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Edited Transcript of SUBEX.NSE earnings conference call or presentation 14-Aug-19 11:00am GMT

Q1 2020 Subex Ltd Earnings Call

Aug 17, 2019 (Thomson StreetEvents) -- Edited Transcript of Subex Ltd earnings conference call or presentation Wednesday, August 14, 2019 at 11:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* G. S. Venkatraman

Subex Limited - CFO

* G. V. Krishnakanth

Subex Limited - Company Secretary & Compliance Officer

* Vinod Kumar Padmanabhan

Subex Limited - MD, CEO & Director

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Conference Call Participants

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* Rukun R. Tarachandani

Kotak Mahindra Asset Management Company Limited - Investment Professional

* V.P. Rajesh

Banyan Capital Advisors Private Limited - Managing Partner & Portfolio Manager

* Raj Kumar Ojha

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Presentation

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Operator [1]

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Ladies and gentlemen, good day, and welcome to the Subex Limited Q1 FY '20 Earnings Conference Call. (Operator Instructions) Please note that this conference is being recorded. I would now like to hand the conference over to Mr. GV Krishnakanth, Company Secretary of Subex Limited. Thank you, and over to you, sir.

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G. V. Krishnakanth, Subex Limited - Company Secretary & Compliance Officer [2]

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Thank you, and good evening to everyone who is on the call, who has joined this investor call for the period ended June 30, 2019. Now I would like to introduce the members of the management who are present for this call. With me, we have Mr. Vinod Kumar Padmanabhan, Managing Director and CEO; Mr. Venkatraman GS, Chief Financial Officer.

I would like to start the conference call by going through the safe harbor clause. Certain statements in this call concerning our future growth prospects are forward-looking statements, which involve a number of risks and uncertainties that could cause actual results to differ materially from those in such forward-looking statements. The risk and uncertainties relating to these statements include but not are limited to fluctuations in earnings, our ability to successfully integrate acquisitions, competition in our areas of business, client concentration, liability for damages in our contracts, political instability or issues of intellectual property and generic and general economic conditions affecting our industries.

So with this, now I hand over the call to Mr. Vinod Kumar Padmanabhan to take it forward. Thank you.

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Vinod Kumar Padmanabhan, Subex Limited - MD, CEO & Director [3]

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Good evening, everyone. I welcome you all to this briefing, and thank you for taking time for this call.

As many of you have seen from the release we gave last Monday, we ended the quarter 1 with a revenue of INR 79 crores. We had an EBITDA of INR 15.2 crores and a profit after tax for the quarter at INR 5.3 crores.

Typically, our quarter 1 is relatively lower than the other quarters, and the results were in line with this trend. As we had indicated in the previous call as well, bulk of our revenue comes from the Horizon 1 portfolio. And the nature of business in Horizon 1 is predominantly license- and implementation-based. And therefore, there is variation from quarter to quarter based on where the timing of the OI and the structure or the construct of the OI.

Further, a couple of megadeals that we closed during the end of last year, that is towards March of FY '19, we could start only early part of Q2 due to the infrastructure unavailability at the customer end. So these will get executed during the course of the current quarter and the next 2 quarters. And we should see this, the revenue from some of these big order intake that we had in last quarter convert into revenue during the course of this year.

So we urge you to look at our performance more from a full year basis than a -- than from a quarter-to-quarter basis because of these variations that will continue to have till our Horizon 2 and Horizon 3 revenue, which is going to be subscription-based, ramp up which will be in the years to come.

Now let me cover some of the other highlights of the market and some of the things that we have been doing on our new product areas. So on our core areas, that is telecom, most of the activities from customer end were centered around enterprise business, that is ramping their enterprise businesses and also the early deployment of 5G and the preparation towards that. We are tracking this very closely, and we have already aligned our portfolio to leverage these trends. With respect to the enterprise offering for telcos, both from an internal enablement of the telcos and also creating product portfolio that they can sell to their enterprise customers, we have an excellent offer and that we have started taking to almost all the telcos that is currently our customers. In the case of 5G, we do have the capacity management of the video analytics, which is becoming a very part -- very key aspect of the portfolio requirement as and when they start rolling out 5G. And we have had discussions with most of the key customer -- I mean telecom operators in this regard.

Now on the operations front, in the recent past, we have started investing in the North American sales and marketing, and this has showed us -- is showing good results and future prospects. During the course of this quarter, we have secured a new logo in North America and our pipeline also from North America is looking quite strong. We hope that this region will turn out to be a strong performer for us in this year.

On the market side in our space, we did see a major vendor consolidation where WeDo, one of our key competitors, was acquired by a company called Mobileum. We are closely monitoring this, and we will push ahead with our market graph strategy in various geographies as planned.

