Subex Azure revises Guidance downwards, stock slumps

Subex Azure Ltd on September 14, 2007 announced that the Company has decided to revise its guidance for FY08. A key customer in North America has notified the Company the postponement of its near term capex commitments. Consequently, some of the contracts that the Company was to book from this key customer and recognize (either fully or partially) during the third and fourth quarters of FY08 will be postponed. The revision in guidance is on the back of this information.

The Company now expects revenue of Rs 5,200 million (US$ 130 million) and Profit After Tax of Rs 1,040 million (US$ 26 million) from its products business. The revenue split amongst RMS, BT and FAS BUs will now be Rs 2,720 million, Rs 880 million and Rs 1,600 million respectively. The Company has recognized Rs 1,000 million in revenue for Q1 and the current backlog to be recognized during the balance of FY08 is Rs 2,600 million.

"Given the non-linearity in the products business and that most of our costs are fixed, any reduction in revenue usually leads to an almost comparable, in value, reduction of profit," said Subash Menon, Founder Chairman, Managing Director & CEO of the Company. "However, by adopting prudent cost management measures, we have ensured that a reduction of Rs 950 million in revenue will result in only Rs 510 million reduction in PAT, thereby greatly reducing the impact on the overall profitability." he said.

The Company has also confirmed that its recently completed acquisition of Syndesis will be EPS accretive in the very first year of the transaction i.e. FY08 ending March 31, 2008. Inspite of a 40% dilution in equity (including pending conversion of FCCBs & warrants), the fully diluted EPS is set to increase from Rs 19.39 in FY07 to Rs 21.22 in FY08. Exclusive of FCCB interest, the fully diluted EPS would increase in FY08 by 26% over last year.

Further, the integration of Syndesis is progressing on track and will be complete, as originally planned, by January-March 2008. This successful integration program will help improve EBITDA of the erstwhile Syndesis business from 5% in FY07 to 22.5% in FY08. Consequently, the products business will have an EBITDA of 31.5%, up from 22.6% last year. This expansion of EBITDA is on the back of an organic growth of 43% in the continuing business.

The Stock was trading at Rs.445.20, down by Rs.64.40 or 12.64%. The stock hit an intraday high of Rs.485 and low of Rs.416.25. The total traded quantity was 445859 compared to 2 week average of 25231.

Source : Equity Bulls

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