| Subex Assurance LLP | ||
| Rating Downgraded to ‘CCR BBB+/Negative’; Rating Withdrawn | ||
| Rating Action | ||
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| 1 crore = 10 million | ||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has downgraded its rating on the corporate credit rating of Subex Assurance LLP (SAP; part of the Subex Group) to ‘CCR BBB+/Negative’ from ‘CCR A-/Stable’; the rating has been withdrawn on receipt of request and requisite documentation from the company. This is in line with CRISIL Ratings’ withdrawal policy.
The rating action reflects weakened business risk profile marked by decline in group revenue by 8.6% year on year to Rs.340.93 crore in FY22 while the operating margin has declined from 25.5% to 10.4% during the same period. Scale of operation has remained stagnant for the group in the last few fiscals. Further, in the last few quarters scale and margin have been impacted due to change in organizational structure wherein major revenue contributing division has been exchanged between the parent company SL and its subsidiary i.e., SAP. Incremental employee cost and other expenses were incurred for this restructuring which coupled with reduced revenue contribution has led to decline in profitability in the last 2-3 quarters. Management has stated that this internal restructuring has now been fully completed. However, the stabilization of this restructuring would be a key rating monitorable over the medium term.
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Analytical Approach For arriving at the ratings CRISIL Ratings has applied its framework on notching up support received from its parent Subex Limited (Subex) |
Key Rating Drivers & Detailed Description Strengths:
SAP is part of the Subex Group and the major revenue contributor to the group contributing close to 85 percent of the overall revenues. However, post the completion of restructuring the revenue contribution from SAP to the group is expected to be less than 20%.The Subex group provides revenue assurance and fraud management software solutions to its customers amongst other products; which are of critical importance to the customers in the telecom segment. With its ability to meet changing requirement of customers and provide robust support services, the group has been able to secure repeat contracts from its key customers like British Telecom Limted, Telstra International Limited, Optus Systems Private limited etc. CRISIL Ratings believes the group shall benefit from its strong client relationship in the telecom segment over the medium term.
The group is managed by Mr. Vinod Kumar who have an experience of more than 4 decades giving strategic direction and turning around entities. Additionally, Mr Vinod Kumar along with his core management teams, have a strong domain knowledge and understanding of software requirements for various end-users, which benefits the group.
The financial risk profile is strong marked by a comfortable capital structure and robust debt protection metrics. Due to absence of external debt, gearing has been Nil over the last 3 fiscals ended March 2022. There has not been any interest/finance charges in fiscal 2021. Supported by absence of debt funded capital expenditure, the financial risk profile is expected to remain strong over the medium term.
Weaknesses:
The scale of operations is modest as reflected in revenues of around Rs.340-370 crore over the last 6 fiscals ended March 2022. Post completion of the restructuring revenue contribution from SAP to subex group in the current fiscal is expected to significantly reduce to less than 20%. Further there are players who are building core competencies around several products/services which overlap with that of this group’s offerings, thereby, exposing Subex group to competition. This may further constrain pricing flexibility and consequently operating profitability. The moderate scale of operations shall continue to constrain the business risk profile over the medium term.
The group derives almost its entire revenues from the telecom segment. Any slowdown in the telecom segment could adversely impact the group’s ability to add new customers and add new projects from existing customers. This is partially mitigated by launch of new products to other end-user segments like banking and financial institutions. However revenue contribution from these products are currently low at around 5% of the overall revenues. Diversification in end user industry and customer profile resulting in an improvement in revenues shall remain a key monitorable. |
Liquidity: Strong Liquidity remains strong supported by large cash and equivalents and absence of debt. The group is expected to generate cash accrual of around Rs.15-20 crore annually against no major repayment obligations. Liquidity is further supported by unencumbered cash and bank balances of more than Rs.100 crore. This is likely to support the group’s incremental working capital requirements. The group does not have any debt funded capital expenditure/acquisition plans over the medium term supporting the liquidity. Contingent liabilities comprising of income tax and service tax disputes were at around Rs.103 crore as on March 31, 2022. Crystallization of these liabilities and its impact on the liquidity shall remain a key monitorable. The group does not have any fund based working capital limits. |
Outlook: Negative CRISIL Ratings believes SAP shall benefit from its established market position over the medium term and continue to get the support of established Subex group. |
Rating Sensitivity factors Upward Factors
Downward Factors
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About the Group SAP is a wholly owned subsidiary of Subex Limited. Subex Limited is a technology company listed on the National Stock Exchange and BSE Ltd. The group provides business support systems to telecommunication companies, which improves their revenue and profits through the identification and elimination of leakages in their revenue chain and includes fraud, revenue assurance, analytics, partner management, cost management and credit risk management. |
Key Financial Indicators
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Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL Ratings' complexity levels are assigned to various types of financial instruments. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
Annexure - Details of Instrument(s)
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| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||
Criteria Details
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