The stock, almost completely owned by retail and high net-worth shareholders, has delivered 1,440 per cent returns since May last year. The stock now trades around Rs 55, up from Rs 3.50 a share last year. This surge came after about 12 years of underperformance.
Is it another Tanla Platforms in the making? Tanla, for your information, had a stellar run last year, logging exponential growth. Can the company’s top line and bottom line growth justify the market’s exuberance.
There are no easy answers.
“This stock has gone up 15 times from Rs 4 to Rs 60 within a short period. It is difficult to predict the long- or short-term trend for this stock. God knows what is so fancy about it,” said Arun Kejriwal, a veteran investor and founder at Kejriwal Research Investment Services.
In the past many institutional investors lost money in the stock, as it plummeted sharply all through 2007-08. Currently, there are just seven institutional investors in the stock, holding a meagre 0.04 per cent stake.
The key reason investors have piled on the stock was the unveiling of some new-age digital products and the company’s plans to expand its services in some of the fastest-growing areas. The company last week launched a new artificial intelligence automation platform, which would allow non-programmers to easily aggregate data from disparate sources, thus turning data into insights.
The company managed told the recent Emkay Global Conference that it has turned the focus on digital trust areas in the past couple of years. It says digital will remain the focus area going forward as expects it to be in demand due to digitisation. It now aspires to be the leader in the digital trust area
The company says the core business contributes $49 million of revenues currently while newer areas bring in approximately $1 million. Subex expects that share to rise to $15-20 million in three years, which will mean a 20-fold growth.
Currently, telcom operators are its biggest customers, which is a relatively slower growth area. But it expects to be the leader in high growth areas of Internet of Things (IoT), AI/ML, digital identification and verification in the near future. The company plans to invest $6-8 million annually on products over the next three years, on top of $3-4 million per annum spent in the last 2-3 years.
The company is expanding from telecom vertical to e-commerce and fintech, and is making a transition from being telecom risk management provider to a multi-vertical solutions provider. Sustainable margin for the core business is 20-25 per cent, and those margins are expected to be higher in the newer areas, the management claims.
Some estimates project IoT security market in India to grow from $150 million to $2 billion in 15 years. Similarly, the opportunity size in the core areas in telecom products is pegged at $600-700 million, while for new products it would be $1 billion. The market size of Identity Analytics is expected to be $25 billion and that for IoT security $2-3 billion. Clearly, there is a growth opportunity.
However, consistent revenue generation has been a key problem for the company. In the last four quarters, it revenue has fallen consistently. On an annual basis, the fluctuations have been wide, data available on BSE showed. Moreover bloated equity is another concern among investors.
“The equity is quite bloated. I really don’t know how much of an upside can happen here. They had converted a lot of foreign currency convertible bonds. So, I am not sure how they will service them,” said Ambareesh Baliga, an independent market analyst.
In February, the company announced an interim dividend of 50 paise per share to shareholders after a long gap of 14 years, which though small may have lured investors.
For now, technical analysts and traders are quite bullish on the stock, as they see a breakout from multi-year patterns. At the same time, fundamental analysts are not sure if the hype justifies the company’s records.
Eventually, it will depend entirely on how the market values the business. For the time being, all we can do is sit back and enjoy the show.