Now let me move to IoT security, which is the Horizon 2 product portfolio. Around IoT, we have been focused on delivering the projects in various geographies that we secured in the last year, and which most of the projects are getting -- the completion of those projects will happen during the course of Q2 and some of them by early part of Q3.

We have also significantly increased the focus on Indian market. And we have also formed a special team to cater particularly the government sector in the country, which is probably going to be one of the biggest spenders when it comes to cybersecurity and digital security.

Lastly, as some of you would have noticed, we launched a first of its kind IoT security state of the union report focused on India. And this has been widely quoted by most of the media and also become a reference point when it comes to the status of IoT and particularly the kind of targets -- the vulnerability of targets and kind of attacks that we are seeing in the country.

On the generic front on IoT security, we continue to secure more partnerships both with respect to SI partners and also OEMs as we believe that these relationships and partnerships will be critical to reach the wide market space that we are targeting.

On the Horizon 3 products, we had CrunchMetrics, if you recall, we had indicated that we have started a POC with a large payment provider in the country. Now we have finished the first stages of the POC. And we have announced a very large use case that we believe will be very significant for the entire fintech, specifically the payment part of the fintech segment. At this point in time, payment fallouts are in the range of 40% to 45%. And with the CrunchMetrics, we are aiming to reduce the fallout rate by a few percentage points. That will translate to direct revenue for some of these fintech companies. So this is a very valuable use case for the fintech companies. And the early efforts that we have done with this POC, with this large payment provider is helping us to hone all the propositions. And we will -- we intend to take in the coming quarters aggressively to other fintech players starting with India, but again, expanding to other geographies.

The second product around Digital ID, we have already soft launched that product during the course of last quarter. The product has been named IDCentral. We have soft launched, and we are in the process of getting early customers and prospects on board. That is on one side. We are trying to on-board the service providers who will be consumers of our service -- or will be consuming the service. And on the other end, we also have data aggregators coming on board, which is -- to start with telcos and other data aggregators whose data we will be looking into based on specific customer consent to provide value to all people, partners and ecosystem.

There are 2 key use cases that we are focused on. One is onboarding, where we look at our onboarding for several large entities like large institutions like governments and other enterprises. And while we do the onboarding, we look at all aspects of digital accuracy, digital -- removing all the duplicates, deduping and all that effort. So that's one part of the solution.

The other part of the solution is on 2-factor authentication where lot of -- pretty much the whole world is moving to a 2-factor authentication. That is the OTP-based authentication. We are doing some digital ID verification before some of these OTPs are being sent. This is extremely valuable to avoid fraud and other digital identity-related abuses that happens today in the digital and e-commerce domain.

So these are some quick updates on what we have been doing in this quarter. Now I would now request the operator to open -- some questions and clarifications. Thank you.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question is from the line of (inaudible) from (inaudible).

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Unidentified Analyst, [2]

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For an existing customer of Subex, what are the switching costs? And I have a follow-up also.

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Vinod Kumar Padmanabhan, Subex Limited - MD, CEO & Director [3]

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So when you mean by switching cost, are you talking about switching from one provider of a solution to another provider of a...

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Unidentified Analyst, [4]

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Yes, so from Subex to another company [around] Subex, how sticky is the relationship?

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Vinod Kumar Padmanabhan, Subex Limited - MD, CEO & Director [5]

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So because we are in the product business, it's quite sticky. And most of the products are -- when they are buying, they are looking at an engagement, which is about 8 to 10 years kind of engagement. And augmenting that with the managed services that we have with several of our customers, it's quite sticky. And unlike -- unless there is a event like a merger or a merger or a group consolidation whereby some of the group has decided to consolidate all their OpCos into one installation, and if it happens that group decides that it has to go or they have some other vendor, those are the cases where some of the, let's say vendor, the -- let's say, those are the cases where we have seen some of our platforms getting replaced. By and large, it is not a routine thing as long as you are able to be at the cutting-edge of the technology. And that's where all of our investments are going into bringing in more [NAI ML based] capability so that we are helping the operators ahead of the curve. So we are working with a robust roadmap. So at this point in time, unless there is a consolidation or some other [cost impediment] on the customer end, we do not see that much of a [factor] on displacement of our installations.

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Unidentified Analyst, [6]

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Can I ask a follow-up?

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Vinod Kumar Padmanabhan, Subex Limited - MD, CEO & Director [7]

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Yes, please.

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Unidentified Analyst, [8]

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So you are indicating that you are targeting a -- double our top line in 3 years. So do you expect most of that growth to take place in Horizon 2 or Horizon 3 is what I assume. But I mean the quarter results, does that still hold, I mean that guidance of (inaudible) doubling in 3 years?

