Sify Technologies Limited (SIFY) Q4 2022 Earnings Call Transcript

Sify Technologies Limited (NASDAQ:SIFY) Q4 2022 Earnings Call dated Apr. 24, 2023.

Corporate Participants:

Praveen Krishna — Investor Relations & Public Relations

Raju Vegesna — Chairman & Managing Director

Kamal Nath — Chief Executive Officer

M.P. Vijay Kumar — Executive Director & Group Chief Financial Officer

Analysts:

Greg Burns — Sidoti & Company — Analyst

Presentation:

Operator

Greetings, and welcome to the Sify Technologies Financial Results for the Fiscal Year 2022 to 2023. [Operator Instructions] Please note, this conference is being recorded.

I will now turn the conference over to your host, Mr. Praveen Krishna. You may begin.

Praveen Krishna — Investor Relations & Public Relations

Thank you, Ali. 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. M. P. Vijay Kumar, Executive Director and Group CFO; and Mr. Kamal Nath, Chief Executive 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’ll 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/investor. 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’s 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. The 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 that 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 risks and uncertainties inherent to the company’s business.

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

Raju Vegesna — Chairman & Managing Director

Thank you, Praveen. Good morning, everyone. Thank you for joining us on the call. The digital tsunami that swept India during the COVID has settled into a steady adoption by both public and private enterprises. Enterprises are eager to unlock the power of digital automation measures to transition to the next phase of their growth. Sify is in the right place building all the infrastructure services be it in network, data centers and digital services, providing as a digital bridge for any enterprise to transform to meet — to realize their digital ambitions.

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

Kamal Nath — Chief Executive Officer

Yeah. Thank you, Raju. FY 2023 has set the tone for a massive digitalization drive among all sections of enterprises, public sector and government customers. This puts Sify on the fast track to meet customer demands, which in turn offers potential for accelerated growth. There has never been a previous period of uniform accelerated growth opportunities for each of our three service lines, like Data Center Infrastructure Services, Network Infrastructure Services and Digital Services. The unique opportunity for Sify in the coming years is our ability to deliver transformational outcomes using a combination of these three services.

Let me now expand on the business highlights for the year. Revenue from Data Center Colocation Services for the year grew by 35% over last year. Revenue from Digital Services for the year grew by 33% over the last year. Revenue from Network-Centric Services for the year grew by 11% over last year. The revenue split between the businesses for the year was: Data Center Colocation Services at 30%; Digital Services at 30%; and Network-Centric Services at 40%.

Through the years, Sify has invested $2.09 million in start-ups in Silicon Valley area as part of our Corporate Venture Capital initiative. To date, the cumulative investment stands at $5.38 million. As on March 31, 2023 — ’22-’23, Sify provides services via 892 fiber nodes across the country, a 9% increase over last year. A detailed list of our key wins is recorded in our press release, now live on our website.

Let me bring in Vijay, our Executive Director and Group CFO, to elaborate on the financial highlights for the year. Vijay?

M.P. Vijay Kumar — Executive Director & Group Chief Financial Officer

Thank you, Kamal. Good morning, everyone. Let me briefly sum up the financial performance for the financial year 2022-’23. Revenue was INR33,404 million, an increase of 24% over the last financial year. EBITDA was INR6,291 million, an increase of 4% over the last year. Profit before tax was INR1,021 million, a decrease of 45% over last year. Profit after tax was INR674 million, a decrease of 46% over last year. Capital expenditure for the year was INR13,221 million.

Our strategy to separate the business into three units is bearing fruit, with each business focused on its unique opportunities and attracting appropriate investments and partnership. Our investment philosophy is multipronged, invest in new locations for data centers for long-term growth, expand capacity at current data centers to capture immediate demand, strengthen our network and cloud interconnect, while expanding our people strength with the necessary skills, tools and processes, all of this while we stay cost-competitive and fiscally diligent. Cash balance as at the end of the year, 31st March, 2023 was INR4,579 million.

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

Raju Vegesna — Chairman & Managing Director

Thank you, Vijay. A large number of enterprises have transitioned from isolated digital overhauls to viewing their entire IT landscape in the context of transformation experiences. To achieve that, they will solicitate partners who can enable multi-services deployment at the cost-effective price points. Sify, we are building a digital bridge for these enterprises to meet their aspirations. That is, we are on the right track.

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, sir. [Operator Instructions] Our first question is coming from Greg Burns with Sidoti & Company. Please proceed with your question.

Greg Burns — Sidoti & Company — Analyst

Good morning. Could you please give us an update on your data center roadmap maybe for the coming 12 months in terms of when you see capacity coming online and maybe the timing of when we might see revenue start to flow from those investments?

