Earnings Call Transcript - SIFY Q4 2021

Operator, Operator

Good day, everyone, and welcome to the Sify Technologies Financial Results for Fiscal Year 2021-2022 Conference Call. It is now my pleasure to turn the floor over to your host, Praveen Krishna. Praveen, you may proceed.

Praveen Krishna, Host

Thank you, Holly. I would like to extend a warm welcome to all our participants on behalf of Sify Technologies Limited. I'm joined on the call today by Raju Vegesna, our Chairman; Kamal Nath, Chief Executive Officer; and 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 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 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 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 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 reflect the complete list of all risks and uncertainties inherent to the company's business. I would now like to introduce you to my Chairman, Mr. Raju Vegesna. Chairman?

Raju Vegesna, Chairman

Thank you, Praveen. Good morning, everyone. Thank you for joining us on this call. I want to say that over the past few years, the hyperscaler cloud providers invested a significant amount in India, convinced about the growth of India regarding IT. Secondly, the government of India's initiative for digital transformation has turned India into a proving ground for the local start-up ecosystem, which is considered to be the third largest in the world. Over time, the pent-up demand from enterprises for automation post-pandemic has now stabilized into a long-term IT overall plan. They are now taking a comprehensive view of their overall IT architecture and aligning with the best suite of services for multi-services and multiyear contracts. Sify's position as a comprehensive ICT player and the integration of our service portfolio gives us an advantage for the emerging scenarios and the ability to cater to multiple services. Now I will ask our CEO, Mr. Kamal Nath, to present the detailed analysis of our accomplishments over the last year. Kamal, over to you.

Kamal Nath, CEO

Thank you, Raju. Enterprises across verticals are all actively pursuing digital initiatives, ranging from digitalization of existing processes, digital intelligence of customer preferences, enhancement of digital experience for their consumers, and the launch of new digital businesses. Towards that end, all enterprises are investing in upgrading and augmenting their current infrastructure to make it digital ready. Our cloud-ready data center and network infrastructures, along with related digital infrastructure services and core digital services, provide a great choice to our customers in enabling their initiatives and meeting their digital ambitions. Our growth story will continue to be built on these three strategic pillars, whether through asset-led or asset-independent engagement models with our customers. Let me now expand on the business highlights for the year 2021-2022. Revenue from data center colocation services for FY 2021-2022 grew by 35% over last year. Revenue from digital services for FY 2021-2022 fell by 1% over last year. Revenue from network-centric services for FY 2021-2022 grew by 7% over last year. The revenue split between the businesses for the year was: data center colocation services at 28%, digital services at 28%, and network-centric services at 44%. Throughout the year, Sify invested a total of USD 350,000 in startups in the Silicon Valley area as part of our corporate venture capital initiative. Sify commissioned a total of 11 megawatts of data center capacity across the country in the year. As of March 31, 2022, Sify provides services via 816 fiber nodes and more than 1,900 wireless base stations across the country, which is a 12% and 6% increase, respectively, 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 CFO, to elaborate on the financial highlights for the year. Vijay?

M. Vijay Kumar, CFO

Thank you, Kamal. Good morning, everyone. Let me briefly sum up the financial performance for the financial year 2021-2022. Revenue was INR 27,026 million, an increase of 11% over last year. EBITDA was INR 6,034 million, an increase of 19% over last year. Profit before tax was INR 1,846 million, an increase of 15% over last year. Profit after tax was INR 1,353 million, which was a decrease of 12% over last year. During the previous financial year, the company recognized deferred tax assets of INR 600 million based on the assessment of reasonable certainty of future taxable income in the individual entities of the group. Capital expenditure during the fiscal year that just ended was INR 7,144 million. The fiscal year 2021-2022 marked Sify's commitment to sustainable investing, starting with the data center business. The adoption of renewable energy for powering our data centers is proceeding along the stated timeline. Following the trifurcation of the businesses into separate legal entities, which are wholly owned subsidiaries of Sify Technologies Limited, they are now free to pursue partnerships for technology and capital to build operating effectiveness while leveraging the benefits of a unified sales and marketing team to execute the go-to-market strategy. Over the long term, it will help us build more operating effectiveness while retaining our identity as the only true converged ICT services player. We continue to make selective investments, particularly in people and tools to meet our customers' digital transformation demands. Our commitment to expand our data center footprint and network remains while staying disciplined on fiscal health. The cash balance at the end of the year was INR 4,591 million. I will now hand it over to our Chairman for his closing remarks. Chairman?

Raju Vegesna, Chairman

Thank you, Vijay Kumar. As I stated before, the government's initiative for the digital transformation of the country, along with our enterprise's demand for multi-services and multiyear contracts, positions us uniquely among ICT players. The integration of our services portfolio gives us an advantageous view of the emerging scenario and the ability to cater to this demand. Thank you for joining us on this call. Now I will hand over to the operator for questions. Operator?