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Vinod Kumar Padmanabhan, Subex Limited - MD, CEO & Director [9]

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Look, I think that is what I've said in my briefing that you should not look at quarter on quarter. And our -- what we have communicated during the last call (inaudible) saying this time as we come to the end of the year, you will definitely see us breaking out from the revenue levels and moving towards the target that we have set for ourself for the 2 years. So it remains.

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Unidentified Analyst, [10]

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But even when we are comparing Subex with competitors, I mean (inaudible) the revenue (inaudible) from within that segment. So what are the main -- like do you want to compare the metrics of a Subex vanishing or a Subex number with which competitor should we use (inaudible) for our analysis?

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Vinod Kumar Padmanabhan, Subex Limited - MD, CEO & Director [11]

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Okay. So unfortunately, we will not be able to -- because of the kind of portfolio that we have, we're not competing with one operator. Because for some of the portfolio, we have some competition. So there will not be a single competitor that's probably of our similar size. Like for example, I just mentioned about the consolidation that happened with WeDo. WeDo was providing only fraud and revenue assurance, but not some of the other portfolio that we had on billing, on partner billing. And obviously on security, et cetera, they do not have that. But if you look at on the other hand, we do have Amdocs and Oracle. Amdocs, for instance, who have got a much wider portfolio, and they do provide fraud [analysis]. So it will be very difficult for me to tell you one company or one comparative, let's say, competitor for us who have got the [same] breadth of portfolio, let alone the new areas that we are talking about.

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Unidentified Analyst, [12]

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The last question, one last question. So you had indicated in annual report also I think last year that there is some restructuring expected because the float is so high. That is one of -- the supply of the stock is so high, that, that (inaudible) upward volatility. So anything to tell -- inform us about that (inaudible)?

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G. S. Venkatraman, Subex Limited - CFO [13]

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So there is the -- yes, this is Venkatraman. So, sir, I think we are looking at the problem. We are conscious of the large equity base which we have, and we do want to reduce it. But it is as you imagine, it's a little complex given that it's (inaudible) over 1.5 years ago. And we need to do it considering many things. So this is definitely on one of the top items which we are looking to address. So we will be able to share more of this as we progress through this year, but that's definitely one item we definitely want to address in this financial year.

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Unidentified Analyst, [14]

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Okay, sir. Thanks for the investor presentation, (inaudible). Investor Relations doesn't reply nearly (inaudible). It's just not possible to talk to anyone on the phone. Just goes into a loop and then it (inaudible). I've been trying for more than 6 months ago to try and talk to someone in the Investor Relations department. It is impossible to get through your lines. (inaudible) multiple means also. None are being indiscernible] or I don't know what.

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G. S. Venkatraman, Subex Limited - CFO [15]

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Okay, we'll have a look at that on the Investors line.

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Operator [16]

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Our next question is from the line of Raj Kumar Ojha from -- an individual investor.

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Raj Kumar Ojha, [17]

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Raj Kumar Ojha from Allahabad. I have a question regarding (inaudible) in the IoT security system integrators, like (inaudible), et cetera.

And my next question is, Subex is a USD 50 million company. The management is striving to make it a USD 100 million company. My question to the management is has the Board of Directors ever discussed to make it a USD 200 million company in the next 4, 5 years either through organic, inorganic or acquisition mode?

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Vinod Kumar Padmanabhan, Subex Limited - MD, CEO & Director [18]

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Okay. On the first part, we definitely have system integrators as a major GTM channel. We have -- already have several partnerships. Unfortunately, we are not in a position to announce it. As and when we are announcing the partnerships, you will come to know about it. But we have started working on it, including working, enabling, trying to put our product in the integrated digital [sector deals] and digital enabled labs of some of these large system integrators. So system integrators and large consulting companies, both of them are our 2 GTM partners that we are looking towards partnering with.

On the second question about the strategy, last year, we finished better than what we had internally expected from an order intake perspective, which is an indicator of the future business. And that did give us the confidence that we should look at how to go beyond our -- beyond this $100 million or faster than what we have currently in place. In line with that, we have started -- we have identified certain areas. And we have added those initiatives into the Horizon 3. And as we talk, the capabilities are being built to explore some of these areas.

So in summary, we have definitely started looking what -- beyond the initial plan that we had and what Subex should be. But it remains that our focus would be in the area of digital trust (inaudible). Subex will be probably known as the leader in providing solutions to help everyone trust the digital ecosystem. That's where we are growing into, and we are looking at expanding our portfolio so that we can grow beyond the $100 million mark.

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Operator [19]

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(Operator Instructions) question is from the line of V.P. Rajesh from Banyan Capital.

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V.P. Rajesh, Banyan Capital Advisors Private Limited - Managing Partner & Portfolio Manager [20]

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Congrats on a good set of numbers, and thanks for sharing the presentation. This is very helpful.

