Sify Technologies' (SIFY) CEO Kamal Nath on Q2 2017 Results - Earnings Call Transcript

| About: Sify Technologies (SIFY)

Sify Technologies Limited (NASDAQ:SIFY)

Q2 2017 Earnings Conference Call

October 19, 2016 08:30 ET

Executives

Shiwei Yin - IR, Grayling

Raju Vegesna - Chairman

Kamal Nath - Chief Executive Officer

Vijay Kumar - Chief Financial Officer

Operator

Greetings and welcome to the Sify Technologies Financial Results for the Second Quarter of Fiscal Year 2016-2017. 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, Shiwei Yin with Grayling. Thank you. You may begin.

Shiwei Yin

Thank you, Melissa. 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, CEO and M.P. Vijay Kumar, CFO 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 at 646-284-9474 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 earnings release may include non-GAAP measures. Sify’s results for the quarter 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 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.

Before we continue, I would 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 protections 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 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 would now like to introduce Mr. Raju Vegesna, Chairman of Sify Technologies Ltd. Rajiv?

Raju Vegesna

Yes thank you, Shiwei. Good morning and thank you for joining us on the call. The reality of Digital Transformation is taking off with multiple clients with having a limited investment in the legacy infrastructure and opting for new ways of solution. The Government of India digital agenda is beginning to alter the perception of how the businesses are done in India. As one of the earliest proponent of this transformation we have had the opportunity to deliver several of this Digital Transformation projects thus building a track record for with large MNC and the Indian enterprises to entrust their IT roadmap to us to reflect our past quarter performance I would like now ask Kamal Nath our CEO to expand on some of the business dialects, Kamal.

Kamal Nath

Yes thank you, Raju. With our quarter two performance we have been able to maintain our quarter-on-quarter growth for the successive 14 quarters and revenue, new order book and profitability. Sify has comprehensive ICT services providers and with a strong focus in Data Center and Network Transformation projects is increasingly becoming the partner of choice for enterprises and working on the Digital Transformation journey. These encourages us to further augment our infrastructure and services portfolio and our partnership landscape to be more relevant in our client’s Digital Transformation journey going forward.

Let me now spend some time on the business highlights for the quarter. I will start with the telecom business unit. The data business revenue grew by over 17% over the same quarter last year. The business added more than 240 new clients this quarter, key wins included two banks in South India, network expansion for a public sector insurance company and a large Indian enterprise network build for a government institute.

Our network transformation approach enables Sify to achieve a win from a leading Indian conglomerate in the power infrastructure sectors. During the quarter Sify also completed implementation of a project to upgrade the citywide metro networks in Mumbai to provide webscale capable Data Center and Cloud Interconnection capabilities. This transformational software defined network will be the foundation of the next generation network services will launch soon. Sify also launched its Managed Enterprise Mobility solution based on Wireless LAN technology as a part of its SMACnet strategy. The launch is towards building a portfolio of solutions that enterprises can leverage to build a Digital Transformation strategy.

The Data Center services business unit, the Data Center services business unit revenue grew by 34% over the same quarter last year. The business signed up 18 new Data Center client this quarter. The business migrated one of India’s leading private insurance companies to its Data Center at Noida. In a first among their peers, a leading Japanese automobile component manufacturer company outsourced their entire hosting requirement to Sify. One of the world’s leaders in online search and aggregation choose our Noida facility to host one of their interconnection nodes. A valued added mobility services company also signed up for their Data Center requirement.

As for the cloud and managed services business unit is concerned, the revenue from this business fell by 9% over the same quarter last year. The business added nine new clients during the quarter. The highlight of this quarter was a transformational infrastructure and cloud project implemented on behalf of a private IT major for a state government in under a week. Another existing client migrated their non-SAP workloads to Sify Cloud, this is in addition to the SAP HANA migrated earlier. India’s fastest growing hotel room aggregator picked Sify Cloud to host their customer-facing online web portal and also Content Deliver Network Services.

