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Sify Technologies Limited (NASDAQ:SIFY)

F4Q2014 Earnings Conference Call

April 22, 2014 8:30 am ET

Executives

Chris Chu - IR

Raju Vegesna - Chairman

Kamal Nath - CEO

M. P. Vijay Kumar - CFO

Analysts

Vijay Krishna - Robinson Holdings

Operator

Greetings. And welcome to the Sify Technologies Fourth Quarter and Fiscal Year 2013 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. (Operator Instructions).

As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Chris Chu, Investor Relations for Sify Technologies. Thank you. You may begin.

Chris Chu

Thank you, Operator. 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 our comments on the results, there will be an opportunity for questions. If you don't have a copy of our press release, please call us 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 of the company's corporate website at www.sifycorp.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.

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 measure calculated and presented in accordance with GAAP and a reconciliation of such non-GAAP measures and on 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 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. Raju?

Raju Vegesna

Thank you, Chris. Good morning and thank you for joining on the call. We are making a steady progress toward our goals of higher level engagement with all our customers and improved financial performance. Last year after longstanding clients renewed their faith and contract with us, our new clients entrusted us with challenging new opportunities.

Our strong portfolio of services is fulfilling our customer demand for a reliable ICT partner and our knowledge based practices are finding favors among the clients looking for a disruptive technologies and lower their TCO. The next step is to package this knowledge and skills, take them to the customers across India to improve our managed services and also taking outside of India what other things are possible.

To reflect on the past year, I would now invite Kamal, our CEO, to expand on some of the businesses highlights. Kamal?

Kamal Nath

Yes. Thank you, Raju. In FY 13-14, we had an all round growth on revenue, fresh order bookings, and profitability in an otherwise challenging business environment. Our engagement flavor with both existing and new clients has undergone significant changes over the previous years in terms of increased percentage of services mix, average deal size and confirmed multi-year services contracts. Productivity for sales headcount has also seen significant improvement which has laid the foundation for further improvement in the coming years.

Last year we launched a host of infrastructure and application services to be delivered from our existing and new data centers, which would lead our Sify 3.0 services led growth in FY '14-'15.

Let me spend some time on the business highlights for the year. I will start with our telecom services business unit. Telecom business grew by 73% over previous year. Over the course of the year the business added more than 1,000 large and emerging enterprise for the various services.

Existing and new customers also consolidated their network with us leading to a considerable growth across BFSI, Utilities, and Small and Medium Business segment.

Sify has also received its TL9000 certification for its network operation center, network managed services capability, and its service provider infrastructure processes.

Coming to Data Center services, in the last quarter of this year we added fresh Data Center capacity with the launch of our Noida Data center and set a new benchmark for the competition. We won Data Center contracts from one of India's leading oldest English daily publication, a nationalized bank, an International connectivity major, a Healthcare institute, and a co-operative bank, apart from other customers.

As far as Cloud and Managed Services business unit is concerned, this business grew by 116% over previous year. The business added more than 80 new customers this year across various verticals. Major wins came from the BFSI segment with a co-operative bank availing our managed services at over 700 locations, and a contract with one of India's oldest Mercantile banks which includes private cloud at our Data Center.

We signed a major deal to migrate a prominent ERP reseller in the Middle East to our Cloudinfinit platform.

We have also launched Business continuity planning & Recovery as a Service with a major international BCP player. The business has also signed major Disaster Recovery as a Service deals with a large educational institution and a pharma major.

A partnership was signed with the world leading content delivery service provider to extend their services to all our clients. Our hosting services are now SAP certified and also find mention in one of the big four research agencies Magic quadrant for Asia and Middle East.

Applications Integration services business grew by 71% over last year and added more than 40 new customers. Talent Management and Forum business has grown by over 40%. We have also launched our SCM application Forum on Cloud platform.

eLearning business grew 35% over previous year and added 12 new customers over the year. This business also set up SAP practises as a separate line of business.