Just one suggestion is perhaps you can break the revenue from operations into your Horizon 1 versus Horizon 2. That'd be helpful. And also since Horizon 2 is more subscription-driven, if you can share what is the backlog or new orders, some metrics to track quarter-on-quarter growth on that, and if you can provide the data for Q1.

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G. S. Venkatraman, Subex Limited - CFO [21]

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Yes. So Rajesh, this is Venkat. I think obviously that's something we will definitely want to go in that direction. But I think right now at this point in time, the share of the Horizon 2 revenue number is extremely small. So we would like to get that to a reasonable critical size and then we'll start reporting metrics and other numbers around it. But I get your point. We'll definitely go there. But give us a few more quarters. As the pickup achieves critical mass, we'll start sharing those numbers.

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V.P. Rajesh, Banyan Capital Advisors Private Limited - Managing Partner & Portfolio Manager [22]

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Okay. That's fair. Then on the employee benefit expense, there was a decline of almost INR 2 crores year-over-year. And then there was a footnote talking about that, about, let's see, INR 4.5 crores of incentive payments were not made in this Q1. So could you just shed some color on that?

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G. S. Venkatraman, Subex Limited - CFO [23]

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So Rajesh, I think if you -- typically if you look at the way we -- there is an incentive program in place with a bonus or an incentive program in place for all the people who work, particularly sales and other account folks who work, they have an incentive plan in place. And then for the larger organizations, there are -- there is an incentive plan linked to specific parameters. So through the year, we look at the parameters we are likely to hit and make provisions towards that. I think as we end the year, then we true up these provisions to say whether -- what is the actual payment to be made. So as part of this process, there has been a reversal of that amount. That's what we are trying to explain in that note.

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V.P. Rajesh, Banyan Capital Advisors Private Limited - Managing Partner & Portfolio Manager [24]

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Okay. So the item is pertaining to the last financial year, I would assume (inaudible).

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G. S. Venkatraman, Subex Limited - CFO [25]

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Last financial, you're right.

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V.P. Rajesh, Banyan Capital Advisors Private Limited - Managing Partner & Portfolio Manager [26]

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Okay, okay. That's helpful. And there is a not -- I mean significant jump, but small amount in your finance costs from 62 lakhs [during the last year]. So what's the story behind that, given we are totally (inaudible)?

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G. S. Venkatraman, Subex Limited - CFO [27]

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So as you know, there is this change in accounting standard for leases that is Ind AS (inaudible). So the Ind AS 116 requires you to look at all your future lease rentals which you are required to pay, and then that has to be broken up into -- so it moves out from your expense line item. And a portion of it goes and sits in depreciation and a portion of the interest computed as imputed interest comes and sits in the interest cost. So about INR 1.2 crores of that INR 1.5 crores which we've seen for the current quarter is the interest cost related to this Ind AS 116 adjustment. So it's not really technically an actual interest cost. Just because of the way the standard required it to report this line item, it's sitting in the interest line item.

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V.P. Rajesh, Banyan Capital Advisors Private Limited - Managing Partner & Portfolio Manager [28]

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Okay. So you reported EBITDA margin of 19.2%. So if let's say you take out the AS 116 impact out of it, what would be the adjusted EBITDA margin?

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G. S. Venkatraman, Subex Limited - CFO [29]

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That's about 4% impact, Rajesh. So we (inaudible) reported of 19%, so if you adjust it, it is about 15%.

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Operator [30]

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We will take our next question from the line of [Rohan Hari], an individual investor.

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Unidentified Participant, [31]

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So yes, I wanted to ask in your annual report, you had said that you are going to launch second product in (inaudible). So when is that launch and what would be the aspects of that, that you are really planning to cover?

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Vinod Kumar Padmanabhan, Subex Limited - MD, CEO & Director [32]

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So the second product, as I indicated in the briefing, we have already soft launched that product. The product is called IDCentral. And you can get further information about that in the website, idcentral.io. Now we have not done a full-fledged launch of the product. We have done a sort of a soft launch for the product. The idea is that we would want to have -- we would want to onboard some early service providers and custodians of the data. And once we have at least a few of them on our platform, we would want to launch that with a full fanfare. So that, we are expecting towards the end of Q3 or beginning of Q4. So that's the status of that. We have already soft launched it, and we are in the process of onboarding early customers and custodians of data onto the platform. Just for the clarity, the product is called IDCentral, and the website is idcentral.io.

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Operator [33]

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We'll take question from the line of Rukun Tarachandani from Kotak Asset Management.

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Rukun R. Tarachandani, Kotak Mahindra Asset Management Company Limited - Investment Professional [34]

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I just wanted to understand a bit...

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Operator [35]

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Could you speak a bit louder please? Mr. Tarachandani, we're not able to hear you.

