Sify Technologies Limited
Q1 2022 Earnings Call Transcript

Published: 30 Jul 2021

[Operator:]

Good day, ladies and gentlemen and welcome to the Sify Technologies’ Financial Results for Fiscal Year 2021-2022. It is now my pleasure to turn the floor over to your host, Shiwei Yin. Sir, the floor is yours.

[Shiwei Yin:]

Thank you, Paul. I would like to extend a warm welcome to all of our participants on behalf of Sify Technologies Limited. I am joined on the call today by Raju Vegesna, Chairman; Kamal Nath, Chief Executive Officer; and M. P. Vijay Kumar, Chief Financial Officer of Sify Technologies. Following their comments on the results, there will be an opportunity for questions. If you do not have a copy of our press release, please let us know and we will have one sent to you. Alternatively, you may obtain a copy of the release at the Investor Information section of the company’s corporate website at www.sifycorp.com. A replay of today’s call maybe accessed by dialing on the numbers provided in the press release or by accessing the webcast in the Investor Information section of the Sify corporate website.

[Raju Vegesna:]

Thank you, Shiwei. Good morning, everyone. Thank you for joining on the call. As we learned from the first wave of the pandemic, I think India from the second wave, I think we are coming back and taking the challenging environment. India quickly bounced back from the second wave, with enterprises slowly returning to the offices business as the midsized company are becoming more active in the market for automation solutions. We see a major role in helping Indian enterprises to sustain their operations and become more resilient. This year, critical requirements like the national data policy and continued remote access will push the security to the top of the priority of the list of the enterprises. In addition, the data centers, interest of the data centers across the pan-India is accelerating. Let me introduce Kamal Nath, our CEO to expand some of the business highlights of the past quarter. Kamal?

[Kamal Nath:]

Yes, thank you, Raju. With industries and people steadily returning to physical workspaces, digitalization decisions are also being accelerated. The trends of the previous quarters continue to be relevant, resulting in sustained interest in our cloud at the core portfolio of services. Work from anywhere, migration to hosted data center and hybrid cloud platform, strengthening of disaster recovery plans to enable business continuity, application modernization, all these market trends are reflected in our current customer engagements. Data center colocation business is one of the fastest growing segments in India. It is led by hyperscale cloud providers, followed by enterprises and supporting telecommunication players. We expect this to drive our future growth, alongside cloud network and digital services business. In line with the precedent, I would like to expand on the business highlights and our growth drivers. Revenue from data center centric IT services grew 45% against the same quarter last year. Segment wise, revenue from data center services grew 38%, cloud and managed services grew 24%, applications integration services grew 153%, and technology integration services grew 200%. Revenue from network centric services grew by 3% over the same quarter last year. Segment wise, revenue from data center, data connectivity services grew 7%, while revenue from the voice business fell by 14%. Let me expand upon the road drivers. The pandemic has accelerated as the primary growth drivers in the market for cloud adoption led by digital initiatives and transformation. The trend is triggering movement of workloads, from on-premise data centers to hyper-scale public cloud, and hosted private cloud in varying degrees based on the digital objectives of the enterprises. This results in transformation of the traditional network architecture and transformation at the edge, which connects the end user. The needs for digital services like analytics, data lakes, IoT, etcetera are shifting the focus towards adoption of hybrid and public cloud versus private cloud. Collectively, all these trends are generating opportunities for full scale – a full scale cloud data center and network service providers with digital services skills. Let me summarize the category of customers who are signing up with Sify. Customers choosing Sify for migration of their on-premise data center to multi-cloud platforms like Cloudinfinit, Azure, AWS and Oracle. They also often entrust Sify with management and security. Customers choosing Sify as their data center hosting partner as they embrace hybrid cloud strategy, customers choosing Sify as their multi-service digital transformation partner, and customers choosing Sify as their network transformation and management partner as they migrate to cloud-ready networks. A detailed list of our key wins is recorded in our press release, now live on our website.

[Vijay Kumar:]

Thank you, Kamal. Good morning everyone. Let me briefly sum up the financial performance for the first quarter of financial year 2021-22. Revenue for the quarter was INR6451 million, a growth of 23% over the same quarter last year. EBITDA for the quarter was INR1454 million, an increase of 26% over the same quarter last year. Profit before tax for the quarter was INR440 million, an increase of 65% over the same quarter last year. Profit after tax for the quarter was INR329 million. Capital expenditure during the quarter was INR917 million. The operating performance has been stable. We continue to invest in expansion of our data centers, network connectivity and digital services. We will stay focused on cost efficiency and liquidity management. Given that the economic recovery is still regaining lost ground due to the pandemic, cash balance at the end of the quarter was INR3515 million. I will now hand over to our Chairman for his closing remarks. Chairman?

