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Sify Technologies Limited (NASDAQ:SIFY)

Q1 2015 Earnings Conference Call

July 28, 2014 8:30 AM ET

Executives

Trúc Nguyen – Investor Relations

A. Raju Vegesna – Chairman and Managing Director

Kamal Nath – Chief Executive Officer

M. P. Vijay Kumar – Chief Financial Officer

Operator

Good morning and welcome to the Sify Technologies Limited Conference Call following the Earnings Announcement for the First Quarter Ended 30th June 2014. 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 call is being recorded.

I would now like to turn the call over to your host Trúc Nguyen, Investor Relations for Sify Technologies Limited. Please go ahead.

Trúc Nguyen

Thank you, 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 do not have a copy of the press release, please call grayling at +1-646-284-9400 and we will e-mail one to you. Alternatively, you can 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 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 in 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.

Now I would like to introduce Mr. Raju Vegesna, Chairman of Sify Technologies Limited. Raju?

A. Raju Vegesna

Thank you, Trúc. Good morning and thank you joining us on the call. Our results this quarter are inline with a consistent growth we have seen since we began our services trust in the market. I am especially proud of the fact that this achievement was accomplished in a nearly stagnant market over the last couple of years. It also endorses the strategic directions undertaken of being a solutions player and enabling the sales across our entire services portfolio.

Our goals are simple and consistent to be the first choice solution provider for enterprises across any industry vertical for the Telecom and IT needs. On the services front the focus is unscalable, cost effective solutions that can fit a variety of enterprises, along the way we also built intellectual property in specific areas like Data Center and Network management.

In time, we look at offering the services and skills across geographic nearby expanding our potential market. Our clients in India then simultaneously look forward a deeper consolidative and engagement across their entire IT and communication needs. You’ll reflect on the past quarter, I would like our CEO Kamal Nath to expand and some of the businesses highlights. Hi, Kamal?

Kamal Nath

Yeah. Thank you, Raju. In quarter one of FY 2014-2015 we continue to about growth general market sentiment and showed positive growth in revenue and profitability as well. And with expected improvement in market conditions and a more certain environment for our clients, we see the opportunity for bigger and differ engagements in the coming quarters.

I’m seeing her encouraging trend of clients engaging with Sify for transformation projects in the area of Data Center, IT services, managed network services and application managed services, This is inline with our stated objective of services led growth plan over and above our infrastructure portfolio. We’re getting weak on our two new Data Centers at Noida and Mumbai to drive our IT services growth by offering clients are distinct cost advantage while they avail end-to-end ICT services from Sify.

Now, let me spend some time on the business highlights for the quarter. Telecom services to start with, the Domestic Data business continues to show steady growth with International Voice growing 46% over the previous quarter. The business signed up two international carriers with committed traffic for a full year.

Key wins in the quarter included the enterprise IT network for one of India’s largest Telecom player and two of India’s premium auto companies. With its continuing focus on the network managed services portfolio, the number of circuits under advanced management services contract is up 18% over last quarter. The re-organized support organization is expected to deliver significantly improved levels of customer support to Sify's customer starting the second quarter.

For the Data Center Services business unit, the business signed up 13 new customers in the quarter. A world leader in Business Continuity services has signed on to be a reseller for our services. Our Bangalore Data Center has been upgraded with additional capacity. Our 3rd Data Center in Mumbai has recently completed testing and commissioning.

For the Cloud and Managed Services the business unit, the business has more than doubled over the same quarter last year. The business has signed up clients from eCommerce, Insurance, Utility sector and the Government verticals. Some of the larger wins have been in the eCommerce space, helping us build expertise in this segment. This business has signed on a large DC and DR Managed Services order from Insurance and Utility sector for private cloud and managed services. More than 15 customers have been added across various verticals.

Applications Integration Services business unit, the business has commenced managed SAP infrastructure services for the Indian Market Talent Management services almost doubled compared to same period last year with a significant order from one of the state public service commissions and successful execution for two top tier universities. A forward supply chain management deal was closed with one of the largest FMCG companies in India. eLearning signed up a million dollar plus contract with a global pharmaceutical client while also signing up four new customers in Asia, Europe and North America

The Technology Integration Services view has been reorganized along new product lines; like IP Surveillance, Voice Collaboration, Security, Network Integration and Data Center build. The security business has grown steadily and has seen strong engagement in BFSI and PSU segment.

Network integration has seen engagement among enterprise customers, mainly for wireless deployments. The business has won a large services contract from a public service insurance company to support their IT infrastructure including Network and Data Center. A large private hospital campus also opted for our Wireless Network services. And overall the business has signed up 21 new customers for the quarter.

I'll now hand you over to Vijay, our CFO, to explain on the financial highlights of the quarter.

