Multibagger in making? ICICI Securities sees solid growth in this smallcap firm

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Shares of Subex have been buzzing on Dalal Street due to their exceptional performance during the past one year. Now, the company has again hogged the limelight after brokerage ICICI Securities projected that the IT firm is likely to witnesses 18-20% growth in coming years.

Of late, shares of the company have soared 707% to Rs 57.90 on May 28, 2021 from Rs 7.17 on May 28 last year. The stock is still trading 92% down from its all-time high of Rs 803.25, scaled on January 10, 2007.

The company was founded in 1992 and provides software products and related services to communication services providers globally. Subex historically made acquisitions, which impacted its financials and led to higher debt. It also led to the exit of its founders. Over the years, the company has managed to reduce debt significantly and stabilised its operations.

Going forward, the company believes it can grow its core business (around 95% of revenues) at 10% while remaining (5% or $2 million) new business is expected to grow to $18 million in coming years.

Three-horizon strategy to turnaround company

Subex has divided its products in three categories which include Horizon 1 that is products like business assurance, risk and fraud management, partner ecosystem management, network analytics. These are core traditional products focused on risk management, contributing 95% to total revenue.

“It is a cash cow and more of an annuity kind of business. The company caters to over 200 telecom customer with British Telecom, the largest client. Subex claims that 20% of global traffic goes through it. It is expected to grow at 10% per annum over the next two to three years aided by 5G rolling off,” ICICI Securities said in a report.

Horizon 2 includes products focused on the internet of things (IoT), security and analytics and lastly, Horizon 3 is products focused on analytics and automated anomaly detection offering. Horizon 2 and 3 are growth products based on subscription-based models. The company can sell these products not only to telecoms but also to BFSI, manufacturing, fintech and e-commerce.

“Horizon 2 and Horizon 3 can be quickly embedded to the customer’s current solution. Hence, they do not have to go through with the long process of changing the whole old model and switch to the new mode. These products are expected to grow to $18 million from the current $2 million in the next two to three years. Hence, we believe Subex is poised to grow at a CAGR of 18-20% in coming years,” ICICI Securities said without giving any target price.