SIFY Earnings Call Transcriptbeta

Operator: Good day, ladies and gentlemen, and welcome to the Sify Technologies Financial Results for Second Quarter and Fiscal Year 2020-2021. [Operator Instructions] At this time, it is my pleasure to turn the floor over to your host, Shiwei. Sir, the floor is yours.

Shiwei Yin: 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, Chairman; Kamal Nath, Chief Executive Officer; and M. P. Vijay Kumar, Chief Financial Officer of Sify. Following our comments on the results, there will be an opportunity for questions. [Audio Dip] 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 on the company’s corporate website at www.sifytechnologies.com. 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. [Audio Dip] referred to during this call and in the earnings release may include non-GAAP measures. Sify’s results are according to the International Financial Reporting Standards or IFRS. 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. [Audio Dip] 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. [Audio Dip] 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. [Audio Dip] 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. [Audio Dip] introduce Mr. Raju Vegesna, Chairman of Sify Technologies Limited. Sir?

Raju Vegesna: Thank you, Shiwei. Good morning, everyone. Thank you for joining us on the call. As the pandemic continues, Sify has shifted its focus from business continuity to business transformation. As our clients gain confidence in our ability to ensure their effective IT operations, they are increasingly turning to our digital services, seeking transformation capabilities to help them to further automate their operations in anticipation of the new normal. Our IT services infrastructure, network services, automation skillsets, and knowledge of evolving IT landscape has ticked the right boxes for the clients as they evolve their IT capabilities. The breadth of projects executed has helped Sify to mature its digital services and is establishing us as a digital transformation specialist with a full range of convergence capabilities. Now let me bring in Kamal Nath, our CEO, to expand on some of the business highlighted for the current – for the past quarter. Kamal?

Kamal Nath: Thank you, Raju. During the quarter, we have witnessed the urgency among clients to adopt IT infrastructure models, which would provide them the agility and flexibility to run their businesses remotely during crisis. Hybrid IT model built on hybrid cloud infrastructure is evolving as the way to go. Our cloud@core model of products and services are completely aligned to the trend and is finding wide acceptance with customers, who have realized the natural fitment of the model, not only for digital optimization, but also for digital transformation. In line with the precedent, I would like to expand on the business highlights and our growth drivers. Revenue from Data Center Centric IT Services grew 12% against the same quarter last year. Segment-wise, revenue from Data Center Services, Cloud and Managed Services and Technology Integration Services grew 36%, 9% and 22% respectively, while revenue from Applications Integration Services fell by 37%. Revenue from Network Centric Services fell by 8% over the same quarter last year. Segment-wise, again, revenue from Data Connectivity Services grew 3%, while revenue from the Voice business fell by 36%. Let me now expand upon the growth drivers. The pandemic has accelerated the primary growth drivers in the market for cloud adoption, led by digital initiatives and transformation. This trend is triggering movement of workloads from on-premise data centers to hyperscale public cloud and hosted private cloud in varied degrees based on the digital objectives of the enterprises. This results in the transformation of the traditional network architecture, and transformation at the edge which connects the end-user. The need for digital services like analytics, data lakes, IoT, et cetera, are shifting the balance to adoption of hyperscale public cloud versus private cloud. Collectively, these trends are generating opportunities for full-scale cloud, data center, and network service providers with digital services skills. Let me now summarize the categories of customers who are signing up with Sify. Customers choosing Sify for migration of their on-premise data center to multi-cloud platforms like Cloudinfinit, AWS, Azure and Oracle, they also entrusted Sify with management and security services; customers choosing 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 choosing Sify as their network transformation and management partner as they migrate 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?

Raju Vegesna: Vijay, are you on the mute? Vijay, are you on the mute?

Kamal Nath: Vijay?

