Sify Technologies Limited (SIFY) Q3 2022 Earnings Call Transcript

Sify Technologies Limited (NASDAQ: SIFY) Q3 2022 earnings call dated Jan. 24, 2022

Corporate Participants:

Praveen Krishna — Investor Relations & Public Relations

Raju Vegesna — Chairman & Managing Director

Kamal Nath — Chief Executive Officer

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 Third Quarter and Fiscal Year 2021-2022. [Operator Instructions]

It is now my pleasure to turn the floor over to your host, Praveen Krishna. Sir, the floor is yours.

Praveen Krishna — Investor Relations & Public Relations

Thank you, Holly. Good morning. I’d like to extend a warm welcome to all our participants on behalf of Sify Technologies Limited. I’m joined on the call today by Mr. Raju Vegesna, Chairman; Mr. Kamal Nath, Chief Executive Officer; Mr. M.P. Vijay Kumar, Chief Financial Officer. 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 646-284-9400, 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 www.sifytechnologies.com/investors. 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 Sify corporate website.

Some of the financial measures referred to during this call and 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’d 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 protection afforded by the Private Securities Litigation Reform Act of 1995. These risks include a variety of factors, including competitive development 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 risks and uncertainties inherent to the company’s business.

I would now like to introduce Mr. Raju Vegesna, Chairman of Sify Technologies. Chairman?

Raju Vegesna — Chairman & Managing Director

Thank you, Praveen. Good morning. Thank you for joining all of you. Given the proactive government through the pandemic, India is better placed through the third phase that we’re currently experiencing. Digital IT infrastructure across the country has been scaled up aggressively since the network and the data centers are declared essential services. Indian businesses are now convinced all the importance of the business processes continuity, converged services of seamless business output.

Sify has led through the both as such of the services from a cloud-based local start-ups, cloud-borne — native cloud-borne start-ups local and growing hyperscaler investment in Indian IT infrastructure. As — Sify’s digital at the core, as planned, we are seeing as the right time for Sify to scale up to capture all these opportunities.

Let me bring in Kamal Nath, our CEO, to expand on some of the business highlights for the past quarter. Kamal?

Kamal Nath — Chief Executive Officer

Yeah. Thank you, Raju. Enterprises looking for cloud-based digital transformation services see our digital-first bouquet of services as a natural treatment for the revolving business demands. We are seeing an upswing in demand for our Cloud@core services as the right delivery model for these demands. Our successful delivery for hyperscalers is a strong endorsement of our agility and capability on the data center front and increases the attractiveness of our data centers to our enterprise clients. With the market learning to work around the pandemic, these demands should continue.

As with previous quarters, I would like to expand on the business highlights and summarize our business performance. As part of our Corporate Venture Capital Initiative, Sify has further invested during the quarter US$100,000 in the earlier announced start-ups in the Silicon Valley area. Sify committed to a capital outlay of INR9,900 million towards fresh capacity building for data center expansion in the Navi Mumbai region. This is in addition to the capital outlay of INR1,200 million for expansion of DC capacity in the same region.

Sify Technologies has been recognized as a niche player in the 2021 Gartner Magic Quadrant for Managed Network Services. The recognition is for completeness of vision and ability to execute leading to superior quality of service. The business continues to grow the reach of the network. As of 31 December, 2021, Sify provides services via 769 fiber nodes and 1,893 wireless base stations across the country, a 6% and 11% increase respectively over the same quarter last year. As part of its Digital Experience Project, Sify completed full automation of service assurance, asset management and service provisioning across its network. This will accelerate the deployment of a streamlined customer experience in the coming quarters.

To summarize our business performance, revenue from Data Center Colocation Services grew by 44% over the same quarter last year. Revenue from Digital Services fell by 18% over the same quarter last year. And revenue from Network Centric Services grew by 8% over the same quarter last year. The revenue split between the businesses during the quarter was Data Center Colocation Services at 30%, Digital Services at 24% and Network Centric Services at 46%. 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 — Chief Financial Officer

Yeah. Thank you, Kamal. Good morning, everyone. Let me briefly sum up the financial performance for the third quarter of financial year 2021-2022.

Revenue was INR6,783 million, a growth of 8% over the same quarter last year. EBITDA was INR1,574 million, an increase of 22% over the same quarter last year. Profit before tax for the quarter was INR477 million, an increase of 19% over the same quarter last year. Profit after-tax was INR344 million, an increase of 36% over the same quarter last year. Capital expenditure during the quarter was INR2,887 million. The customer demand for digital infrastructure services continues to be encouraging. We will continue to expand on our data center and network capacity. Our fiscal discipline will continue right through our investment journey without impacting customer experience. Cash balance at the end of quarter was INR2,381 million.

I will now hand over to our Chairman for his closing remarks.

Raju Vegesna — Chairman & Managing Director

Thank you, Vijay. India was already in the midst of the transformation of legacy systems through the adoption of automation. The pandemic only accelerated that process. In this process, some of our services matured through their adoption of enterprises. Several — while fueled by the enterprise demand, some are more had to be completely worn all. Now, the current Sify bouquet of services is well with the market demand.

