Earnings Call Transcript - SIFY Q1 2023

Operator, Operator

Greetings. Welcome to the Sify Technologies Financial Results for First Quarter and Fiscal Year 2023 to 2024. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Please note, this conference is being recorded. I will now turn the conference over to your host Praveen Krishna. You may begin.

Praveen Krishna, Host

Thank you, Holly. I'd like to extend a warm welcome to all our participants on behalf of Sify Technologies Limited. I am joined on the call today by Mr. Raju Vegesna, Chairman; M. P. Vijay Kumar, Executive Director and Group CFO; and Kamal Nath, CEO. 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 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 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 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'd now like to introduce Mr. Raju Vegesna, Chairman of Sify Technologies Limited. Chairman?

Raju Vegesna, Chairman

All you know India is a growth story. This is an exciting time India is going through. We have to build our services and how do we make a stable destination, the availability of relevant resources tools and significant untapped demand for the Indian enterprises. The government has been consistent using IT as an enablement tool to implement social measures and this has contributed to a really mature IT ecosystem. Our next phase of growth will leverage this favorable environment by introducing innovative and cost-effective digital services for our customers. Let me now bring Kamal Nath, our CEO, to expand on some of our business highlights for the past quarter. Kamal?

Kamal Nath, CEO

Thank you, Raju. As enterprises are pursuing their digital transformation and digitalization objectives, they are also recalibrating their digital infrastructure across hybrid cloud, network, security, and edge infrastructures. This is a great opportunity for us to monetize our infrastructure, design for digital IT and transform the way digital infrastructures are managed through our digitalized services. We are topping that up by continuously building our core digital portfolio to support our customers' innovation journey. This portfolio places Sify in a unique position for holistic customer engagement across their digital life cycle, which we believe would augment our growth strategy. Let me now expand on the business highlights for the quarter. The revenue split between the businesses for the quarter was, data center colocation services at 32%, digital services at 28%, and network services at 40%. As of June 30, 2023, Sify provides services via 910 fiber nodes across the country, a 10% increase over the same quarter last year. The network connectivity service has now deployed 6541 SDWAN service points across the country. During the quarter, Sify invested US$193,000 in startups in the Silicon Valley area as part of our Corporate Venture Capital initiative. To date, the cumulative investment stands at US$5.57 million. 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, who will elaborate on the financial highlights for the quarter. Vijay?

M. P. Vijay Kumar, Executive Director and Group CFO

Thank you, Kamal. Good morning, everyone. Let me briefly discuss some of the financial performance for the first quarter of financial year 2023/2024. Revenue was INR8547 million, an increase of 11% for the same quarter last year. EBITDA was INR1,724 million, an increase of 13% over the same quarter last year. Profit before tax was INR149 million. And profit after tax was INR95 million, a decrease from the previous quarter. Capital expenditure during the quarter was INR1,436 million. Sify and Sify Infinit Spaces Limited, a wholly-owned subsidiary of Sify, which operates data center colocation business, have entered into an agreement with Kotak Data Center Fund on July 20, 2023, under which the fund will invest up to INR6,000 million, approximately US$73 million at today's exchange rate, in the form of compulsorily convertible debentures. Sify Infinit Spaces Limited will use the proceeds for the expansion of data centers including land acquisition for new data center capacity, investment in procuring an alternate source of power, and for repayment of debt. Fiscal discipline will remain the cornerstone of our growth strategy, as we scale investments into our data centers and networks. By judiciously allocating investments and resources, we will seamlessly expand our infrastructure in new resources and build competencies at scale. While we expect to see these investments impact profitability in the near term, this should enable us to aggressively pursue digital transformation engagements in the future. We will continue to prioritize resource optimization and sustainability. The cash balance at the end of the quarter was INR3,240 million. I will now hand over to our Chairman for his closing remarks.

Raju Vegesna, Chairman

Thank you, Vijay. At the beginning of this financial year, we enabled our ambition to become the digital bridge for enterprises who are either adopting or undergoing digital transformations. Our immediate milestone is to become the enabler of the choice of this transformation. And we are well on our way. Thank you for joining us on this call. I will now hand over to the operator. I know we are having a lot of disconnections; please reach out to our IR person for any questions. But I'm more than happy to answer any questions we have at this point.

Greg Burns, Analyst

Good morning. In terms of co-tax investment, what is their total investment now, including the first round of investment from a little over a year ago? I assume that's fully pulled now, but where do they currently stand regarding their investment in Sify Infinit Spaces? Additionally, what are the conversion rates on the nodes, specifically what percentage of equity does that convert into?

