Sify Technologies Limited
Q1 2020 Earnings Call Transcript

Published: 28 Jul 2020

[Operator:]

Good day, ladies and gentlemen, and welcome to the Sify Technologies Financial Results for the First Quarter and Fiscal Year of 2021 and 2020 Conference Call. [Operator Instructions] At this time, it is my pleasure to turn the floor over to your host, Shiwei Yin. Sir, the floor is yours.

[Shiwei Yin:]

Thank you, Jess. I would like to extend a warm welcome to all 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 our 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 company’s corporate website at www.sifycorp.com. A replay of today’s call may be accessed by dialing in on the numbers provided in the press release or by accessing the webcast in the Investor Information section of the sifycorp website. Some of the financial measures referred to during 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 of the 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 I continue, I’d like to point out that certain statements contained in the earnings release and on this earnings 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 the protections afforded by the Private Securities Litigation Reform Act of 1995. These risks include a variety 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'd now like to introduce Mr. Raju Vegesna, Chairman of Sify Technologies Limited. Sir?

[Raju Vegesna:]

Thank you, Shiwei. Good morning and thank you for joining us on the call. As the world comes to terms with the new normal, it is becoming increasingly clear that investment in business continuity, highly automated processes no longer an option. During this period, we've benefited from our ongoing efforts to automate a majority of our network, data center and service escalation processes. Our services having stood the test of this pandemic, are now more relevant than ever in a rapidly evolving IT landscape. Due to our customer's business promise, I'd like to issue our client that we'll continue to extend all our support in keeping them ahead. Let me now bring Kamal out to you all to expand on some of the business highlights for the past quarter. Kamal?

[Kamal Nath:]

Thank you, Raju. Over the last quarter, we along with our customers have launched new modes of doing business. Our cloud at the core products and services are margin of the most relevant to the ground relatives [ph]. Previously cloud hostile and cloud sceptical customers have opened up conversations about cloud adoption to de-risk their dependency on on-premise IT. Our cloud portfolio, together with our cloud adjacent Data Centers are the perfect solution for customers looking for quicker adoption of Hybrid IT. 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 5% over the same quarter last year. Segment-wise, revenue from Data Center Services and Cloud and Managed Services grew 49% and 42% respectively, while revenue from Applications Integration Services and Technology Integration Services fell by 16% and 42% respectively. Revenue from Network Centric Services fell by 12% over the same quarter last year. Segment-wise, revenue from Data Connectivity Services grew 1%, while revenue from the Voice business fell by 42%. Let me now expand upon the growth drivers. The pandemic has accelerated the primary growth drivers in the market for cloud adoption, led by digital initiatives. This trend is triggering movement of workloads from on-premise Data Centers to hyperscale Public Cloud and hosted Private Cloud in varied degrees, based on the digital and cost objectives of the enterprise. Let me summarize the categories of customers who are signing up with Sify. To start with customers choosing Sify for migration on their on-premise data center to multi-cloud platforms like Cloudinfinit, AWS and Azure and Oracle. They also entrusted Sify with management and security. Customers choosing Sify as their Data Center Hosting partner as they embrace hybrid cloud. Customers choosing Sify as their Digital services 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 in 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?

[M P Vijay Kumar:]

Thank you, Kamal. Good morning, everyone. Let me briefly sum up the financial performance for the first quarter of financial year 2021. Revenue for the quarter was INR5,259 million, a decrease of 5% over the same quarter last year. EBITDA for the quarter was INR1,153 million, an increase of 32% over the same quarter last year. Profit before tax for the quarter was INR266 million, a decrease of 17% over the same quarter last year. However, the increase in profit before tax is 52% excluding the impact of interest income of INR146 million, which was recognized last year same quarter on a tax settlement recognized on receipt basis. Profit after tax for was INR172 million for the quarter, a decrease of 20% over the same quarter last year. As stated above for the same reason increase in profit after tax on a comparable basis is 45% excluding the post tax impact of interest income of INR146 million received in the first quarter of last year on a tax settlement which was recognized on receipt basis. Capital expenditure during the quarter was INR321 million. The operating profit performance has been good despite the challenges of the pandemic. We continue to stay focused on ensuring liquidity and fiscal discipline. We will as always continue to exercise caution on our capital expenditure plans and are making aggressive curbs on discretionary spending for the remainder of the year, while continuing to invest more on people, tools and our digital transformation capability. Cash balance at the end of the quarter was INR3,568 million. I will now hand over to our Chairman for this closing remarks. Chairman?