Thank you for joining us on this call. I will now operator — now I’ll hand over to the operator for questions. Operator?

Questions and Answers:

Operator

[Operator Instructions] Your first question for today is coming from Greg Burns. Please announce your affiliation then pose your question.

Greg Burns — Sidoti & Company — Analyst

Good morning. Greg Burns with Sidoti and Company. I just wanted to ask about the — first about the Kotak investment. What was the rationale behind taking that investment in the contact center business? And what benefits do you see from their involvement? Thank you.

Vijay Kumar — Chief Financial Officer

Shall I?

Raju Vegesna — Chairman & Managing Director

Yeah. Vijay Kumar, please go ahead.

Vijay Kumar — Chief Financial Officer

Thanks, Greg. Kotak is the alternate investment fund, which is managed by one of the most established bankers in India, where the fund has LPs which includes sovereign wealth funds, which are among the best names who participate in data center investments across the globe. As you are aware, Sify has a very active business presence in the data center services. And we have been continuously investing and expanding our data center capacity considering the highly encouraging demand for Data Center Colocation Services. So this investment from Kotak is through a compulsorily convertible instrument where it is meant for financing or rather part financing some of our greenfield data center capacity expansion over the next three years. So that’s the background of the investment and the investment house.

Greg Burns — Sidoti & Company — Analyst

Okay. In terms of — I guess, does it accelerate your ability to invest? Does it give you greater flexibility? I’m just trying to understand a little bit better what advantages taking that outside capital has for you.

Kamal Nath — Chief Executive Officer

Yeah. So it actually does multiple things. One is, it helps us fast track our data center capacity expansion as we tend to raise about INR1,000 crores, which in terms of INR million is INR10,000 million, amount of capital which will be accessible to us for our expansion needs along with the debt financing which we can raise from the banking system approximately with the debt-to-equity ratio of 2:1, it helps us to create substantial capacity over the next three years. And lastly, participation by an established banker and the sovereign wealth funds who are globally respected LPs also validates our data center business model and our competencies in this business. So it places before capital for expansion and also gives us access to raise capital beyond what we have already contracted.

Greg Burns — Sidoti & Company — Analyst

Okay, great. I guess, then you mentioned also committing to INR9,900 million incremental investment in data centers, is that all part of this — like with the incremental capital you raised from Kotak or is that separate from that? Is that incremental and new or how should we read into that? And what’s the timeframe on kind of when you expect that investment to be made?

Kamal Nath — Chief Executive Officer

The numbers which have been communicated to the press release are for the data center projects where there is currently work in progress. Those will be financed by internal accruals and debt from the banking system. What we are raising from Kotak Special — Kotak Fund is for new greenfield projects, for which the projects will be taken up effective from March of this calendar year.

Greg Burns — Sidoti & Company — Analyst

Okay, okay. And then in terms of, I guess, your reclassified — the way you report your segments. Within Digital Services, could you just give us an idea of the growth or the different pieces? I’m assuming Cloud and Managed Services was continuing to grow. But can you just give me a little breakdown of that 18% decline?

Kamal Nath — Chief Executive Officer

Yeah. So as far as the Sify Digital Services are concerned, as you rightly observed, the Cloud and Managed Services continues to grow. Whereas in this particular quarter, our Technology Integration Services where we had couple of large projects to be executed, those projects execution is work in progress. And given the pandemic associated supply chain issues, those projects will get completed hopefully in this calendar quarter, in this quarter four. So the Cloud and Managed services grown during the quarter. And the other, particularly Technology Integration Services, there is a de-growth.

Greg Burns — Sidoti & Company — Analyst

Okay. I guess, since you brought it up in terms of the pandemic, I guess, what’s the status of the conditions in India? Like, are you constrained by like mandates or lockdowns anymore? Is business getting back — more back to normal there? And what’s your view, I guess, looking forward in terms of maybe some of the constraints on the business in terms of the pandemic?

Kamal Nath — Chief Executive Officer

It’s getting back to normal, except that with this Omicron, there are lockdowns specified in a few states for the weekend. Otherwise, the business continue to work as they’re almost limping back to normal, except that many organizations are still pursuing work from home as a model. From a business perspective, as far as Chairman observed in his opening remarks, the network and data center services demand continues to be high and growing. And on the digital transformation services, the customers are having extensive conversations. And these conversations we expect to get converted into tangible orders and revenue conversion in the foreseeable future.

Greg Burns — Sidoti & Company — Analyst

Okay, great. Thank you.

Kamal Nath — Chief Executive Officer

Thank you.

Operator

[Operator Instructions] There are no questions in queue at this time.

Raju Vegesna — Chairman & Managing Director

Thank you. We appreciate your time on this call. We look forward to interacting with you through the year. Thank you very much. Have a great day.

Kamal Nath — Chief Executive Officer

Thank you very much.

Operator

[Operator Closing Remarks]