Sify Technologies Limited
Q2 2022 Earnings Call Transcript

Published: 29 Oct 2021

[Operator:]

Good day, ladies and gentlemen and welcome to the Sify Technologies’ Financial Results for Second Quarter and Fiscal Year 2021-2022. At this time, all participants have been placed on a listen-only mode and the floor will be open for questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Praveen Krishna. Sir, the floor is yours.

[Praveen Krishna:]

Thank you, Holy. Good morning. 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 my Chairman, Raju Vegesna; my Chief Executive Officer, Mr. Kamal Nath; and my Chief Financial Officer, Mr. M. P. Vijay Kumar. Following our comments on the results, there will be an opportunity for questions. If you do not have a copy of our press release, please call Grayling Global at 646-824-9400 and we will have one sent to you. Alternatively, you may obtain a copy of the release at the Investor Information section on the company’s corporate website at sifytechnologies.com/investors. A replay of today’s call maybe accessed by dialing in on the numbers provided in the press release or by accessing the webcast in the Investor Information section of the Sify corporate website. Some of the financial measures referred to in this call and in the earnings release may include non-GAAP measures. Sify’s results for the year are according to the International Financial Reporting Standards or IFRS and will differ somewhat from the GAAP announcements made in previous years. A presentation of the most directly comparable financial measures calculated and presented in accordance with GAAP and a reconciliation of such non-GAAP measures and other differences between such non-GAAP measures and the most comparable financial measures calculated and presented in accordance with GAAP will be made available on Sify’s website. Before we continue, I would like to point out that certain statements contained in the earnings release and on this conference call are forward-looking statements rather than historical facts and are subject to risks and uncertainties that could cause actual results to differ materially from those described. With respect to such forward-looking statements, the company seeks protections afforded by the Private Securities Litigation Reform Act of 1995. These risks include a variety of factors, including competitive developments and risk factors listed from time-to-time in the company’s SEC reports and public releases. Those lists are intended to identify certain principal factors that could cause actual results to differ materially from those described in the forward-looking statements, but are not intended to represent a complete list of all the risks and uncertainties inherent in the company’s business. I would now like to introduce my Chairman Mr. Raju Vegesna. Chairman?

[Raju Vegesna:]

Thank you, Praveen. Good morning, and thank you for joining us on the call. As India is bouncing back from the second wave demonstrably, with the businesses reporting near pre-pandemic results with anything, this pandemic helped us to clearly establish what a proactive administration can achieve. Through the course of multiple lockdowns, the government set the pace by enabling critical IT infrastructure and following that up with the aggressive adoption of automation for the delivery of welfare services and other services. Similar initiatives have rapidly been adopted by small and medium enterprises, driving the demand for the services, our data centers and networks and IT services. That, combined with the geo-political changes, has made India increasingly and attractive to multinational companies and enterprises as the next destination for all the services. We expect these tailwinds to create new opportunities for Sify And let me bring our CEO, Kamal Nath to expand on some of the business highlights for the past quarter. Kamal?

[Kamal Nath:]

Thank you, Raju. As declared earlier the creation of the two subsidiaries Sify Infinit Spaces Limited and Sify Digital Services Limited under the parent, Sify Technologies Limited, was to ensure that we can focus our strategy and investments in line with the evolving market conditions. Our financial results endorse this decision. The decision was timed to the Enterprise world’s accelerating demand for Hyperscale Data Centers, cloud-based digital transformation services and application modernization, all central to our current services bouquet. With the return in market sentiment, we are seeing aggression in customers’ decision making in all forms of digitalization. Our Cloud@core portfolio of services sits perfectly with this new demand and is increasingly reflected in our current customer engagements. In line with the President, I would like to expand on the business summary. The business summary this quarter is presented separately for Network Services, Data Center Services and Digital Services, reflecting the separate subsidiaries that have been established to focus on each of these business lines. Revenue from Network Centric services grew by 7% over the same last quarter last year. Revenue from Data Center Services grew by 47% over the same quarter last year. Revenue from Digital Services comprising of Cloud and Managed Services, Applications and Technology Integration Services grew by 17% over the same quarter last year. The revenue split between the businesses was Network Centric Services, 42%, Data Center Services, 27% and Digital Services, 31%. Let me now expand upon the business highlights. As part of our Corporate Venture Capital initiative, we have cumulatively invested a little more than USD 3 million across four start-ups in the United States. During the quarter, Sify has also invested in procuring renewable energy for our Data Center in Mumbai to the tune of INR 225 million. Cumulatively, Sify has delivered 74 MW of Data Center capacity as on Sep 30, 2021. In the quarter, Sify completed the upgrade of its backbone network in the key cities of Hyderabad, Chennai, Bangalore, Mumbai, and Delhi. This 4X upgrade to the current capacity can now deliver high-density services for its Enterprise customers. In addition, Sify completed its Metro network deployment in Hyderabad, Pune, Jaipur, Ahmedabad, and Kolkata, adding to our metro networks in Mumbai, Chennai, Bangalore and Delhi. With this deployment, Sify can make available services to 100Gig on tap to available Enterprise customers. Sify continues to expand its network coverage and has increased wireless base station density by 23% to deliver high bandwidths to Enterprise customers. During the quarter, Sify signed a landing party agreement to land a new submarine cable at our Open Cable Landing Station in Versova, Mumbai. A detailed list of our key wins is recorded in our press release now live on our website. Let me bring in Vijay, our CFO to elaborate on the financial highlights for the past quarter. Vijay?