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Rukun R. Tarachandani, Kotak Mahindra Asset Management Company Limited - Investment Professional [36]

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Can you just speak about the seasonality of the business? As you said, it's not right to look at it on a quarter-on-quarter perspective. So what is it that drives the seasonality of this business?

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Vinod Kumar Padmanabhan, Subex Limited - MD, CEO & Director [37]

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So it is the -- so as I told you, predominantly our business comes from the Horizon 1 on the core. And bulk of the business that we do there is on a license revenue -- license and implementation model. So the -- so based on the structure of the contract, so some of the contracts will be license and implementation, which will be capitalized by a customer. But some of the customers would want to do operationalizing the managed services. So based on the construct of the contract and as to when we get to secure the contract, then the revenue recognition will depend on these 2 factors: when we secure contract and the structure of the contract.

Now this would continue to happen till we -- till our other part of the business, that's Horizon 2 and Horizon 3, which is more subscription-based, which is more linear and growth-oriented, would happen. So the seasonality is more coming from some of these angles.

Now typically if I look at the trend of the last few years, obviously, Q1 and Q2 are relatively lower than Q3 and Q4 for us. And this year also, the trend will pretty much remain the same based on what -- based on the backlog and the order pipeline that we have.

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Operator [38]

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Our next question is from the line of V.P. Rajesh from Banyan Capital.

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V.P. Rajesh, Banyan Capital Advisors Private Limited - Managing Partner & Portfolio Manager [39]

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Yes, maybe 2 more questions. The other expenses also dropped by about almost, let's say, INR 6 crores. So is that also because of the impact of AS 116? Or there was a reduction in these other expenses?

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G. S. Venkatraman, Subex Limited - CFO [40]

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One part of the other expense reduction, as you rightly said, this is because of rent. So the rent component has moved out. And a little bit is about relating to the -- what is the other expense we had?

Hang on. I think if you were to come back year-on-year, I think last year, we had certain specific costs which we had incurred, some consulting costs we incurred. So that has not been incurred this year. So that's a bigger reduction.

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V.P. Rajesh, Banyan Capital Advisors Private Limited - Managing Partner & Portfolio Manager [41]

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So should we assume that this [20.68] or thereabouts is sort of the new quarterly base for this line item?

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G. S. Venkatraman, Subex Limited - CFO [42]

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It should be, but I think I would want to be really careful. Because I think, see sometimes what happens is because you have -- while the rent has [moved and that will] remain so in the coming quarters as well. There could be some little bit one-off expenses because see, some of our expenses are not necessarily equal to the period. For example towards the second or third quarter, we will also have expense on our user conference, which will happen. So that will come in in that. So it may not be necessarily a uniform number into that extent, Rajesh.

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V.P. Rajesh, Banyan Capital Advisors Private Limited - Managing Partner & Portfolio Manager [43]

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Okay, okay. And then on the tax side, this number is -- seems very high. So what is the sort of real tax rate one should be thinking about? I mean in India, you are at 25%, I assume. And in your overseas, you probably are at 25%. Or I guess I don't know. So that's the question.

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G. S. Venkatraman, Subex Limited - CFO [44]

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See, as I explained earlier, the tax number if you really see, if I break down the tax component, our tax provision per se is very, very small. It is a very small number. I think it will be about, for the quarter, it's about INR 2 crores. But if you look at other items, the [reporting] and the deferred tax is what swings the number. The deferred tax is a function of the mismatch between the current and the future tax expected, and that is what leads to the swing in numbers. So and that is a function of the structure we just put together given our LLP structure and the way the profit's move in the LLP. That has an impact on how the deferred tax numbers move every quarter. So the number will be in this range. It will not increase than what we are today, but it will be in this range of what you have seen in the last few quarters.

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V.P. Rajesh, Banyan Capital Advisors Private Limited - Managing Partner & Portfolio Manager [45]

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Okay. But let's say on a cash basis, right, what are your cash taxes in terms of, let's say, if you were to look at as a percentage of pretax profits?

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G. S. Venkatraman, Subex Limited - CFO [46]

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About INR 2 crores, INR 2.5 crores...

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Unidentified Company Representative, [47]

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25%.

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G. S. Venkatraman, Subex Limited - CFO [48]

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It's about 20%. 20%, 25% will be the range.

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Operator [49]

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We'll take the next question from the line of Raj Kumar Ojha, an individual investor.

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Raj Kumar Ojha, [50]

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Sir, my question is regarding CrunchMetrics, whether this section has started generating revenue, and the number of POCs in fintech?

And my next question is whether we have won many major IoT security contracts in the smart city after Florence?

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Vinod Kumar Padmanabhan, Subex Limited - MD, CEO & Director [51]

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Yes. So on the first question on CrunchMetrics, yes, we have commercial engagements going currently with the telecom operators.

