Sify Technologies Limited (SIFY) Q1 2021 Earnings Call Transcript

Sify Technologies Limited (NASDAQ: SIFY) Q1 2021 earnings call transcript dated July 28, 2020

 

Corporate Participants:

Shiwei Yin — Grayling Investor Relations

Raju Vegesna — Chairman and Managing Director

Kamal Nath — Chief Executive Officer

M P Vijay Kumar — Chief Financial Officer

Analysts:

Greg Burns — Sidoti & Company — Analyst

Presentation:

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, Mr. Shiwei Yin. Sir, the floor is yours.

Shiwei Yin — Grayling Investor Relations

Thank you, Jess. I would like to extend a warm welcome to all our participants on behalf of Sify Technologies Limited. I’m 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’ll 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 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 Sify corporate 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 we continue, I would 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 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 Mr. Raju Vegesna, Chairman of Sify Technologies Limited. Sir? Sir?

Operator

Raju, your line is open. Can you check your mute button, please?

Raju Vegesna — Chairman and Managing Director

Yeah. 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 is no longer an option. During this period, we have been benefited from our ongoing efforts to automate a majority of our network, data center, and service escalation processes. Our services, having stood the depth of this pandemic are now more relevant than ever in a rapidly evolving IT landscape. True to our customers’ business promise, I would like to assure our clients that we will continue to extend all our support in keeping them ahead. Let me now bring in Kamal, our CEO to expand on some of the business highlights for the past quarter. Kamal?

Kamal Nath — Chief Executive Officer

Yeah. Thank you, Raju. Over the last quarter, we, along with our customers, have learned to adapt to new modes of doing business. Our “Cloud@core” products and services are emerging as the most relevant to the altered ground realities. Previously cloud-hostile and cloud-skeptical customers have opened up conversations about cloud adoption to derisk their dependency on on-premise IT. Our cloud portfolio together with our cloud adjacent Data Centers are the perfect solution for customer 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 Application 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 rates. 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, 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 network.

A detailed list of our key wins is recorded in our press release and 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 — Chief Financial Officer

Yeah. 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 INR5259 Million, a decrease of 5% over the same quarter last year. EBITDA for the quarter was INR1153 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 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 plan 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 capabilities. Cash balance at the end of the quarter was INR3568 million. I will now hand over to our Chairman for his closing remarks. Chairman?

Raju Vegesna — Chairman and Managing Director

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 cost effective solutions. We are 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 will now hand over to the operator for questions. Operator?

Questions and Answers:

Operator

Thank you. [Operator Instructions] We’ll take our first question from Greg Burns at Sidoti & Company. Your line is open, sir.

Greg Burns — Sidoti & Company — Analyst

Good morning. So it looks like we’re seeing the acceleration in demand in your Data Center and Cloud and Managed Services, but is that — we’re not seeing that translate in the Technology Integration Services. So, but why is there this anomaly [Phonetic] where you are seeing this strong growth in certain parts of your Data Center Services, but maybe larger projects from transformational projects aren’t moving forward? Can you just talk about that 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 — Chief Executive Officer

Raju, can I answer this?

Raju Vegesna — Chairman and Managing Director

Yes, please. Yeah.

Kamal Nath — Chief Executive Officer

Yeah. So as all of us are aware, most of the Technology Integration Services business are where the customer spends the money 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, not only for us, but for all the relevant players in the market. And more customers will be adopting more of cloud models where they need not spend capex and they are going to have a variable model of IT consumption, which will be guided by their own business growth and IT consumption around their business growth. So this is a trend, which we have seen — which we have started seeing for the past few quarters. But the pandemic has only triggered that trend more now.

Greg Burns — Sidoti & Company — Analyst

Okay. So I guess so this is a longer term. This is not necessarily — maybe it’s been accelerated by the recent — what’s going on in the market with COVID, but this is a longer term trend you expect the business so transition more to the consumption Data Center managed services away from kind of the Technology Integration Services. That’s something outside of COVID that you expect to happen over time?

Raju Vegesna — Chairman and Managing Director

Yeah, I think, what is the thing is, before the system integrator, hardware gates and on-prem data centers used to be there, now it’s moving towards the cloud and on the co-lo data center space and now being a cloud, that Technology Integration is more of a system integration going down. That means you’re seeing more adoption of the cloud, either private, public or hybrid. We are 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 co-lo player. So the direction it’s going with the COVID is the direction we would like to see and it’s accelerating. And we are seeing the trends going towards that helping us. Whereas our traditional Technology Integration sales of the hardware is going down.

Greg Burns — Sidoti & Company — Analyst

Okay, perfect. And then in terms of the Network Services. Can you just talk about the dynamic there with 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 — Chairman and Managing Director

Yeah, I think that one, I think, temporarily reduced, but I think it will — over the time, I think that one will be come back and people keeps talking, right? And that one will come back but our traditional network business is intact. But this Voice is — we see as a — we believe that it could be a temporary slowdown.

Greg Burns — Sidoti & Company — Analyst

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

Raju Vegesna — Chairman and Managing Director

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

Greg Burns — Sidoti & Company — Analyst

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

M P Vijay Kumar — Chief Financial Officer

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

Greg Burns — Sidoti & Company — Analyst

$80 million U.S. dollars?

M P Vijay Kumar — Chief Financial Officer

Yeah. Yes, yes.

Greg Burns — Sidoti & Company — Analyst

Okay. Okay, and then it seems like your — you had a couple of big capex years the last two years, it seems to have slowed down a little bit this quarter. But what’s your outlook in terms of investment this year around your network and 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 — Chairman and Managing Director

I think we are 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 are doing the metro networks. So that way we will start spending to increase this opportunity to take our data center position and the network. So Vijay, you want to answer on the debt point of view?

M P Vijay Kumar — Chief Financial Officer

Yeah, yeah, yeah. So, as far as our debt balance is concerned, we currently have leveraging ability and as we keep getting our expansion plan executed, we will use a combination of accrual and some amount of leveraging to meet the capital expenditure. It’s likely to increase marginally as far as end of the year is concerned. But in a relatively longer term, we might try to use the leveraging ability effectively.

Greg Burns — Sidoti & Company — Analyst

Okay, great. I’ll hop back in the queue. Thanks.

Kamal Nath — Chief Executive Officer

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 — Chairman and Managing Director

Thank you everyone 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

[Operator Closing Remarks]