Sify Technologies Ltd Q1 FY2021 Earnings Call

Good day, everyone, and welcome to the Sify Technologies Financial Results for the first quarter and fiscal year 2021/2022. It is now my pleasure to hand over to your host, Shiwei Yin. The floor is yours.

Thank you, Paul. I would like to extend a warm welcome to all of 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 their 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 the company's website at www.sifycorp.com. A replay of today's call may be accessed by dialing 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'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 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.

Thank you, Shiwei. Good morning, everyone. Thank you for joining the call. As we emerge from the first wave of the pandemic, India is recovering from the second wave, and enterprises are gradually returning to offices, with midsized companies becoming more active in the market for automation solutions. Sify played a major role in helping Indian enterprises sustain their operations and become more resilient. This year, critical requirements, like the national data policy and continued remote access, will elevate security to a top priority for enterprises. Additionally, interest in data centers is accelerating across the calendar year. Let me introduce Kamal Nath, our CEO, to expand on some of the business highlights of the past quarter. Kamal?

Yes. Thank you, Raju. With industries and people steadily returning to physical workspaces, digitalization decisions are also being accelerated. The trends of the previous quarters remain relevant, resulting in sustained interest in our Cloud@Core portfolio of services. Work from anywhere, migration to hosted data centers and hybrid cloud platforms, strengthening disaster recovery plans to enable business continuity, and application modernization are all market trends reflected in our current customer engagements. Data center colocation business is one of the fastest-growing segments in India, led by hyperscale cloud providers, followed by enterprises and supporting telecommunication players. We expect this to drive our future growth alongside our cloud network and digital services business. In line with this, I would like to expand on the business highlights and our growth drivers. Revenue from data center-centric IT services grew 45% compared to the same quarter last year. Segment-wise, revenue from Data Center Services grew 38%, Cloud and Managed Services grew 24%, Applications Integration Services grew 153%, and Technology Integration Services grew 20%. Revenue from network-centric services grew by 3% compared to the same quarter last year. Specifically, revenue from Data Connectivity Services grew 7%, while revenue from the Voice business declined by 14%. Let me elaborate on the growth drivers. The pandemic has accelerated the primary growth drivers in the market for cloud adoption, driven by digital initiatives and transformation. This trend is triggering the movement of workloads from on-premise data centers to hyperscale public cloud and hosted private cloud based on the digital objectives of enterprises. This results in the transformation of traditional network architecture and transformation at the edge, connecting the end user. The need for digital services like analytics, data lakes, and IoT is shifting the focus towards the adoption of hybrid and public cloud over private cloud. Collectively, these trends are generating opportunities for full-scale cloud, data center, and network service providers with digital services capabilities. Let me summarize the category of customers signing up with Sify: customers choosing Sify for migration of their on-premise data centers to multi-cloud platforms like Cloudinfinit, Azure, AWS and Oracle; customers choosing Sify for management and security; customers selecting Sify as their data center hosting partner as they embrace hybrid cloud strategy; customers choosing Sify as their multi-service digital transformation partner; and customers opting for Sify as their network transformation and management partner for migrating to cloud-ready networks. 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?

Thank you, Kamal. Good morning, everyone. Let me briefly summarize the financial performance for the first quarter of financial year 2021/'22. Revenue for the quarter was INR 6,451 million, a growth of 23% compared to the same quarter last year. EBITDA for the quarter was INR 1,454 million, an increase of 26% over the same quarter last year. Profit before tax for the quarter was INR 440 million, an increase of 65% over the same quarter last year. Profit after tax for the quarter was INR 329 million. Capital expenditure during the quarter was INR 917 million. The operating performance has been stable. We continue to invest in the expansion of our data centers, network connectivity, and digital services. We will stay focused on cost efficiency and liquidity management given that the economic recovery is still regaining lost ground due to the pandemic. Cash balance at the end of the quarter was INR 3,515 million. I will now hand over to our Chairman for his closing remarks. Chairman?

Thank you, Vijay. A large number of enterprises have realized that their current IT landscape is not equipped to handle disruptions like this pandemic. This realization has translated into inquiries about the relevance and cost-effectiveness of our digital transformation services. As we continue to build vertical strength, we should be able to cater to a wide cross-section of businesses and offer appropriate outcome-based solutions. Thank you for joining this call. Now I will hand over to the operator for questions. Operator?

And we have a question coming from Greg Burns from Sidoti.

In terms of your plans for DC expansion, can you just remind us of the number of DCs you currently operate, the amount of megawatt capacity you have, and how much megawatt capacity you plan on adding this year, and maybe the timing of that coming online?

Vijay, do you want to address that?

Yes. We currently have 10 data centers spread across 6 cities with an operational capacity of 72 megawatts of IT power. Looking forward, this year we will be adding an additional 10 megawatts of capacity in our existing facilities, which will become operational. Additionally, we are commencing work on 2 greenfield data center projects, one of which is expected to go live early calendar year 2022, or maybe a month earlier, and it will provide significant capacity for service.

Great. And then in terms of the growth of application services, can you provide a bit more color on what that entails? Is there a specific project occurring in the quarter? Is what you're seeing this quarter sustainable?

Yes. The specific result is due to a large email transformation project we have executed with one of the largest public sector banks. You can consider this as an annuity contract spread over 3 years. Therefore, you will see a similar revenue recognition in quarter 1 of next year. This won't be a quarter-by-quarter revenue growth for this specific client, but yes, this contract is an annuity lasting for 3 years. This is the first year billing resulting from the implementation of the project.

Okay. So just for clarification, it gets billed on an annual basis?

Yes, it gets billed on an annual basis.

Okay. And then regarding the competitive landscape, a lot of investments are happening in India now. Has there been any change in the competitive landscape in any parts of the business, particularly in data center or cloud services?

We see that competition is increasing continuously. As many are looking to build data centers, we are doing something similar. We have a robust customer base and have been in the data center business for the last 20 years, providing services for hyperscalers and the Indian enterprise market. To give you an insight into our strategic outlook, we plan to build approximately 200 megawatts of capacity in the next 4 to 5 years to remain competitive, and we aim to be one of the top 3 data center providers in India.

What differentiates Sify? Why would a hyperscaler or an enterprise choose Sify over other service providers in the market?

The differentiator is our long-standing presence in the business; we deliver for hyperscalers and maintain those relationships, which sets us apart. Our delivery capabilities are improving in the market, and we offer cost-effective data centers within India. We continue to stay competitive and have a proven record of delivering for hyperscalers.

Lastly, cash is down a little bit sequentially. What was the primary driver of that? Was it a working capital issue?

Yes, Greg, it primarily relates to working capital issues. You'd recall that this quarter, encompassing April, May, and June, we faced the second wave of the pandemic and its resulting lockdown, leading to a slight slowdown in working capital. Additionally, we haven't borrowed money for our capital expenditures; we've utilized existing cash for those expenses, which are the two main reasons for the decrease.

There were no other questions from the lines at this time.

Thank you, everyone, for joining us on the call. We look forward to interacting with you throughout the year. Stay safe, stay healthy. Have a good day. Thank you.

Thank you, ladies and gentlemen. This concludes today's conference call. You may disconnect your phone lines at this time, and have a wonderful day. Thank you for your participation.