[Raju Vegesna:]

Thank you, Vijay. Large number of enterprises have realized that their current IT landscape is not equipped to handle such disruptions like this pandemic. This has translated to inquiries under relevant and cost effectiveness of our digital transformation services. As we continue to build vertical strength, we should be able to cater to wide cross section of business and offer appropriate outcome-based solutions. Thank you for joining on this call. Now, I will hand over to operators for questions. Operator?

[Operator:]

Thank you. We have a question coming from Greg Burns from Sidoti. Greg, your line is live.

[Greg Burns:]

Good morning. In terms of your plans for DC expansion, can you just remind us the number of DCs you currently operate, the amount of megawatt capacity you have and how much megawatt capacity you plan on adding this year and maybe the timing of that coming online? Thank you.

[Kamal Nath:]

Vijay, you can add – you want to address that, Vijay?

[Vijay Kumar:]

Yes, yes, yes, yes. We presently have 10 data centers spread across 6 cities with capacity, which is in operation of 72 megawatt of IT power. While it is forward-looking on the – for the current year, in our existing facilities, we will be adding an additional 10 megawatt of capacity, which will become operational. Apart from that, we are commencing work on two Greenfield data center projects, one of which will go live early calendar year 2022, or maybe a month earlier. And which will be a significant capacity, which will be available for service.

[Greg Burns:]

Great. Thanks. And then in terms of the growth of Application Integration services, can you just give us a little bit more color on the screen that was there like a specific, like return of testing a large test or something going on in the quarter? And is this what you are seeing this quarter sustainable?

[Kamal Nath:]

Yes. So, this specific result is because of a large email transformation project, which we have done with one of the largest public sector banks. So, you can treat this – this is an annuity contract spread over 3 years. So, yes, the similar revenue recognition you will see in the quarter one of next year. So, this is not this is not a quarter-by-quarter revenue growth for this specific client. But yes, this contract is amenity and for 3 years. This is the first year billing which we have done by virtue of implementation of the project.

[Greg Burns:]

Okay. So, I am sorry, just to understand, it gets billed on an annual basis. So, like…

[Kamal Nath:]

Yes, it gets billed on annual basis. Yes.

[Greg Burns:]

Okay, alright. And then in terms of the competitive landscape, obviously, a lot of investments happening in India now, has there been any change in the competitive landscape, in any parts of the business particularly in the data center or in the cloud services side of the business?

[Raju Vegesna:]

We see the value – we see the competition continuously, because as you see, a lot of people want to build the data centers. And I think, we are doing the similar kind of thing. And we have a customer base. And we have a proven – we are in the data center business for last 20 years. And we are delivering for hyper-scalars and we are delivering for Indian enterprise market. So, to give you an idea of what we are looking at is even though forward statement, we are thinking to build probably next 200 megawatts capacity in the next 4, 5 years and it is very competitive. We were continuously top three or top two data center provider in India.

[Greg Burns:]

What differentiates Sify like why would a hyper-scalar or an enterprise choose Sify over maybe some other service provider in the market?

[Raju Vegesna:]

So that – so, yes, so because we are in the business for a long time and we deliver for hyper-scalars and we will continue that relationship. And that’s what it makes the difference. So, our delivery capability and proven in the market and then also we deliver the Indian cost effectiveness data centers. So, we are always to be in the competition in the market. And we have a proven record to deliver to the hyper-scalars.

[Greg Burns:]

Okay. And lastly, cash was down a little bit sequentially, what was the primary driver of that, is that like a working capital issue?

[Vijay Kumar:]

Yes. Greg, it is essentially a working capital issue. You would recall that this quarter, April, May June, we had the second wave of pandemic and the consequent lockdown. So consequently, there have been a little bit of slowdown as far as the working capital is concerned. But equally importantly, we haven’t borrowed money for our capital expenditures. We have been using our existing cash for the capital expenditure. So, these are two reasons.

[Greg Burns:]

Okay, perfect. Thank you.

[Operator:]

Thank you once again. And there were no other questions from the lines at this time.

[Raju Vegesna:]

Okay. Thank you, everyone for joining us on the call. And we look forward to interacting with you through the year. Stay safe, stay healthy, have a good day. Thank you.

[Operator:]

Thank you. Ladies and gentlemen, this does conclude today’s conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.