[Vijay Kumar:]

Thank you, Kamal. Good morning, everyone. Let me briefly present to you the financial performance for the second quarter of the financial year 2021-2022. Revenue was INR 6986 million, a growth of 18% over the same quarter last year. EBITDA was INR 1477 million, an increase of 24% over the same quarter last year. Profit before tax for the quarter was INR 461 million, an increase of 11% over the same quarter last year. Profit after tax was INR 356 million, an increase of 39% over the same quarter last year. Capital expenditure during the quarter was INR 1497 million. We continue to stay focused on expanding our Data Center footprint, along with our network reach and delivery capabilities in our digital services. Operating performance continues to be stable. While the economic recovery is a healthy, positive sign, we will continue to be vigilant on cost effectiveness, capital allocation and liquidity management. Cash balance at end of quarter was INR 2820 million. I will now hand over to our Chairman for his closing remarks. Chairman?

[Raju Vegesna:]

Thank you, Vijay. The creation of our subsidiaries was intended to enable sharper focus on the individual line of businesses allow them to pursue independent market strategies, while they will enable their individual strengths, collectively they will drive our focus to be the first choice of digital transformation partner for enterprises. We are encouraged by the adoption of our services by start-ups who use technology as their main differentiator, that coupled with the orders from the established enterprises are endorsing the strength of our services offering. Thank you joining us for this call and I will now hand to the operator for questions. Operator?

[Operator:]

Your first question for today is coming from Greg Burns. Please announce your affiliation, then pose your question.

[Greg Burns:]

Good morning. I am with Sidoti & Company. It sounds like things are recovering from the delta surge, the pandemic this quarter or maybe more recently. But I just wanted to kind of get a feel from you from what you are seeing from your customers. Are you seeing them willing to maybe engage in larger projects, starting to spend more, what is the demand picture look like for you? And are you seeing a buildup in your pipeline of opportunities. Thank you.

[Raju Vegesna:]

Yes. Greg, this is Raju. Yes, what is we are seeing, customers started engaging and they are looking at the opportunities as what we are seeing and while we are enhanced our platforms and our services, while the customers all doing in parallel and having starting the discussion and what we see is, there may be a major project this pandemic clearly will focus into the – how they want to face. I think what are the things we are building at the pipeline of services, we are – I cannot predict and forecast at this point, but we are engaged, let me say, we are engaged with some of the exciting projects where a lot of the integrated deals across our services.

[Greg Burns:]

Okay. And you’ve done a really good job, brought the pandemic, driving – managing costs and driving leverage. Now with the kind of market activity is picking up and demand picking up, do you expect to maybe start spending more to kind of drive that growth? What’s your view on spending levels going forward and operating leverage?

[Raju Vegesna:]

One, Greg, as you said, the demand is cellular so we are going to continuously investing in our datacenters and also network. What you see in that, we are expanding our networks to metro networks. So, both on the CapEx side, both on the building more datacenters and building more metro networks or even NLD network, we are going to continuously spending for infrastructure. Similarly, on our services side, as we are – the country is focusing on the digital transformation, we are also going to increase our plans for the digital services adoption, which is very good – great growth in India. So there, but it doesn’t need much more CapEx, but it needs a lot of skill development and hiring more people. So, both trends, both on the CapEx side spending for the datacenters and the network and similarly building our capabilities delivering digital services and part of the transformation, we are going to invest as the hope future is going to be bright and we are done with this pandemic. So, hoping that, I think, yes, we are going to be invest very aggressively.

[Greg Burns:]

Okay. Do you have a target for EBITDA margin? I know it’s been over 20%, but would you expect that maybe that down a little bit, given some of the investments you plan on making?

[Raju Vegesna:]

Currently, we don’t have this predictable what it is. But as we are investing, we are going to balance, right, the investment and the return on the investment, right?

[Greg Burns:]

Okay. And then, in terms of the datacenter capacity, I think you mentioned 74MW of capacity at the end of the September quarter, what’s the timeframe on bringing new capacity online? I think you had set a target for a 100MW or maybe you could remind us what your target is and the timeline on when that will be coming online?

[Raju Vegesna:]

And I don’t think we can predict what is the future, but we are going to continuously quarterly increasing the capacity what we showed this quarter. That is when we see the continuous growth. And there are certain things we already built. So then, we are going to deliver by demand by customer and certain things we are building it and those things will be coming online in the next 12 months or whatever it is. And there are certain things are in design. So we have a plan to deliver what we have in the still – in the what we built and then certain things we are building and certain things we are planning. So we see is, datacenters are growing a substantial amount in the next few years in all fronts – all fronts.

[Greg Burns:]

Okay. Great. Thank you very much.

[Operator:]

There are no more questions in queue.

[Raju Vegesna:]

Thank you. We appreciate your time on this call. We look forward to interacting with you through this year. Stay safe, stay healthy and 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.