On the fintech, we have just completed the first POC because it was a big learning experience for us. And we expect that we are in the second phase of the POC, and we expect it to complete. And we will -- it should get into commercial engagement with this particular customer during the course of Q3.

But we are, based on the Phase I success and our clarity as to what use case and what problem that we are solving, we have started approaching other fintech operators. And we are in the process of starting a second POC with another large payment gateway provider in the country.

We have also started another POC with a large travel e-commerce company. Because as I told you, we are looking at 2 segments, e-commerce and fintech. So we have the first POC. We have in -- 3 weeks into the POC with a large travel e-commerce provider within the country. We will provide you further updates as we get into -- as we are in a position to share the customer as and when we get into commercial engagement.

On the IoT smart city, we have not secured any contract as yet. Because as I told you, our current approach that we are doing is we are going to separate verticals and creating a use case so that we can understand what problem can be -- we what are the specific problems in those specific verticals and how we can solve that.

But our go to market is going to be through either a large telecom provider, a large SI or an OEM. So we have started putting the bids together along with a large SIs and large OEMs. And we hope that in the coming quarters, we will have some success coming out of that. And this is a part of a large, large deal. It's -- I mean these SIs and OEMs are providing a larger end-to-end kind of service for the smart cities and we are a part of that consortium. We hope that in the course of this year, we will have some surplus coming up from these initiatives.

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Operator [52]

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(Operator Instructions) Our next question is from the line of V.P. Rajesh from Banyan Capital.

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V.P. Rajesh, Banyan Capital Advisors Private Limited - Managing Partner & Portfolio Manager [53]

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Yes, Vinod, sir, Reliance made this huge announcement a couple of days ago, and we are in the core of (inaudible). I was just wondering, do you see an opportunity on the IoT side that they were talking about?

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Vinod Kumar Padmanabhan, Subex Limited - MD, CEO & Director [54]

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Of course there is an opportunity, Rajesh. We are exploring that and as and when then we have something that can be shared, we will provide you that update, Rajesh. So definitely as they would start moving into mobile edge computing, we have already integrated our IoT security into mobile edge computing security. And we think that that's one of the first use cases of 5G, mobile edge computing. And mobile edge computing, the security is also very complicated. So we have already have a proposition around that and already integrated with some of the mobile edge computing providers. So definitely, there is an opportunity. And we will explore, and we'll keep you updated on the progress.

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V.P. Rajesh, Banyan Capital Advisors Private Limited - Managing Partner & Portfolio Manager [55]

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And then the other question I have is Mobileum acquiring WeDo. Any idea of how big is Mobileum? And if they were already present in the telecom side or this is how they're trying to get into the telecom sector?

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Vinod Kumar Padmanabhan, Subex Limited - MD, CEO & Director [56]

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So Mobileum is (inaudible). So they do have a roaming product and -- yes. So I think that they are -- they bought WeDo to get some more -- maybe they wanted to expand the portfolio, whatever it is. They were -- with the roaming product, they did do some -- they were doing some analytics around roaming, [borderings] and products. [But they were not a mainstream product] player. So with this, we don't have the specific revenue figures of that because it's a privately held company. But they are in the roaming space, and probably they are looking at expanding their portfolio. It's [privately] held at this point in time.

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Operator [57]

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Our next question is from the line of [Rohan Hari], an individual investor.

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Unidentified Participant, [58]

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Yes, 2 questions. One, (inaudible) your India operations are not (inaudible) segment (inaudible) revenue. So (inaudible), what kind of growth are you expecting from your India operations?

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Vinod Kumar Padmanabhan, Subex Limited - MD, CEO & Director [59]

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Okay. So, so far, we have been targeting the telecom segment, telecom operators. And in the telecom operators, we have a sort of a limited portfolio to [sell there]. So if you look at, we have all of -- almost all the operators use our (inaudible). And therefore, our revenue thereafter will be only the maintenance, support and enhancement revenue. So whenever some incident happens or some -- either like 3G to 4G, 4G to 5G migration, that's a point when all -- we will have an increased revenue because all of the platforms will have to be upgraded. Or when there is a consolidation activity, so in the recent case where Idea and Vodafone coming together because both of them have their portfolio with an integrated platform or integrated targeting data architecture, there would be work available. So that was so far our revenue profile.

However, with IoT and CrunchMetrics, our -- India is a major focus for us, and we have started working towards this. I don't want to have -- I don't want to give a projection as what percentage would be. But as we end this year, at least from new order bookings, you would see that a considerable portion of that new revenue, new contracted bookings should come from India. And from the revenue translation during the course of next year, we expect a lot of revenue translation to happen from India. So that's my view at this point in time, based on what we see from the India market from a revenue perspective.

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Unidentified Participant, [60]

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Yes. And my next question was with the launch of IDCentral, when are you planning to do a complete launch? And when does the revenue start kicking in?

