Earnings Call Transcript - SIFY Q4 2023

Operator, Operator

Good morning, everyone, and welcome to Sify Technologies Financial Results for the Fourth Quarter and Fiscal Year 2023 to 2024. Please note, this conference is being recorded. I will now turn the conference over to your host, Praveen Krishna. Praveen, over to you.

Praveen Krishna, Host

Thank you, and good morning, Jenny. 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 my Chairman, Raju Vegesna, my Executive Director and Group CFO, Mr. M.P. Vijay Kumar, and my Chief Executive Officer, Mr. Kamal Nath. 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 Weber Shandwick at +1(212) 546-8260, 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 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 Standard 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 our 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 therefore, 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 turn the table over to Mr. Raju Vegesna, Chairman of Sify Technologies. Chairman?

Raju Vegesna, Chairman

Thank you, Praveen. Good morning, and thank you for joining us on the call. India's potential continues to attract the attention of international business leaders. Their confidence reflects positively on our business environment, attracting investment and fostering partnerships. I am committed to fostering this growth, ensuring that India continues to thrive on the world stage and Sify has a central role to play. Let me bring Kamal, our CEO, to expand on some of the business highlights for the past year. Kamal?

Kamal Nath, CEO

Yes. Thank you, Raju. As enterprises advance their digital transformation and digitalization goals, they are strategically realigning their digital architecture across applications, hybrid cloud, network security, and edge environments. Customer experience, business continuity, cybersecurity, application modernization, and artificial intelligence enablement are the pivotal catalysts driving industry calibration. Our robust infrastructure investments and comprehensive services portfolio are structured to precisely address customer objectives. Concurrently, we're maintaining proactive engagement with our clients, identifying their existing requirements, and customizing our offerings to align with their evolving needs. Let me now expand on the business highlights for the year. Revenue from Data Center Colocation Services for FY '23, '24 grew by 9% over last year. Revenues from Digital Services for FY '23, '24 decreased by 1% over last year. Revenue from network-centric services for FY '23, '24 grew by 10% over last year. The revenue split between the businesses for the year was: Data Center Colocation Services at 31%; Digital Services at 28%; Network Services at 41%. As of March 31, 2024, Sify provides services via 1,033 fiber nodes across the country, a 16% increase over the same quarter last year. As of March 31, 2024, Sify has deployed 7,835 contracted SD-WAN service points across the country. At the close of the financial year, Sify has invested a cumulative of USD 7.22 million in startups in the Silicon Valley area as part of our Corporate Venture Capital initiative. 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. Vijay Kumar, Executive Director and Group CFO

Yes. Thank you, Kamal. Good morning, everyone. Let me briefly present the financial performance for the financial year 2023-24. Revenue was INR 35,634 million, an increase of 7% over last year. EBITDA was INR 6,756 million, an increase of 7% over the last financial year. Profit before tax was INR 232 million, a decrease of 77% over the last year. Profit after tax was INR 49 million, a decrease of 93% over last year. Capital expenditure for the year was INR 12,377 million. Our three businesses have unlocked tailored growth avenues, attracted targeted investments, and fostered valuable partnerships. Our investment philosophy encompasses expanding data center presence to new locations for sustained growth, increasing capacity at existing facilities to meet the foreseeable demand, and fortifying our network infrastructure and cloud interconnectivity. Simultaneously, we're prioritizing the expansion of our people capabilities and competencies, equipping them with essential skills, tools, and processes to drive innovation and efficiency. All the while, we remain steadfast in our commitment to cost-effectiveness and fiscal prudence. Cash balance at the end of the year was INR 5,835 million. I will now hand over to our Chairman for his closing remarks. Chairman?

Raju Vegesna, Chairman

Thank you, everyone. As I outlined, India is continuously growing, and we are in the midst of this progress, and we are going to continue to grow.

Operator, Operator

Your first question is coming from Greg Burns of Sidoti & Company.

Greg Burns, Analyst

Can you just talk about the rationale behind the proposed rights offering versus maybe some other form of capital?