Some of the significant wins during this quarter also include two online fashion entrants, a cement major, a scheduled bank and a media services company. As far as Applications Integration Services business unit is concerned, the business grew revenue by 85% over the same quarter last year. The business added 10 new customers this quarter. In a first, Sify completely overhauled the recruitment process for India’s largest government run joint recruitment agency by taking the entire test process online. This is a huge milestone in realizing the Prime Minister’s Digital India vision.

One of India’s largest fixed telephony and broadband services provider digitized their hiring process also using Sify Talent Management Services. Sify successfully conducted an on-line examination drive for one of the Navaratna, Fortune 500 energy companies.

Sify has also won a distributor management system order from a prestigious Mini Ratna Public Sector Enterprise. Sify has won a multiyear Talent Management contract from one of the leading banks in Malaysia.

Coming to the technology integration services business unit, the revenue of this business has grown 65% over the same quarter last year. The business added 12 new clients across Data Center IT, Network Integration, Security and Collaboration Services. A private insurance company has contracted Sify for a Data Center Transformation project to design, deploy, host and migrate existing Data Center services to new platform along with managed services for their entire Data Center and disaster recovery center. A large public sector bank has contracted with Sify to establish a Data Center infrastructure and network infrastructure across all their locations. The business also won a large contract from a public sector oil and gas company to establish a Data Center infrastructure.

During the quarter, Sify successfully completed a significant Data Center transformation project to a state government electricity company, large scale Data Center and Migration services to private insurance company and a security project for a private insurance company. These projects reflect Sify’s commitment to deliver large complex transformational projects.

I will now hand you over to Vijay our CFO to expand on the financial highlights for the past quarter, Vijay.

Vijay Kumar

Thank you Kamal and good morning everyone. I will now provide detailed financial results for the second quarter of financial year 2016-17. Revenue for the quarter was INR4392 million an increase of 18% over the same quarter last year. EBITDA for the quarter was INR634 million, a reduction of 4% from the same quarter last year. Net profit for the quarter was INR157 million an increase of 18% over the same quarter last year. Capital expenditure during the quarter was INR474 million.

We have maintained a consistent growth in revenue amidst a cautious pending period. We have incurred operating cost specific to expansion this quarter which has marginally weighed down on the EBITDA. We continue to be insistent on working with clients with clear roadmaps and predictable outcomes. Our focus is on right-sizing a project, ensuring financial discipline and timely completion. Investment in infrastructure will continue to be dictated by commitment from clients and with a clear view to optimizing asset utilization. Cash balance at the end of the quarter was INR1842 million.

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

Raju Vegesna

Thank you, Vijay. Last quarter, I committed on how we are being called in early to drop the roadmap on some of the projects for the government. This quarter, Sify delivered on one of such opportunity by conducting the largest online exams for the Government of India run joint recruitment agency. Such successful projects validate the promise to the market of Digital Transformation we can affect.

We will keep you updated on them as they happen. Thank you for joining us on this call. Now, I hand over to the operator for questions. Operator?

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] We will pause a moment to poll for question. Thank you. Our first question comes from the line of John D'costa [ph] with LCT SAAB [ph]. Please proceed with your question. Mr. D’costa, your line is live. Perhaps you are muted on your end.

Unidentified Analyst

Just would like to repeat the Q2 earnings?

Raju Vegesna

Can you repeat the question please?

Unidentified Analyst

Yes just to restate what the plus 80% and negative of 4% and plus 18% what were they again?

Vijay Kumar

The three numbers which you mentioned are the revenue for the quarter was 18% over the same quarter last year. The decrease of 4% was the EBITDA for the quarter compared to the same quarter last year and the increase in net profit was – the net profit which was 157 million, there was an increase of 18% over the same quarter last year.

Unidentified Analyst

Okay, that was revenue, the net and what was the other one?

Vijay Kumar

EBITDA, Earning Before Interest Depreciation and Tax.

Unidentified Analyst

Alright, thank you.

Vijay Kumar

Welcome.

Operator

Thank you. Mr. Vegesna, there are no further questions at this time. I would like to turn the floor back to you for any final remarks.

Raju Vegesna

Thank you everyone for joining us on the call and we look forward to interacting with you through the coming years. Have a good day, thank you.

Operator

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

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