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Vinod Kumar Padmanabhan, Subex Limited - MD, CEO & Director [61]

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So the -- our plan is end of Q3 or end of -- beginning of Q4 for the time being. Again, the dependency is that we want to onboard a few customers and a few operators before we do a full-fledged launch. And there is a dependency because this is -- we are very clear that we would only look at the data of consumers with explicit concerns. So there is a kind of reality which we are working across all the interested parties. So that's our current timeline.

With respect to the revenue coming from it, we expect that by Q4 at least, we should have some revenue to prove that it is a viable proposition. But again, it will be very small compared to our overall revenue. But next year, as Venky mentioned earlier, we will try provide you the segment-wise or the Horizon-wise part of it, either both revenue and the contracted revenue. And you should get a better view of how some of these things are panning out.

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Operator [62]

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Our next question is from the line of [Gopal Ing], an individual investor.

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Unidentified Participant, [63]

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Yes, this is [Gopal]. My question is on one thing. Like in your -- one of your announcement, you said employee stock options had been canceled. (inaudible) or somewhere it is again. Just basically is there any reason?

And I have another question, whether is your focus on to be a purely tech company or your focus is on marketing of your tech products? I would like to say the -- I mean in the marketing in other countries?

And third is the innovation part. One is your CrunchMetrics is now heard for the past 2 quarters. And when you will deep dive into it, I mean deep dive into the marketing part of it?

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Vinod Kumar Padmanabhan, Subex Limited - MD, CEO & Director [64]

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Okay, so first with respect to ESOP. We have some very, very old ESOPs which have not been exercised and are based on very old ESOP scales. And maybe again, it might have been issued at a very high rate, so it doesn't make any sense anymore. So those are the ones which have got canceled. But our new ESOP scheme which was -- as you know, that we have got approval from shareholders last year for the new ESOP schemes, and those are in progress. And we have got the approval to acquire further shares this year from the market, and then we are allocating this. And this year, we -- as per the approval, we will be executing that. So that's on the ESOP part.

On the CrunchMetrics part, we, if you look at our social media and others, we are very, very visible with respect to what the value proposition is. And we have already started marketing again. Unlike our core products in the telco side, we are addressing a very large segment, so the way we market will be quite different. It is a low-touch, (inaudible) based marketing [base] to leveraging the social media and others. So we have already started it. Of course, we can take it to the next level. But as and when we start revenue ramping up, we will further enhance our marketing case. At this point of time, we are looking at -- we have started marketing CrunchMetrics for telecom worldwide and to fintech and e-commerce in the country, because these fintech and e-commerce are new segments for us and we want to learn and be more confident before we take it to a wider market space.

With respect to the innovation, I think as I told you, we have already started. I -- we have identified a few other areas which we have to -- we are doing it. We are taking it down as a part of the Horizon 3, and we are building the capabilities to explore those areas. And as and when it becomes a proposition which we decide to take to mainstream, we will come back to you.

So currently the 3 key initiatives that we are driving from a marketing standpoint actually, one is IoT (inaudible) secure; second is the CrunchMetrics with the [anomaly] detection, AI (inaudible) based anomaly detection; third is the IDCentral, which is a digital identity SaaS-based offering, which is being sold in very large [digital item] in those use cases. So these are the 3 specific initiatives that we are working on with all the marketing support required.

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Unidentified Participant, [65]

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Okay. My -- only one simple question. What do you say that keeps people talking about billion-dollar company, and when you are in European markets, so $0.5 billion company? And I think your share price has come down from around INR 3.70 to INR 5. So I mean what is the period? I mean, Horizon, you are looking (inaudible) that it will achieve at least some sort of stock price will go up in near future, maybe in 3 years, 4 years? Or how would we -- as an investor, how would we have this confidence that we will reach at some level from where it has fallen down, maybe in phases?

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Vinod Kumar Padmanabhan, Subex Limited - MD, CEO & Director [66]

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So when the market pricing is something which we cannot have any specific comment on as you can appreciate. What we can only provide you the color of what we are doing with respect to the strategy, where we think that the company will be in the next 2, 3 years, and also some of the other capital-related restructuring that we would be undertaking as Venky described in at least one of the questions. So that all the structural issues which we -- which is currently there are addressed by us.

Now the market is dependent -- the market price as you probably will appreciate, is dependent on many other things. So the guidance that we can provide is on where we are taking the company. And we hope that things will look better than what it is today.

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Unidentified Participant, [67]

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Okay. I would like to compliment on your report part, reporting part. The presentation is excellent. I mean compared to last time.

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Vinod Kumar Padmanabhan, Subex Limited - MD, CEO & Director [68]

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Thank you.

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Unidentified Participant, [69]

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And second, I would like to compliment the key share price part, basically. I mean it has shown a remarkable resistance in the falling markets also, for 1,600 points. So I think again take strength from that. Okay.

