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Sify Technologies Limited (NASDAQ:SIFY)

F2Q2013 Results Earnings Call

October 17, 2012 8:30 AM ET

Executives

Christopher Chu - Grayling Investor Relations

Raju Vegesna – Chairman

Kamal Nath - Chief Executive Officer

MP Vijay Kumar - Chief Financial Officer

Analysts

Operator

Greetings. And welcome to the Sify Technologies Financial Results for Second Quarter Fiscal Year 2012. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions)

As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Christopher Chu. Thank you, sir. You may begin.

Christopher Chu

Thank you, Operator. And just a small, I mean, it’s our Financial Results for the Second Quarter of Fiscal Year 2013. I'd like to extend the 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 Mr. MP 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 our press release, please call us at 646-284-9400 and we'll have one sent to you.

Alternatively, you may obtain a copy of the press release at the Investor Information section on 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 Investors 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 International Financial Reporting Standard or IFRS, it will differ somewhat from the GAAP announcement made in previous years.

Our presentation of the most directly comparable financial measures calculated and presented in accordance with GAAP and a reconciliation of such non-GAAP measures and other 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 development and risk factors listed from time to time in the company’s SEC reports and public releases.

Those risks 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 and Managing Director of Sify. Raju?

Raju Vegesna

Hey. Thank you, Chris. Good morning. Thank you for joining us on the call. For the last two quarters we have consistently recreated our focus on Managed Services, our aggressive pursue of SME/SMB market and the important government services market.

A couple of week back the Indian government has increased the permissible FDI in several industries, including retail, insurance, et cetera. These announcements have been warmly welcome by economics and the industry.

With these positive changes, our industry would look to expand Sify and included players we’ll also be need to invest in IT to meet the challenges of greater competition. This cause for a robust network and connectivity, and we are already seeing the first signs of demand.

Our second area of focus the SMB market is the fastest adaptor of new technologies like Cloud services. The advantage is they see from working with Sify at the cost of adaption and speed up adaption backed by their confidence in our delivery capability.

In a growing number of cases we are working with smaller enterprise clients and projects from round off, building a robust [Managed Network] has brought us to the attention of government who are constraint by the absence of network to roll out social welfare measures.

It is this network that largely responsible for us building the largest network integration contract to date. We are seeing various signs of market recovery. Our corporate distributor is to take the advantage of this event.

Now, let me introduce you Mr. Kamal Nath, who has joined us recently as a Chief Executive Officer. Kamal is a veteran of IT industry, have spent a long time in a leadership role with one of the India’s major services player. Kamal will drive the next phase of the growth the Sify while laying out the foundation what we call Sify 3.0, the captive and delivering the results around the same.

Let me introduce Kamal. Kamal?

Kamal Nath

Yeah. Thank you, Raju, and good morning, everyone. I’ve just joined Sify two months back and as I understand, during my last two months, Sify has all the individual strength, as Raju was pointing out to be a broad based IT Solutions and Services player.

Around the infrastructure service provider business model which currently existed with the company and coupled with application services capability which is also existed with our organization today.

If I analyze, our growth till today was primarily led by network bandwidth and data and networking services. However, I see the next growth drivers to be led by solutions and services portfolio, while we will be leveraging results of the platform.

And as per my individual focus is concern, it will be to create an integrated offering of our various products and services portfolio, which will be coupled with third-party solutions, which will address both vertical need and we’ll be mostly delivering this solutions over cloud platform.

We have excitably invested in the past in building large capabilities around data center and network infrastructure and we’ll continue to do so. However, we are simultaneously expanding our Integration and Managed Services offering, and taking advantage of the Cloud services today.

And in the market, in the last two months, I met a sizable number of existing customers of Sify. Almost all of them are keen to do more business with Sify and they are very seriously evaluating our Cloud and Managed Services offerings.

In the coming quarters as such, our growth is primarily driven by upselling and cross-selling to our large customer base, as we have launched several new services, and we’ll start delivering from our new facility which are coming now.

Having said, allow me to spend a few minutes on our performance this past quarter. Network Services which is one of our very important service portfolio was our biggest performer with revenues growing 17% for the same quarter last year. We are nearing 1800 based -- narrow base stations across the country and we’ll soon presenting almost 1000 cities, which is a very big achievement for us.

IT services, we have done well, growing 16% for the same quarter last year and we expect to increase the momentum as we move forward. Software services grew by 22% for the same quarter last year, aided largely by enterprise application services that contributed 40% of the same.

Several multiyear hosting contracts with Indian software, telecom and banking measures have been concluded. That will ensure a healthy revenue in global power. We’ve already begun ruling out our Cloud services as specialized tools and industry accepted benchmarks in alliance with our strategic and our [own] partners.

A good number of our current data center customers have renewed their contracts at higher value, which is a very good news for us. In several cases, they have offered complete solution package other than computer and storage contracts.

The confidence level that our significant services enjoy here has been underscored with signup of our security services with the country’s newest stock exchange which is coming up very soon. Our other deep focus area will be to do business to business alliances and the good news is in the last two quarters, we have seen our business doubling through that particular channel.

Our focus will be now to drive debt with vertical sense and to bring on board both technology and resources, would be able to provide this growth. So I will now request Vijay Kumar, our CFO to expand on the financial highlights of the quarter.

Vijay Kumar

Thank you, Kamal and good morning everyone. I will now provide detailed financial results for the second quarter of financial year 2012-13. Sify reported revenues of $2059 million for the quarter-ended September 30, 2012 against revenues of $1815 million for the corresponding quarter of the previous year growth of 13%.

EBITDA for the quarter increased to 161 million rupees as compared to 136 million rupees in the corresponding quarter previous year. Net profit for the quarter was rupees 612 million as against net loss of rupees 89 million in the corresponding quarter previous year.

This quarter included a one-time profit of approximately rupees 658 million, released on exit from our pursuant affiliate, MF Global Sify Securities India Private Limited. Without this item, the net loss for the quarter would have been rupees 45 million.

Capital expenditure during the quarter was rupees 1338 million and cash balance at the end of the quarter was rupees 907 million. We have continuously invested in infrastructure over the past year and this has given us a strong base as a solution and services provider.

While it is imperative to invest, we are keeping the street high on the cost and completion without time overrun thus saving us valuable capital. Significant deployment of capital and operating expenditure is ongoing to support the large network integration contract and our two straight of the die hard data centers at Delhi and Mumbai and this will be a key contributor to our planned growth in future quarter.

I will now hand you over to Raju for his final remarks. Raju?

Raju Vegesna

Thank you, Vijay. It has been an eventful journey for Sify from a retail focus ISP through an enterprise facing company. All of the year, we have shared and implemented several features that have enabled us to grow from strength-to-strength. Some of them were building a robust national network and other connectivity platform, building a flexible setup tools, applications, aircraft and bank, ecosystem of IT, building skill set and best practices for various industry motive and adapting that across the ecosystem.

Adapting in costly newest technology to emerging business, and using the result and landing to upsell to large enterprises. All these measures of the net drop of the Sify 3.0, the focus to turn Sify into preferred, provide our services and solutions. From our business, we are well under growth. It is now emergence of a building of strength and we’ll be glad to share with you our progress when we meet again.

I will now hand over to operator for any questions.

Question-and-Answer Session

Operator

(Operator Instructions) It appears, we have no phone questions at this time. I would now like to turn the floor back to management for closing comments.

Raju Vegesna

Yeah. Thanks. Until we meet again Sify and I personally would like to wish our investor community a very happy Diwali. Thank you and good bye.

Operator

This concludes today’s teleconference. You may now disconnect your lines at this time. And thank you for your participation.

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