraud management

A West Asian mobile operator has chosen Subex for fraud management. Subex provides software product services to telecom sector. Telecom sector is not doing well now and telecom companies have slashed their spending. This has hit the company hard.

Do not invest

Investors should skip the shares of Subex while investing their money because of the following reasons:

  • Subex has slipped into the red
  • Subex has an FCCB crisis looming large over its heads
  • Subex is not a cash rich company
  • Subex finds raising funds difficult
  • Promoters have a low stake in Subex
  • Subex is forced to sell its business unit for raising money

Telecom sector is not doing well now

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