Subex set to hit high growth path

Subex Systems is set to pass an inflexion point in its growth curve which will lead to a jump in turnover, profitability and the product component in its turnover in the next three to four years.

By then Subex will become "one of the largest players in the global revenue maximisation field," says Subash Menon, president and CEO.

One of the two leading (along with i-flex solutions) software product players in the country, Subex now has an around 10 per cent share of the $200 million global market for revenue maximisation.

It expects to grow this share to 15-20 per cent of the market which in three to four years will be $ 300 million in size. This works out to a product revenue of $ 60 million by 2009.

By this time Subex will have to take a crucial call on whether it wishes to retain one leg in the services business or become an entirely product company.

Subex operates in the telecom space and within it the revenue maximisation niche with successful solutions in fraud management and revenue assurance. It clocked a turnover of Rs 88 crore in 2003-04, with product related business accounting for 44 per cent of revenue.

In four to five years' time it will enter another niche area in the telecom space, revealed Menon, declining to specify which particular area. This entry is likely to take place through acquisition of a new range of products. Once that happens, Subex will be addressing a global market of $500-600 million.

The company's optimistic view of the future rests on two legs. Menon explains that one of them is its product business "approaching criticality".

Once a product gains acceptance in the marketplace, revenue forges ahead of costs and margins (profitability) improve. Menon expects profitability to grow from 30 per cent of revenue to 50 per cent during the period 2004-06.

The other leg is inorganic growth. Subex has recently made two acquisitions "� the fraud management group of Alcatel and the 'Fraud Centurion' product of US based Lightbridge. "If we can make the two acquisitions work, then we can attract funds for further acquisitions," predicts Menon.

"Inorganic growth will be important" as it will enable Subex to step up its customer profile and enhance its status and credibility in the market. This will enable it to attract the right kind of talent. "Customers can be used as references to grow," says Menon.

The recent acquisitions will enable Subex to address the Europe and North American markets, where its presence is currently negligible, via the traction created by the customer acquisitions.

Subex sees itself as primarily a product company and its product revenue (licensing fee and product related professional services) has grow from $4 million two years ago to $9 million in 2003-04. It is slated to reach $12 million in the current year and $18 million in 2005-06.

As this happens, the share of plain vanilla services (unrelated to products) is slated to go down from 55 per cent in 2003-04 to 30 per cent in two to three years' time.

By then Subex will have to decide what it will do with its product unrelated services business. This gives topline support and requires little management time. But if the product business grows the way it is slated to do, the company will have to decide whether it will remain solely in its focused area.