Although Bangalore-based Subex Systems is charging a premium of Rs 65 for its its IPO, the maiden issue from the company is at a reasonable PE of 7.78. As compared with SQL, the premium is higher; but considering Subex's low equity base of Rs 2.24 crore, the offer-P/E appears reasonable. One can consider investing in this IPO for short-term gains. However, after listing, constant monitoring of the stock is necessary to keep track of exit opportunities. It is not advisable to hold for a long period.Subex, which plans to export 100 per cent of its products through various global tieups and a subsidiary in the US, develops telecom related software solutions. Promoted by first-generation entrepreneurs -- Subash Menon and Alex J Puthenchira -- Subex Systems was incorporated in 1994 with the objective of manufacturing, selling and providing value-added services in the telecom equipment and accessories segment.
In 1996, the company made a foray into software development. At present, Subex operates in threemajor business segments -- test and measurement equipment, cellular infrastructure solutions and telecom software. Under test and measurement equipment, the company provides complete solutions in telecom and datacom technologies like fibre optic, frame relay ATM, ISDN, GSM, XDSL and SDH/PDH. Cellular coverage solutions are for enhancement of signal strength and quality of voice, both indoors and outdoors.
Subex also develops high-end telecom software. The company also provides fraud control solutions (identification and control of fraud in cellular network) to cellular operators. A 100 per cent EOU, Subex has marketing tieups with EXFO-O Engg Inc , Allgon System AB, Telecommunication Tech Corp, USA, Consultronics, Ericsson Cables AB, Inet Inc, ADC Microcellular, UK, Eftia OSS Solutions Inc and Oracle Corp.
Currently, the company is setting up a Rs 9.07-crore project. Of the total project cost, Rs 3 crore will be deployed in its proposed US subsidiary. The subsidiary will enable the company to market itstelecom related solutions.
However, the company is yet to get RBI's nod for the proposed subsidiary. If there is a delay in setting up the subsidiary, the profitability projections (see table) could go haywire. Around Rs 3.66 crore has been earmarked for setting up software development facilities. Besides the IPO proceeds, the project is being financed through internal accruals of Rs 1.03 crore and Rs 75 lakh as term loans from SBI. Subex has fared well in fiscal 1999.
Although the company hopes to export 100 per cent of its products, the export turnover in fiscal 1998-99 was only Rs 1.56 crore. Post-issue, the company will enjoy a low equity base of Rs 3.21 crore. The projected EPS of Rs 11.31 discounts the offer price of Rs 75 by a multiple of 6.63. On the flip side, investors may face a problem of liquidity in the counter as the shares will be listed only at Bangalore and Hyderabad.
Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.
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