M. P. Vijay Kumar

Thank you, Kamal, and good morning everyone. I will now provide detailed financial results for the first quarter of financial year 2014-2015. Revenue for the quarter ended June 30, 2014, was INR 2963 million, an increase of 13% over the same quarter last year. EBITDA for the quarter was INR 483 million, as against INR 465 million for the same quarter last year. Net profit for the quarter was INR 113 million as against a net profit of INR 163 million for the same quarter last year.

Capital expenditure during the quarter was INR 372 million. I’m glad to report continuing positive revenue growth this quarter after a good performance last year. With the sales in our new Data Center in Noida Wale on the way and the impending launch of our sixth Data Center in Mumbai. We expect this to contribute to revenue growth in the quarters are ahead.

Our cautious approach to investing and our strict governance of expenditure has insulted us to a very trying period. We still see significant opportunity for improved asset utilization and this will be one of our key focus area as market recover, but we will invest selectively for client specific projects. Cash balance at the end of the quarter was INR 1181 million.

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

A. Raju Vegesna

Thank you, Vijay Kumar. On this call last quarter, I have spoken about the need for a stable majority to win government as the first point of the rival – of the economy that question has been answered. The challenge now is to cater to the clients who wish to see the upcoming opportunities in the market.

But will be closely examine both their IT investments and their cost structure in light of the lessons learned over the past two years. We’re always considered cost effective partners and in the coming quarters ICT Sify’s value being recognized by more customers in both large and small.

Thank you for joining us on this call. Now I will 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 comes from the line of Mohan Raju with Barclays [ph]. Please proceed with your question.

Unidentified Analyst

Hi, good morning. Congratulations to the management on the good beginning of the financial year with our revenue growth in Q1. My question to the management as a reference to be improved economic outlook, which is prevailing in the country post the recent elections. Does Sify see this is opportunity to show stronger growth in revenue as well as profitability in this financial year? If yes, in what will Sify is ready to make the most of this positive outlook in the economy today to improve your revenue and profitability?

M. P. Vijay Kumar

Yeah. Mohan, thanks for joining us on the call today.

Unidentified Analyst

Thank you.

M. P. Vijay Kumar

And thank you also for your kind words, I’m Vijay Kumar here Mohan.

Unidentified Analyst

Yes, Mr. Vijay Kumar.

M. P. Vijay Kumar

As regards to your queries, results forward-looking in terms of financial performance outlook, but nevertheless as both Chairman Mr. Raju Vegesna and Mr. Kamal Nath shared in their remarks. The outlook has been positive and the revenue growth trend over the last several quarters has been good, we should in all likeliness be in a position to maintain similar performance. And as you know the outlook in India is now looking positive from overall business confidence perspective and with more investments expected to happen on infrastructure including IT infrastructure. These should be good days for Sify going forward.

Unidentified Analyst

Absolutely. So that means good revenue growth as well as profitability for Sify going forward?

M. P. Vijay Kumar

Yes, should be.

Unidentified Analyst

All right. Kamal I would like to know. Yeah, I have one question for Kamal?

Kamal Nath

Yeah.

Unidentified Analyst

What are the unique ways in which Sify is aligned to tap this opportunity? I could see you mentioning about Data Center investment and so on, one of the other unique ways in which the company is aligned?

Kamal Nath

See every year’s as our Chairman has also mentioned in his part of the session that every organization is looking for more efficiency – more efficient and at a lesser cost. I think by virtue of our very business model, we are ready to align ourselves to that customer need. So, I just to give an example, as I have also mentioned during my session in a main conference call that when a client moves to our Data Center, I mean there is in a short reduction of costs.

Now, this is one area where the traditional IT services player history very, very strong with the customers IT services player in the Data Center history build by the like so IBM, HP, HCL and Wipro’s of the world, but there is definitely now a shift where the customer is actively considering a so called service provider like us, in signing the main contract with them, which is our own Data Center transformation.

So, the reason we’re confident is because over the past two years we have prepared ourselves, in a fully believing that the Data Center, so called Data Center infrastructure provider can transform themselves into a Data Center IT services provider and probably eat away the pie from the traditional IT services player and which can – which ultimately would result – higher revenue for us.

So to answer your question earlier, we still only get the – in our Data Center hosting part of the business, but now I think, increasing do you have seen that the customers are interesting as with the IT services and even you know the hardware and software part of it also. So that is distinctively one area where you know if we’re engaged of the Data Center layer with the client than both in terms of the absolute value and the value chain we are moving highest.

Unidentified Analyst

Okay, thank you very much for the clarification and I wish Sify and the entire management team for a good financial year forward. Thank you.

Kamal Nath

Yeah, thank you Mohan, thank you Mohan for participating.

Operator

(Operator Instructions) Mr. Vegesna there are no further questions at this time, I would like to turn the call back to you for closing comments.

A. Raju Vegesna

Thank you for joining and we looking forward to interacting in the coming year. Thank you again. Have a good day.

Operator

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.

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