Seeking Alpha
Profile| Send Message|
( followers)  
First of all let me say that I still like Sify’s long term chances. If you are in it for the long term I don’t think there is anything to worry about. I still think Sify Ltd (NASDAQ: SIFY) is undervalued and don’t see much downside from here.

Lets start with the highlights (see full conference call transcript on Sify's Q4 earnings.) :

Q4 2005-06 Performance Highlights:

- Sify reported revenues of $ 28.9 million for the quarter ended 31st March 2006, 24.9% higher than the quarter ended 31st March 2005. The sequential growth in revenues over the previous quarter was 7%. —–> I would have liked to have seen a better growth figure. Since the company isn't involved in a lot of international business, however, we shouldn't expect a high growth figure. Considering Sify involvement with the domestic market, its growth is going to be slow and steady like the country's itself.

- Sify’s cash profit, in Adjusted EBITDA terms, for the quarter was $2.65 million, an increase of $2.07 million compared to the same quarter last year. See below for a reconciliation of Adjusted EBITDA to Sify’s U.S. GAAP operating results.

- Sify’s net profit for the quarter under U.S. GAAP was $ 0.47 million, compared to a net loss of $2.51 million for the fourth quarter in the previous fiscal year —-> Profit was much lower than I expected. We all knew that Sify was going to show a profit this quarter but $ 0.47 million is minimal. Had they made a little more effort, they could have shown the same amount of profit last quarter. Furthermore, stock price action after the release makes it seem like the profit was already priced into the stock.

- Sify ended the year with a cash balance of $ 63 million after capital expenditures of $ 2.8 million during the fourth quarter —->This is a good amount of cash and as it is free of debt it could be used to make some strategic acquisitions. Although, I am sure the Data Center they are building in Bangalore will consume a good amount of it. More on the new data center in Bangalore later.

2005-06 Performance Highlights:

- Sify reported revenues of $105.3 million for the fiscal year ended March 31st 2006, 29.6% higher than the previous fiscal year.
- Sify’s cash profit, in adjusted EBITDA terms, for the year was 6.47 million, an increase of 28% compared to the year ended March 31st 2005. See below for a reconciliation of Adjusted EBITDA to Sify’s U.S. GAAP operating results.
- Sify’s net loss for the year under U.S. GAAP was $ 3.35 million, a decrease of 51.5% compared to a net loss of 6.91 million for the previous fiscal year.

Positives

- Portal Revenue grew 74% over the previous year and reached revenues up to $1.27 million. Growth was at an impressive 86% from the same quarter last year.

- The iWay cyber cafe chain continues to grow, with over one million subscribers using the 3300 iWay cyber cafes across 153 cities in the last quarter.

- Some nice customer wins in the managed VPN services segment.

- New customer wins for hosting services in the existing data centers.

- Sify Assure and its customer wins look promising. Security services is growing business and should see continued growth.

- The two customer wins in the Remote Infrastructure management services will generate reveunues of over $2 million each year. This area looks very promising. Although there is competition from IT bigwigs in India like Infosys and Wipro, Sify should be able to hold its own. Sify just doesn’t have the name brands like Infosys or Wipro to sign up big customers in the United States but one big customer win could change their fortune. Raju Vegesna can hopefully provide some of his Silicon Valley experience as well on how to expand in the United States.

- Iway cyber cafes continue to grow and the growth in Broadband subscribers continues. Summer vacations in the upcoming quarter for students means more time in Iways and online browsing the web and also playing games at Sify’s gamedromes.

- Portals: Portals is another growth area with revenue now at 1.27 Million. I would like to see this approach $2 million by next quarter. Sifymax continues its innovative ways by showing live cricket matches, fashion shows and Indian Idol events on the web. This area has great potential as students tend to spend more time browsing the internet during the (upcoming) summer vacation. Moreover, the launch of Bangalorelive.in and potentially other cities this quarter also greatly increases their market. Hopefully, they will launch in a big city like New Delhi or Bombay. Check out my earlier article of Sify’s local ambition here.

- Sify signed on new advertisers such as Clickjobs, Colgate, GO Air, History Channel, Naukri.com, Reebok, Reliance Mutual Fund and SAP for portals.

- VOIP seems to be booming since 7% of the company’s revenues were generated by VOIP.

- They could overtake Rediff.com India Limited (NASDAQ: REDF) in the near future with Sifymax.com, Sify.com, Samachar.com and Bangalorelive.in.

Negatives

- Revenue growth is not as high as I would have liked but, again, this is India.

- Sify needs more revenue coming from outside India and in particular from the United States. We won’t see any real growth until this happens. Sify Ltd. also needs to provide us with the % of revenue from International Operations.

- Free cash flow of only $200,000 this quarter.

- Sify has not been taking advantage of the huge growth in the Mobile phone industry in India.

- Sify should look into possible strategic acquisitions.

- How will they overcome the threat of IT bigwigs like Infosys and Wipro in the Remote Infrastructure management services?

The internet penetration in India is still barely about 5% of the population but is growing by leaps and bounds. If you can stay patient with Sify Ltd and think long term you will be rewarded.

Source: Sify's Slow Profit Woes (SIFY)