Operator, Operator

Your first question for today is coming from Greg Burns. Please announce your affiliation.

Gregory Burns, Analyst

Greg Burns from Sidoti & Company. So I just wanted to start with this idea that your multitude of services, including your network and data center services, is an advantage for Sify in terms of capturing demand. Can you just talk maybe about an example of where you've had a customer that started with one service, how you've expanded there, or how that's been an advantage for you? And maybe contrast that to the competitors that you have in India, how you differentiate yourself through that multitude of services?

Raju Vegesna, Chairman

Kamal, can you address?

Kamal Nath, CEO

Yes. So there are quite a number of customers. One of the largest customers, which happens to be the largest bank in India and one of the largest global banks, the State Bank of India, we initially had network services with them. After that, they became our data center customer with nearly INR 650 lakhs-plus, and we are also managing their complete network services and network security managed services for them across all their branches, as well as data centers and branches globally. This is one example where three towers—network, data center, and services—have come together, as a large bank has partnered with Sify Technologies. We also have multiple other customers; for example, for the National Stock Exchange, we manage the network and provide them network infrastructure services, along with cloud and cloud managed services. Many insurance companies have partnered with us for their entire data center and cloud transformation as they moved away from the traditional system integration model to a cloud-based, digital-ready model. We have at least four to five such life insurance and general insurance companies partnered with us, apart from numerous manufacturing companies. To summarize, every network customer is an opportunity for Sify for data center and digital services opportunities. Every data center customer we start with presents an opportunity for us for network and digital services. Furthermore, there are also engagements where we initially began with digital services, providing complete operations outsourcing, but later, as the customer undergoes their cloud transformation journey, they subscribe to Sify's cloud services. Overall, the opportunities for us, irrespective of our initial contract with the customer, are extensive. I hope that answers your question.

Gregory Burns, Analyst

That does. And could you just discuss the competitive landscape? How differentiated is Sify in terms of the breadth of your services?

Kamal Nath, CEO

Yes. Our competition landscape is quite spread out. In the data center space, we compete with companies like NTT, STT, and CtrlS, among others. In the network space, we compete with the likes of Airtel, Tata Communications, and Jio. For cloud transformation, we compete with companies including Kyndryl, NTT, and Global MNCs like TCS, Wipro, and HCL. In the digital transformation space, we face competition from TCS, IBM, and numerous new age cloud services companies that are niche boutiques. Although these may not be household names yet, they are gaining strength in the market. Overall, we face diverse competition across multiple segments, but our cloud-centric offering, encompassing data center and network services that are cloud-aligned, as well as services built on this infrastructure, along with partnerships with leading hyperscale cloud providers, creates an appealing proposition for Sify. For customers, they do not need to approach multiple service providers or technology vendors to craft their complete digital ICT platform for themselves.

Gregory Burns, Analyst

Okay. Perfect. I don't think you talked about your data center capacity. How many megawatts do you currently have online and what are your plans for this coming fiscal year in terms of capacity additions?

Raju Vegesna, Chairman

Yes. Vijay, you might like to answer this?

M. Vijay Kumar, CFO

So we have close to 100 megawatts in operations, and we are building an additional 100 megawatts in the project stage.

Gregory Burns, Analyst

And that's over the next 12 to 18 months? Is there a timeframe for that—or is it multiple years? What's the timeframe?

M. Vijay Kumar, CFO

Yes, that is planned for the next 18 months.

Gregory Burns, Analyst

Okay. Okay. And then you mentioned your cash position. Where did the debt balance stand at the end of the year?

M. Vijay Kumar, CFO

As for the cash balance, we have about INR 4,500 million available in cash. Importantly, you are aware of our partnership with an alternate investment fund for further capital for expansion. We have completed financial closure for all our greenfield projects currently underway. We are well-capitalized to execute all our expansion projects.

Gregory Burns, Analyst

Okay. Did you—I might have missed it—but do you have the total debt or details on that at the end of the year?

M. Vijay Kumar, CFO

Regarding total debt, it stands at about INR 7,000 million. Additionally, the recent investment from the alternate investment fund, which is convertible into equity at a later date, is INR 2,000 million.

Operator, Operator

You have a follow-up question from Greg Burns.

Gregory Burns, Analyst

I just had one more question if there's no one else. Can you provide an update on the Indian economy? From your comments, it sounds like you're quite bullish, and it seems we've moved past the depths of the pandemic. Could you give us an update on the macro level in India?

Raju Vegesna, Chairman

During my travel in the last 6 to 7 weeks in India, I am very bullish. The steps the government is taking for growth are encouraging. Furthermore, enterprises are also very positive. These two factors energize the environment, and we believe there is great potential for us as an ICT player.

Operator, Operator

There are no further questions in queue. I would like to turn the floor back over to management for any closing comments.

Raju Vegesna, Chairman

Thank you for your time on this call. We look forward to interacting with you throughout the year. Stay safe, stay healthy, and have a good day. Thank you.

Operator, Operator

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