See 15% topline growth this year: Subex

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See 15% topline growth this year: Subex

In an interview with CNBC-TV18, Subash Menon, Founder, Chairman, MD and CEO, Subex, spoke about the latest happenings in his company and sector.

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Excerpts from Markets Midday on CNBC-TV18 Watch the full show » RELATED NEWS Subex will double from current level: Baliga ALSO READ See latest News about Subex See previous management interviews See what other Experts & Brokerages are saying about Subex Subex BSE | NSE 29/05/12 Are Mutual Funds betting on Subex?

In an interview with CNBC-TV18, Subash Menon, Founder, Chairman, MD and CEO, Subex , spoke about the latest happenings in his company and sector.

Below is a verbatim transcript of his interview with CNBC-TV18's Latha Venkatesh and Gautam Broker. Also watch the accompanying video.

Q: We understand that you have been selected by provider of telecom services in Africa for fraud detection and management and revenue assurance services. Can you take us through what is the order book, what kind of margins this kind of order normally wins you?

A: Essentially as the press release states, this is an order for ROC (Revenue Operational Center), as you may have heard me saying in the past that that is our focus area at this point in time. So, this is one more proof point for us that the telecom companies are cottoning on to ROC and the ROC is gaining a lot of traction within the telecom companies.

The contract size, I cannot reveal that because we are not allowed to that by the customer at this point in time. But from a margin perspective, these sort of contracts get us about 40% at the earnings before interest, taxes, depreciation and amortization (EBITDA) level by way of margin, more than 40%. We are continuing to see that happening in this contract as well.

Q: 40% is a healthy margin, what does it do to your average margins?

A: At this point in time, if we look at the average margin for the company on the product EBITDA side, we are running at about 32%. So, these are some interesting orders that are coming through. We do expect our average margin to move up next year. Infact I have gone on record to state that our average margin would be upwards of 35-36%, EBITDA will be upwards of 35-36% next year. That is on record. So that is what these contracts will do to the margins going forward.

Q: While you may not be able to give us the exact or specific order size, if you can outline for us how much this will contribute to the FY11 top-line or even FY12, roughly?

A: Let us look at the typical order size for us these days. Our typical order size is in USD 2-2.5 million range, a typical order. So, I am not quite stating that this order is also in that bracket, but that is what a typical order for us is. But what is interesting to note is that given the fact that we are pushing ROC quite extensively now and we are starting to win significant orders for that, particularly in a managed services format, the qualitative thing that we need to understand is that the moment we move to a ROC managed services contract, the order size increases.

So, with the sort of pipeline that we have now with the sort of cases that we are winning now, what we are seeing is that the average contract size could go all the way upto USD 5 million plus in the very near future. Infact as we speak, we are very curiously working with the potential customer on three contracts and all of them are in the USD 5-15 million range. So, if we win all three of them or maybe two of them and then we do hope to win all of them because we are in very close negotiations then that itself would take our average up. So, the average is moving up. That is the qualitative thing, which leads to a quantitative impact on our top-line, which is very critical.

Q: While you spoke about non-linearity in the profitability that we also witnessed in Q2, is this vertical also likely to provide profitability in a similar fashion where you see revenue scale up gradually, but the profitability will keep on improving?

A: We are only in one vertical which is a telecom vertical. There are single vertical companies. So, whatever we have seen in the past is in the vertical that we are operating in which is telecom. So, going forward, as well you will continue to see that nonlinearity. This is why we are confidently stating that while EBITDA was 24% last year, it would be 32% this year and will be upwards of 35-36% next year. Where do we get that confidence from? It is because of the belief that we have in non-linearity and the proof that we have seen of non-linearity working.

Q: Can you take us therefore what kind of revenues you are estimating for FY11 and more importantly for FY12, I would assume orders like this are over several quarters?

A: We do not have guidance. So, I cannot give you an exact number. But what I can tell you is as against FY10, in FY11 we are expecting a 15% increase in top-line and we expect that to move to more than 20% in FY12 and onwards. So, that is a sort of number that we are looking at, more than 20% next year on the top-line.