Technology Integrations services business grew by 89% over last year. 11 large and 25 emerging enterprise customers were signed up for the year. This business has won large orders from a State government department, two banking majors, Private Finance Institute, a defense establishment, and one of India's largest insurers, and a large FMCG company. The business has also signed up major partnerships with global leaders in Networking, Security, Servers, performance optimization and storage, technology OEMs, and video space to promote their solutions.

I'll now hand over to you Vijay, our CFO, to expand on the financial highlights of this year.

M. P. Vijay Kumar

Thank you, Kamal, and good morning everyone. I will now provide detailed financial results for the financial year 2013-2014.

Revenue for the year ended March 31, 2014, was INR 10463 million, an increase of 22% over previous year.

EBITDA for the year was INR 1620 million, as against INR 779 million for last year.

Net profit for the year was INR 373 million as against a net profit of INR 452 million for the previous year. However it is important to note that the net profit for the previous year included a one-time gain of INR 658 million from sale of stake in an associate company.

Capital expenditure for the year was INR 1051 million. Excluding the extraordinary one-time gain last year, I am happy to state that this is our first year of net profit since we began our enterprise transformation seven years ago. This reflects continued positive growth, coupled with strong cost management efforts and a selective investment approach.

The current incurred costs from ongoing projects, combined with the cautious economic environment heading into elections in India this year, has put pressure on our earnings in the current quarter, emphasizing the need to continue to manage our costs and investments carefully until we see definitive signs of a stronger economic outlook.

Our efforts this past year gives us good momentum going into our 2014-15 business plan. We are expecting to complete a large national Network and Systems Integration project early in the coming year. Also, with the opening of our new Data Center in Noida last quarter, and the scheduled opening of our latest Data Center in Mumbai in this coming quarter, we will now have sufficient capacity to support our IT Services and Cloud growth initiatives.

Cash balance at the end of the year was INR 1328 million, excluding undrawn lines of credit.

I will now hand you over to our Chairman for his closing remarks. Chairman?

Raju Vegesna

Thank you, Vijay. Most of clients are exploring are consolidating their services with service providers who can provide more than one service. It pushes us to carefully exam our cost structure and our portfolio to ensure that it is well aligned to the client requirement.

We are also hopeful of the economic environment reviving within India. Sify's investments in both hard assets and strong skill asset sets and our learning's over the past year will serve us (inaudible) and as many in fact anticipate. There is a more certain and stable economic environment in the coming years.

Thank you for joining us on the call. I will now hand over to the operator for questions. Operator?

Question-and-Answer Session

Operator

Thank you. We will now be conducting a question-and-answer session. (Operator Instructions).

Our first question today is coming from Vijay Krishna from Robinson Holdings. Please proceed with your question.

Vijay Krishna - Robinson Holdings

First of all, hearty congratulations to each one of you for posting a good 22% growth on your revenues. In deed, it's an achievement for Sify in the tough market condition or the competitors market which is going on in India presently. Congratulations to the entire management on this. I have three questions to the management. The first question is, how Sify's 3.0 is going on, how is that working to contribute to this impressive growth?

Raju Vegesna

Kamal, you want to?

Kamal Nath

Yes.

Raju Vegesna

Yes, go ahead.

Kamal Nath

Thanks for the question; in fact it's a very, very relevant question for us. If you really see as I have mentioned in my section that our average deal size has significantly gone up. We are signing multi-year contracts and these are mostly integrated contracts, most of the multi-year contracts. These are only because that our various lines of businesses are getting integrated at the customer layer, which is a significant shift in the way we've been doing business earlier. And the services component in each of the contracts which we're signing has also gone up, which is nothing but our Sify 3.0 strategy.

We've made some progress this year but yes we've also laid the foundation for FY '14-'15. As I mentioned in my section that most of application and infrastructure services will get delivered from our new and existing datacenters, which is going to lead our Sify 3.0 oriented growth. So does it answer you?

Vijay Krishna - Robinson Holdings

Yes, so thank you for that, Mr. Kamal. I think this is the core strategy centric to your growth, that's what I understand. Okay. My second question how is the DOP project going on? We understand that there is a large project that Sify picked up from Department of Posts, India. How is this project going on?