M. P. Vijay Kumar: Yes. Thank you, Kamal. Good morning, everyone. Allow me to sum up the financial performance for the second quarter of financial year 2021. Revenue for the quarter was INR 5,899 million, a growth of 2% over the same quarter last year. EBITDA for the quarter was INR 1,189 million, an increase of 12% over the same quarter last year. Profit before tax for the quarter was INR 414 million, an increase of 48% over the same quarter last year. Profit after tax for the quarter was INR 257 million, an increase of 35% over the same quarter last year. Capital expenditure during the quarter was INR 797 million. Our people commitment and business continuity process have ensured that operating performance continued to remain steady throughout this period of pandemic impacted operating environment. We will be conservative in our operating spend, while we increase our capital expenditure to support the anticipated demand for our data center and network infrastructure. Cash balance at end of the quarter was INR 4,242 million. I will now hand over to our Chairman for his closing remarks.

Raju Vegesna: Thank you, Vijay. As I remarked at last quarter, the pandemic has pushed us and our clients to explore digital transformation service as a solution to bring the demand up in automated IT landscape. And the only converged ICT solution player in the market, we are best placed to deliver these solutions at the most appropriated costs and within the contracted time. And now that translates into great value for our clients. Thank you for joining on this call. I will now hand over to the operator for questions. Operator?

Operator: Thank you. [Operator Instructions] And our first question comes from Greg Burns with Sidoti and Company. Go ahead, Greg.

Greg Burns: Good morning. So you just mentioned about the pandemic accelerating or pushing the digital transformation of businesses. I think you’d also mentioned during the prepared remarks about how the companies are really focused on continuity rather than transformation, I guess, probably at the onset of the pandemic. But have you seen any change in the market? Are companies starting to move forward with projects? If you could just talk about the demand environment and if you’re seeing any improvement there in terms of maybe an acceleration of these digital transformation services? Thank you.

Raju Vegesna: Kamal, do you want to take it?

Kamal Nath: Yes, sure. Thank you, Raju. So yes, definitely in the last quarter we have seen as the businesses are coming back. The customers are getting prepared to build agile IT infrastructure, which can help them not only in a normal time, but also during pandemic kinds of situations. So this is one. The second part is, the customers are also looking at – in the digital transformation, if you can divide into two-part digital optimization and the real digital transformation. The customers are also optimizing their digital IT assets, which is a very significant trend which we are able to see. The other trend, of course, once they do the digital optimization, they will go for digital transformation. Some customers who are already at a significantly higher part of the cup, they are going for digital transformation, particularly the manufacturing organizations who got badly hit during the pandemic. The other trend, what we are seeing, a significant number of customers used to be in their on-premise data center, which they face huge problem in managing their data center operations. So, which is a good news for us because the customers – those sectors, which are typically on-premise, they are also now actively talking to move to – and evaluating rather move to a hosted cloud environment.

Greg Burns: Okay. So would you – I guess maybe how would you characterize your pipeline? Do you see a growing pipeline of opportunity for the company?

Kamal Nath: Absolutely. So the pipeline is significantly increasing in the data center hosting space, the cloud space and very interestingly in the hybrid nowadays, because every time a customer intends to move from their data center, it’s an opportunity for them also to not to just shift from one data center to the other data center, but also they look at their entire IT architecture. So partly the customer – most of the customers are deciding for partly hosted environment and partly cloud environment. So as you can read all across, like the hybrid cloud model is getting adopted and that is the way to go. So our investments, our pipeline all are in the right direction as far as this trend is concerned.

Raju Vegesna: So Greg to answer your question, one other thing is having data centers and network and a cloud, as an ICT player, we see one of the great opportunities with uniqueness. I mean, these three together, that provides in this transformation, we have the unique opportunity – we have the unique beneficiary of this integrated plan ICT, and that is very beneficial going forward.

Greg Burns: Yes. Okay. All right. I just want to also touch on some of the specific business units. So the technology integration services, the growth there was a little bit better than we were expecting. Can you just talk about that business? What was driving that is our project activity picking up there and maybe what’s the outlook for the remainder of the year for that part of the business?