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Vinod Kumar Padmanabhan, Subex Limited - MD, CEO & Director [70]

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Thank you, thank you.

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Unidentified Participant, [71]

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That's what I would like to do.

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Vinod Kumar Padmanabhan, Subex Limited - MD, CEO & Director [72]

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Thank you, [Gobal].

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Operator [73]

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Our next question is from the line of Rukun Tarachandani from Kotak Asset Management.

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Rukun R. Tarachandani, Kotak Mahindra Asset Management Company Limited - Investment Professional [74]

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My question is on the remuneration policy, so the top management, so if the company has any such policy? I just wanted to understand on what metrics is top management evaluated? And based on which the ESOPs are awarded? Is it the revenue growth? Is it margins, profitability growth? So what are these metrics that the top management is evaluated on?

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Vinod Kumar Padmanabhan, Subex Limited - MD, CEO & Director [75]

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It's primarily the hard metrics, some of hard metrics. That is the growth, the profitability, and also how -- the new products contribution. So these are some of the key things.

Internally, if you look at how we are driving the business, there are 2 aspects. One is what we call as the financial metric, and the other is what we call as the power metrics. The financial metrics are revenue, order intake profitability and cash in, cash collections. And the other from the power metrics would be the customer satisfaction and new products that we are able to launch, contribution from new products and the Subexian satisfaction. These are the 4 parameters with respect to the power metrics. So this is what me along with the management team are driving towards. And we have specific goals that we have for both year and in long term, which we are driving towards.

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Rukun R. Tarachandani, Kotak Mahindra Asset Management Company Limited - Investment Professional [76]

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Can you give -- do you have a ballpark? I mean how much do these financial metrics matter in the overall scheme of things?

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Vinod Kumar Padmanabhan, Subex Limited - MD, CEO & Director [77]

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So the financial metrics is the main thing which matters. The power metrics is just for us to manage and -- manage the business. But the financial metrics is the one which matters.

And the ESOP allocation is based on -- currently, we want to ensure that around 30 to 40 key people of the organization who is driving this change is compensated, have got a stake in the growth of the company. And so that we can -- both from a talent retention and a talent acquisition, it is an important aspect for us, considering the fact that we are working in a space where there's products and also in a space which is very well-funded by many of the [regions] and in a location like Bangalore.

So I think the ESOPs, the scheme and the ESOP allocation is focused on the 30, 40 people. And every year, we are able to procure about 2% based on what is the guidelines that we have done last year and that was allocated to the top management primarily. And this year when we allocate, we will start and extend it to the next 25, 30 people.

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G. S. Venkatraman, Subex Limited - CFO [78]

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And Rukun, just to add, I think if you look at the senior management, a significant portion of the compensation is variable linked to these performance metrics that Vinod spoke about. So it really is anything between 25% to 50%. So there is a lot at stake for these -- on these key metrics to be met for the management to make the total compensation they are required to.

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Rukun R. Tarachandani, Kotak Mahindra Asset Management Company Limited - Investment Professional [79]

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Sure. Just one more question, I'm sorry if this has been answered on other calls. But what is the capital allocation policy? So you're generating roughly around INR 50-odd crores in operating cash flows and there's hardly any debt now. So what will be the capital allocation policies?

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G. S. Venkatraman, Subex Limited - CFO [80]

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I think -- if you -- maybe you -- I don't know whether you attended the last call. We have called out very clearly that in this year and in the coming years as well, we will keep -- continue to make investments in the newer product areas which Vinod spoke about, in Horizon 2 and Horizon 3 areas. So a significant portion of the cash which is getting generated, we get to invest it back in the business. So we have called out in our March call that we are expecting to make at least $4 million worth of investment in these newer areas. And we have also said that that we will not pull back investment if we see a need to invest more so that we have -- we are making the right investments in these newer products, which will set us up for the growth in the coming years. So a large portion of the cash which will get generated may be required for investment in these areas.

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Operator [81]

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Thank you. Ladies and gentlemen, that was the last question. I now hand the floor back to the management for closing comments. Over to you, sir.

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G. V. Krishnakanth, Subex Limited - Company Secretary & Compliance Officer [82]

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Yes, just one point, I think one of the early questions, people in the call made comment about lack of response to the Investor Relations ID. I think you look at the investor deck we have uploaded, we also have our Investor Relations partner listed [and the] ID listed there. So you can also write to them, and they will be -- they will respond to queries if you don't get any responses to the Investor Relations ID. However, I also will look at what is happening to that ID, if there is some issue with the ID which that it's not reaching the right people, we will do that. But alternatively, you can also reach to our partners, and they will ensure that you have a response to your queries.

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Operator [83]

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Thank you very much. Ladies and gentlemen, on behalf of Subex Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.