Kamal Nath

So we will be completing this project in this quarter. So in fact, as you know it is the largest managed MPLS VPN network in the world. That's what the very size of rolling out a network in India with around 30,000 locations. So this will get implemented this quarter. So there were challenges but we have overcome those timeline challenges and I mean we will be probably, will hand over the network to the application providers to run their applications this quarter.

Raju Vegesna

We're making great progress on that. We've completed more than close to 21,000 post offices connecting. So as we're progressing we don't need to wait for until the whole thing is complete. As we're making the progress, we're handle the applications providers started running. So we're making great progress. I think, like Kamal mentioned, this quarter we should be closing most of that opportunity providing the network.

Vijay Krishna - Robinson Holdings

Very nice. That is a prestigious implementation in India. My third question last question but not the least, this is from an international market happening (inaudible) the ICT industry, Sify being well positioned for embracing the ICT convergence. Now the international market is really doing well especially Europe and U.S. there is an upsurge after the slowdown. So in this time, Europe, U.S. and other international markets are doing well they're seeing a upswing. So why Sify is not going in this direction, do you have any plans? How does Sify look at capturing this opportunity?

Kamal Nath

I think that's very good question and very good opportunity. As you, so far you noticed that Sify is very much focused for Indian markets, today international is very fraction of our revenue and what else we're looking at and we're in the planning process. How do we take our skill sets, our services outside of India and compete in the international market.

As you know these international markets also matured needs different skill sets and lot of disruption is happening that's what we're process of what is our going beyond India. I think you'll hear more soon once our plans and our no, no -- once our budgets and plans are clear for how we're going after this market in a pretty soon next quarter. So we're putting those plans and we will disclose those plans.

Vijay Krishna - Robinson Holdings

That's really nice. Market is observing for Sify to embrace ICT convergence opportunities. Well thank you so much. Thank you so much to each of the management members and once again a hearty congratulations on your fantastic annual results. All the best for a stellar '14-'15. Thank you so much.

Kamal Nath

Thank you. We do hope the same.

Operator

Thank you. (Operator Instructions). Our next question is coming from Amit (inaudible) from (inaudible). Please proceed with your question. Mr. (inaudible), your line is live. Please proceed with your question. Perhaps your phone is on mute, sir.

Unidentified Analyst

Yes, this is Amit (inaudible), good morning everyone. Big congratulations to all of you for this level of achievement to keep revenues in line with what you achieved last year. Did you notice a trend in terms of approximately --

Raju Vegesna

We cannot hear you, can you speak little bit better? We are losing you on this.

Unidentified Analyst

Is it better? Is it audible?

Raju Vegesna

Yeah, it is better.

Unidentified Analyst

Yes, this is Amit (inaudible). A big congratulations to the entire management team from Sify. I just had a couple of questions. One is it's related to the finances, which you just shared. Do you see a trend in terms of Sify growing approximately 10% to what you had achieved last year, I wanted to understand if Sify is targeting something very specific most in the short-term perspective. And I'm sure that also will be reflection in terms some of the long-term plans that Sify is targeting in terms of increasing its market capitalization? That was my first question. The second question was more in terms of the industry that Sify is targeting the key base in India specifically on the Cloud and on the world solutions we're seeing companies like Airtel targeting their (inaudible), very specifically by having separate business units and dedicated team targeting that particular industry. Just wanted to understand if Sify having any specific plans especially (inaudible)?

Kamal Nath

Amit, can you please repeat the first question because and both the questions in fact.

Unidentified Analyst

Yes, I will think in that way Mr. Vijay Kumar has said INR 14 million to INR 15 million of 20% increase in this year's earnings, is that correct?

M. P. Vijay Kumar

Amit.

Operator

I do apologize it appears we (inaudible). If there are no further questions at this time I'd like to turn the floor back over to management for any further or closing comments.

Raju Vegesna

Thank you everyone for joining us on the call and look forward to interacting with you in the whole year. Thank you again. Have a good day. Thank you.

Kamal Nath

Thank you.

Operator

That does conclude today's teleconference. You may disconnect your lines at this time and have a wonderful day. We thank you for your participation today.

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