Kamal Nath: Yes. So this is also related to what I mentioned that the customers, because the technology integration services is about creating a custom build infrastructure for clients. So when the customers are moving from one data center to the other data center, or more from an on-premise environment to the hybrid environment, there is always a part of the infrastructure, which would be, it does by your Technology Integration Services business. So as our Chairman was mentioning, so when fast projects are undertaken, it increases the funnel as well as business for our data center business, our network business, our cloud business, as well as our Technology Integration Services business. So that is the synergy with each of the businesses lines are able to see because of hybrid cloud adoption.

Greg Burns: Okay. I guess – so, I mean, this part of the business was underperforming over the last couple of quarters, but it was a pretty solid bounce back this quarter. What’s your outlook for the remainder of the year? Is the pipeline full? Do you have projects?

Kamal Nath: We have projects...

Raju Vegesna: Greg, we can’t discuss about the future, but as coming out of this pandemic, like Kamal outlined, as the project – as this transformation is happening, this overall integration and our technology integration where you integrate other provider services or products and solutions with our network services, our security services and our data center services, we did a good plan into the digital transformation. The technology integration plays a big role in the digital transformation projects.

Greg Burns: Okay. And the Application Integration Services, the decline there was that tied to a specific contract that maybe it wasn’t renewed, or was it specifically around testing, or could you just describe, what was driving the decline on that side of the business?

Raju Vegesna: Yes. Mainly – okay, go ahead, Kamal.

Kamal Nath: So one of the portfolio in the technology, sorry, in the Application Integration Services are our online tests, which of course has because of depending situation. And for most of the quarter partially lockdown, it has impacted. So but that used to be earlier a significant part of our revenue in that business. But since now that business has not grown in terms of revenue in the previous quarters. So that impact is predominantly because of this.

Greg Burns: Okay. So it wasn’t because of like a loss contract or anything, it’s just because the pandemics limiting testing.

Raju Vegesna: Yes, that’s correct.

Kamal Nath: Right, right. The online test, yes.

Greg Burns: Okay. All right. And maybe could you give us an update on your data center – your data centers in terms of how many currently have, what’s the utilization rate? Maybe what are the plans in terms of adding extra capacity?

Raju Vegesna: Vijay, you want to take on that. Vijay?

M. P. Vijay Kumar: Yes, sir. So as far as the data centers are concerned. We currently have 10 facilities which are pan India across six metropolitan cities. And these facilities are all largely contracted and revenue generating. The rest of it are either contracted and about to generate revenue, or we have small capacity left. As far as our extension is concerned, we are now having plans for adding capacities across four cities. And we will assume do the groundbreaking for two or four facilities. And once we do it, we will keep you communicated in the subsequent earnings release.

Greg Burns: Great, thanks. And what was the debt balance at the end of the quarter?

M. P. Vijay Kumar: Debt balance is about $70 million.

Greg Burns: $70 million, okay. And it looks like the interest expense went down a little bit in the quarter. Was there anything specifically driving that?

M. P. Vijay Kumar: Two reasons, one is the interest rates in India have generally softened and second is, we do have some interest credit, which we have got – what you see in the net finance expense. So if you see them interest credit for one of our tax refund, and as far as the interest on tax is concerned, given the uncertainty until it’s released – until it’s received. The accounting is as always done on receipt basis.

Greg Burns: Okay. Thank you very much.

M. P. Vijay Kumar: Thank you.

Operator: [Operator Instructions] And there appear to be no further questions at this time. I would now like to turn it back to management for any closing remarks.

Raju Vegesna: Thank you, everyone for joining on this call. We will look forward to interacting with you throughout the year. Please stay safe and healthy and have a good day. Thank you.

Operator: Thank you. This does conclude today’s conference. We thank you for your participation. You may disconnect your lines at this time and have a wonderful day.