M. Vijay Kumar, Executive Director and Group CFO

So as far as the rights offering is concerned, the objective was to finance the expansion of our data centers and also to invest in our digital services business growth, considering that we also incidentally are in the 25th year of listing at NASDAQ. It was an opportunity to engage with all the existing shareholders to participate in the next phase of growth. And hence, the rights issue instead of raising any external capital.

Greg Burns, Analyst

Okay. What is your projected CapEx for this coming fiscal year?

M. Vijay Kumar, Executive Director and Group CFO

The projected CapEx will be similar to what we have done in the last two years. The last two years, we have done on average about INR 1,400 crores. We will have a similar run rate.

Greg Burns, Analyst

Okay. And then maybe you could talk about the road map of your data center road map a little bit. I know the Tower 5 in Mumbai came online. And I think there was a tower in Noida maybe that was coming online in April. Is that online currently? And what do you have in the road map for fiscal '25 and '26?

M. Vijay Kumar, Executive Director and Group CFO

Yes. For fiscal '25, there are two greenfield projects which will go live. One at Noida, which is in the National Capital Region, Delhi. Another in Chennai. These two facilities will go live. In the next fiscal, there will be additional capacity which will come up in Mumbai, and in another city, which we are at the early stages of finalizing our design and plans for the same.

Greg Burns, Analyst

Okay. Maybe could you quantify in terms of like added capacity, like what's your existing capacity now? And maybe what that, I guess, the road map that you just laid out adds?

M. Vijay Kumar, Executive Director and Group CFO

Yes. The existing capacity is about 120 megawatts of IT power capacity. The two new facilities which are going to go live this year will have a design capacity of 26 megawatts each. However, these capacities will be made operational in phases over the next two years.

Greg Burns, Analyst

Could you discuss the performance of Network Services this quarter? It was stronger than expected. Was there anything unusual about this quarter, or can we consider this growth rate a solid foundation for our future models?

M. Vijay Kumar, Executive Director and Group CFO

Yes. The network business performance has been fairly organic. Quarter 4 was relatively better. But importantly, we continued to expand on our network infrastructure. Similar to data center, we are committed to substantial investments for expanding our network infrastructure, given the fact that edge data centers will come into play in the country, and we will continue to invest there.

Greg Burns, Analyst

Okay. And then the Digital Services were down a little bit from a year ago. Was there anything in particular of note driving that or not?

M. Vijay Kumar, Executive Director and Group CFO

The outlook in the market is looking good. Our engagements with the customers are getting deeper. We are continuing to invest in building people's capability and we should start seeing results in the foreseeable future.

Greg Burns, Analyst

But within Digital Services, were cloud services up while technology integration services were down? What was the mix driving that 1% decline?

M. Vijay Kumar, Executive Director and Group CFO

Yes. The integration services, the projects are lower than in the past, but the cloud and network managed services continue to scale.

Greg Burns, Analyst

What is the status of the Data Privacy Law? Has it begun implementation, or are they still working on it?

M. Vijay Kumar, Executive Director and Group CFO

Sorry, I didn't get the questions. Data Privacy law, okay. As far as Data Privacy law is concerned, it's yet to become effective. The law has been pronounced, but the rules are yet to be issued. Most likely, after the new government is formed, we should see that law becoming effective.

Greg Burns, Analyst

Okay. And with that timeline in mind, are you seeing an increase in inbound activity or pipeline activity? Or have you seen any impact from that law on your business yet?

M. Vijay Kumar, Executive Director and Group CFO

No. I think India's data center growth and network growth is independent of the Data Privacy Law. I don't think localization per se is something that is driving demand. I think we have bigger drivers of demand in the form of AI and ML activities. Those are much bigger drivers. Apart from the digitalization programs of Indian enterprises, I think those are driving demand much stronger. I don't think regulatory support is going to make a huge difference.

Operator, Operator

I'm not seeing any further questions come in. I'll now hand it back to the management team for any closing comments.

Raju Vegesna, Chairman

Thank you. Thank you for joining us and continuously interacting with the rest of the year. Thank you.

Operator, Operator

Thank you very much... Thank you, everyone.

Raju Vegesna, Chairman

Thank you, Jenny.

Operator, Operator

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