Praveen Krishna, Host

Holly, do you have M.P. Vijay Kumar?

Operator, Operator

It looks like the speaker line dropped again. Just one moment.

Praveen Krishna, Host

Holly, that's okay. My suggestion is that my CEO, Mr. Kamal Nath, can take this call. Kamal?

Kamal Nath, CEO

So, Praveen, Vijay needs to take this call. Vijay needs to take this call. So, he'll be available.

Greg Burns, Analyst

I have another question. Maybe it's better for all, but okay.

Kamal Nath, CEO

Go on, Greg.

Greg Burns, Analyst

You mentioned a new phase of growth and a shift toward focusing on digital services rather than just infrastructure. Can you clarify if this means increasing resources for the digital services you currently offer, or are you planning to introduce new services? I noticed you have something called Marketplace on your website, and I'm curious if that is part of this initiative. Could you elaborate on what you mean by digital services and how you envision them contributing to Sify's growth?

Kamal Nath, CEO

We can categorize our entire portfolio from a customer's perspective into three main areas. The first area includes the infrastructure for digital IT, which encompasses data centers, networks, cloud services, and more. The second area consists of what we refer to as digitalized services, which are designed to enhance the management of digital infrastructure to maximize efficiency when digital applications are utilized. Some of these services have been around before but have been upgraded with the incorporation of digital technologies such as AI and machine learning. As a result, many of our software offerings have seen improvements by leveraging these technologies. The third area, termed core digital services, involves various digital platforms. We have made investments in multiple innovative tech companies that utilize these platforms to provide digital services to our clients. This enables customers to develop digital business models or digitize their services based on those platforms. We will continue to expand our services around these core digital platforms, and I anticipate announcing more exciting partnerships in the near future. Our engagement with customers focuses on optimizing their core infrastructure and supporting them on their innovation journey. This approach allows us to connect with customers throughout the entire lifecycle of their digital transformation.

Greg Burns, Analyst

Okay. Great. And I don't know if this is one for Vijay or Nath. But can you just give us an update on your data center footprint? I think the last report was around 11 DCs and about 100 megawatts of power. What's the roadmap like for this year? How much capacity in fiscal 2024 are you bringing online? And what's the timing of that?

Kamal Nath, CEO

Yes, we are in fact, Vijay, are you there?

M. P. Vijay Kumar, Executive Director and Group CFO

Yeah, Kamal, I'm here. So, we have three greenfield projects which are currently under construction. One of them is expected to go live later this quarter. This particular capacity is designed for about 38 megawatts and will be occupied by the customer in a phased manner. The other two facilities, the civil construction will be completed in the fourth quarter of the fiscal year. Based on our customer engagements, we will create the initial IT capacity required for them.

Greg Burns, Analyst

Okay. So, among those three projects, how much added capacity will you have with the 38 megawatts coming online? Also, could you remind us of your long-term targets regarding data center investments? Additionally, does the new investment from Kotak enhance your investment and capacity goals?

M. P. Vijay Kumar, Executive Director and Group CFO

I lost a part of your question because I got disconnected. I guess you are referring to additional capacities to be created in the future based on the new capital, which is coming from Kotak.

Greg Burns, Analyst

Yes.

M. P. Vijay Kumar, Executive Director and Group CFO

Yeah. That is for new capacities, which we intend to create over the next 18 to 24 months, beyond the three greenfield projects which are currently under construction. We have completed our land acquisition. The design and planning work is underway.

Greg Burns, Analyst

That's fine. We can connect later and discuss this at another time.

M. P. Vijay Kumar, Executive Director and Group CFO

Yeah. Yeah.

Greg Burns, Analyst

All right. No problem.

M. P. Vijay Kumar, Executive Director and Group CFO

Okay. I'm back here. So, it's basically for new capacities beyond the current greenfield project. What we have done is financial closure ahead of new projects to be started.

Greg Burns, Analyst

Okay. Great. Thank you.

M. P. Vijay Kumar, Executive Director and Group CFO

Thank you.

Operator, Operator

Operator Instructions. There appear to be no further questions in queue. I would like to turn the call over to the management for closing remarks.

Raju Vegesna, Chairman

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

Operator, Operator

Thank you. This concludes today's conference. You may disconnect your lines at this time.

Praveen Krishna, Host

Thank you. Holly, if you don't mind. To everybody on the call, we're sorry about the interruptions that have been frequently happening. But if you have any further questions, you can reach out to me as marked in the press release. My email ID and my coordinates are there. Thank you very much, Holly.

Operator, Operator

Thank you. This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.