[Raju Vegesna:]

Thank you, Vijay. We view the current pandemic as an accelerator for our business model of digital transformation services. Companies are actively seeking us out for our cloud-based services that has time and again delivered customized process active solutions. We're now coming good as a solutions provider that can quickly expand capability across multiple landscapes. Our focus now is to consistently broaden the value that we deliver to our clients. Thank you for joining us on this call. I'll now hand over to the operator for questions. Operator?

[Operator:]

[Operator instructions] We'll take our first question from Greg Burns at Sidoti and Company. Your line is open Sir.

[Greg Burns:]

Good morning. So it looks like we're seeing the acceleration in demand in your data center and cloud-managed services, but we're not seeing that translate in the Technology Integration Services so -- but why do this time where you're seeing the strong growth in certain parts of your data center services, but maybe larger projects from transformation projects aren’t moving forward. Can you just talk about and in general what you're seeing with your customers in terms of conversations in the Technology Integration Services and the length of sales cycles there?

[Kamal Nath:]

Raju, you can answer please?

[Raju Vegesna:]

So as all of us are aware, most of the technology driven services business are when the customer spends upfront and with this current situation going on across the globe and definitely also in the Indian market, we expect this business to go down now only for us but for all the relevant player of the market and more customers will be adopting more cloud models where they need not spend CapEx and they're going to have a valuable model of IT consumption, which will be guided by their own business growth and IT consumption around the business growth. So this is a trend which is you're seeing, which you’ve started seeing for the past few quarters but the pandemic has only triggered that trend more now.

[Greg Burns:]

Okay. So I guess the still longer term, this is not necessarily maybe it's been accelerated but the recent, what's going on in the market COVID, but this is a longer-term trend you expected the business to transition more to the assumption data center services away from kind of the Technology Integration Services. That's something outside of COVID that you expect to happen over time?

[Raju Vegesna:]

I think what is the thing is before the system integrator hardware and on service data center used to the there, now it's moving towards the cloud and the data center space and now being the cloud that technology integration is more of a system integration going down. That means you see more adoption of the cloud either private, public and hybrid, we're seeing all the three fronts, especially hybrid is very important because nobody in the world just goes to public cloud. It is hybrid. So that is the way we position, we service, we have our own cloud platform and then also we service the public clouds and also we are one of the data center colo player. So the direction is going with the COVID is the direction we would like to see and is accelerating and we're seeing the trends going towards that helping us whereas our traditional technology integration sales of the hardware is going down.

[Greg Burns:]

Okay. Perfect and then in terms of the network services, can you just talk about the [indiscernible] sales, the voice, what was driving the significant decline in voice and do you expect that to stabilize or rebound at some point this year?

[Raju Vegesna:]

Yeah, I think that one, I think temporarily reduces, but I think it will over the time, I think that one will come back. People keep talking right and that one will come back, but our traditional network business is intact, but this voice is we believe that it could be temporary slowdown.

[Greg Burns:]

Okay. Is there a difference in the margin profile, the voice versus the data component of business?

[Raju Vegesna:]

Yes, we would like to sell the data. We are one of the biggest data network provider. Our interest to sell the more data than just the voice minutes..

[Greg Burns:]

Okay. All right. What was the debt balance at the end of the quarter?

[M P Vijay Kumar:]

The debt balance at the end of the quarter net of cash is $80 million.

[Greg Burns:]

$80 million US dollars?

[M P Vijay Kumar:]

Yes.

[Greg Burns:]

Okay. And then it seems like you have a couple big CapEx here so as two years since it slowed down a little bit this quarter this quarter, but what's your outlook in terms of investment this year around your network in data centers? Do you expect it to slow this year and then I guess do you expect your debt balance this year to decline?

[Raju Vegesna:]

I think we're going to invest both data centers and the network coming year and actually this is a great opportunity to expand our data center business and same thing we're doing the metro networks. So that way we will start spending to increase this opportunity to take our data center position in the network. So Vijay you want to answer on the debt point if it?

[M P Vijay Kumar:]

Yes, as far our debt balance is concerned, we currently have leveraging ability and as we keep getting our expansion plans executed, we'll use a combination of accruals and some amount of leveraging to meet the capital expenditure. It's likely to increase marginally as far as end of year is concerned, but in the relative longer term, we might try to use the leveraging ability effectively.

[Greg Burns:]

Okay. Great. I'll hop back in the queue. Thanks.

[Raju Vegesna:]

Thank you, Greg.

[Operator:]

[Operator instructions] And I currently have no other questions holding. At this time, I'll turn the conference back to management for any additional or closing comments.

[Raju Vegesna:]

Thank you, everyone joining 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:]

Ladies and gentlemen, that will conclude today's call. We thank you for your participation. You may disconnect at this time and have a great day.