After restructuring the foreign currency convertible bonds (FCCBs) due in 2012, Subash Menon, founder chairman, managing director and CEO of Subex, has set his sights on getting his company out of the red this fiscal. He told DNA Praveena Sharma that the company has ruthlessly trimmed costs by moving back-office work of acquired overseas companies to India. Also, with order intake looking up, he is expecting his company to close this year with profits after a loss of Rs 188.36 crore last year. Excerpts from the interview:
Tell us about the FCCB recast...
There is no fresh of issue of bonds. What has happened is that the old bonds have now been split into two - 141 million out of the 180 million are Bond Two and balance 39 million are Bond One, which have not been restructured. For Bond Two, we have changed the conversion price to Rs 80 from Rs 656. For Bond One, it is unchanged.
How much is the equity expansion and/or dilution?
Dilution will go up because Bond Two worth $98.7 million will now get converted at Rs 80 instead of the originally assumed Rs 656. That’s one-eighth the price. Upon conversion, equity base will move up from 35 million shares to 94 million shares.
You couldn’t do a buyback?
No, because the company doesn’t have the cash to do that. Our objective was to see that these bondholders could be the equity holders at some point in time. And if that has to happen then the conversion price has to be supportive of such a move and should lead to it. That’s why we went for this. Today, bondholders believe that Subex is an equity opportunity, not so much a debt opportunity. With this belief they have automatically accepted the restructuring (of FCCB), which now paves the path for conversion for them to become equity holders.
Any plans to raise funds?
Not at this point in time. Right now our focus is on bringing the business back in black. If you go back few years, you have seen that our earning before interest depreciation tax and amortisation (Ebidta) was very high. In the next couple years, we want to go back to that level of profitability.
By when do you expect to wipe the red out of your books?
This fiscal year, we will have profit. This means that the next two quarters have to be better than the first two of this fiscal. For this, a lot of catching up will be required.
What are the plans for this?
We have already handled cost part. So nothing more needs to be done on that front. What has really changed our cost structure dramatically is shifting back-office work of our acquired overseas companies to India. This (shutting back-office operations of acquired companies) was a bit painful. We can do up to a point but when you do it beyond that point then there is resistance and then there are moral issue and knowledge issue. Under normal circumstance we may not have endeavoured to do that but these are not normal circumstances and so we decided to do it.
How much has your cost come down due to this?
Our cost base has been coming down. It has dipped from $117 million in FY08 to $90 million in FY09 and is expected to come down to $75-76 million this year (FY10). This sort of reduction was possible because 60% of our cost is on people. The number of people has actually gone up but the cost has come down dramatically. That is because of the huge parity in salaries in developed markets and here. A job (back-office work) that costs us $10 million here can cost $ 35 million in the developed markets.
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