Raju Vegesna — Chairman & Managing Director

Greg, we cannot disclose some of the forward-looking. But there are multiple places of our data centers coming next 12 months, starting from third and fourth quarter of this current calendar, and we will have substantial things coming into the market in all the segments. As you know, we are there already in the six markets in India: Mumbai, Chennai, Bangalore, Hyderabad, Kolkata, and NCR, the Delhi area. So the — there is substantial amount of the capacity is coming in all these cities across covering India in the market. So we see substantial — we are predicting substantial growth in the data center market for us.

Greg Burns — Sidoti & Company — Analyst

Okay. Maybe we can do it like this, like, how much megawatts of capacity do you currently have and kind of what’s the roadmap for adding incremental capacity, or maybe over the next 12 months or next three to five years?

Raju Vegesna — Chairman & Managing Director

So, as you know, we [Indecipherable] more than 100 megawatts IT power already in production and most of the thing already in usage. And we are building in the next 12 months, more than 124 megawatts campuses available in the next 12 months. And if you’re looking at next four to five years, we are in the roadmap building 400 to 500 megawatts capacity across the country.

Greg Burns — Sidoti & Company — Analyst

Okay. Okay. And then, maybe you could just talk about sources of funding. Obviously, it’s going to be a little bit of capex needed here. So could you just talk about your sources of funding for that investment?

M.P. Vijay Kumar — Executive Director & Group Chief Financial Officer

So Greg, Vijay Kumar here. As far as the current expansion projects which are underway, which we are adding in the next 12 months, the financial closure is already done, which comprises partly the compulsorily-convertible debentures, which we have issued to Kotak Special Situations Fund, partly from the banking system in terms of term loans, which have a average maturity of seven to eight years, and the remaining from our internal accruals.

As far as the capacities to be created beyond that, we have arrangement with Kotak Special Situations Fund for drawing down additional INR600 crores of capital. Along with our accruals, we are confident of raising needful debt for meeting the expansion beyond a period of 12 months as well.

Greg Burns — Sidoti & Company — Analyst

Okay, perfect. And then, in your Digital Services segment, very strong second half and this quarter, I think that revenue was up about 60%. So what is driving that, I guess, the stronger second half on the Digital Services?

Kamal Nath — Chief Executive Officer

So, Greg, Digital Services, like we discussed, lot of the Indian enterprises transforming into digital, right? So we are doing some of the major projects to transform these enterprises into the digital. So this is — these projects could be major, but these things, by project-by-project, we are transforming.

Greg Burns — Sidoti & Company — Analyst

Okay. So I guess, particularly on the technology integration services, very project-based. So how should we — what does the pipeline look like there? I know it can be lumpy, but how should we think about maybe Digital Services growth for this year?

Raju Vegesna — Chairman & Managing Director

Yeah. Digital Services, this year growth is more than we expected because of the COVID and all those things, some of the projects did not completed, but we completed some of those projects this year that’s the reason you see the growth. But I think like I stated that there’s lot of transformation is happening in India and you will see these kind of projects coming continuously. So we know normally we are going to win in the future, those kind of things. But in general, the digital transformation projects are happening and we are participating in those projects.

Greg Burns — Sidoti & Company — Analyst

Okay. And then just lastly, just generally, can you just talk about the state of the Indian economy, how that’s faring, how that might be impacting you in the near-term? And then, longer-term, I have seen a lot of headlines about foreign direct investment moving into India and on China, maybe moving out of areas like China and that might benefit India. So maybe if you could talk about kind of the near-term in terms of how the economy is looking and then, maybe the longer-term outlook also? Thank you.

Raju Vegesna — Chairman & Managing Director

Yeah. So for Indian economy point of view, we are a strong believer of Indian economy growth. It’s not just because I like it, that’s what I see in the customers when we meet. So most organizations spending for a digital transformation. And I’ve never seen a single company budget cuts on their digital transformation. So that way, it’s good. And in general, Indian economy, what we see, I cannot tell GDP numbers and all, which is beyond my skillsets. But the sentiment of India growth is very high.

So then the next question is how many investments from China is going to India and all, I don’t know those things. But I see lot of the foreign investments coming to India. And their belief also India growth. So we are seeing the multiple trends, India’s growth. Foreign investments are continuously growing. Indian enterprises continuously reaching more, and now India being the number one in population, I think we need more — all aspects infrastructure to everything, so digital transformation. So we are going to play a big role in India’s digital transformation. That way we see a lot of opportunities. As India grow, we have lot of opportunities. That’s what Sify, we believe in.

Greg Burns — Sidoti & Company — Analyst

Okay, perfect. Thank you.

Operator

Thank you. [Operator Instructions] Okay. It appears we have reached the end of our question-and-answer session. So I’ll hand it back over to management for any closing comments.

Raju Vegesna — Chairman & Managing Director

Thank you for your time on this call. We look forward to interacting with you throughout the year. Have a good day. Thank you.

Operator

[Operator Closing Remarks]