Earnings Call: Q1 2022

Jul 30, 2021

Good day, ladies and gentlemen, and welcome to the Sify Technologies Financial Results for First Quarter and Fiscal Year 20 21, 2022. At this time, all participants have been placed on a listen only mode and the floor will be open for questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Shuei Yin. Sir, the floor is yours. Thank you, Paul. 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 Bagesna, 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 our press release, please let us know 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 website at www.dollsyphicorp.com. A replay of today's call may be accessed by dialing in 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 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'd like to point out that certain statements contained in the earnings release and on this earnings 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 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 the risks and uncertainties inherent in the company's business. I would now like to introduce Mr. Vazhuva Gizna, Chairman of Safeway Technologies. Sir? Thank you, Shuey. Good morning, everyone. Thank you for joining on the call. As we land from the 1st wave of the pandemic, I think India from the 2nd wave, I think we are coming back and taking the challenging environment here. India quickly bounced back from the 2nd wave with the enterprise slowly returning to the at offices business. And the mid sized companies are becoming more active in the market for automation solutions. PC played a major role in helping Indian Enterprises to sustain their operations and become more resilient. This year, critical requirements like the national data policy and continued remote access will push the security to the top of the priority of the list of the enterprises. In addition, the data centers, interest of the data centers across the PAL India is accelerating. Let me introduce Kamal Nath, our CEO, to expand some of the business highlights of the past quarter. Kamal? Yes. Thank you, Raju. With industries and people steadily returning to physical workspaces, digitalization decisions are also being accelerated. The trends of the previous quarters continue to be relevant, resulting in sustained interest in our cloud.core portfolio of services. Work from anywhere, migration to hosted data center and hybrid cloud platform, strengthening of disaster recovery plans to enable business continuity, application modernization, all these market trends are reflected in our current customer engagements. Data center colocation business is one of the fastest growing segments in India. It is led by hyperscale cloud providers, followed by enterprises and supporting telecommunication players. We expect this to drive our future growth alongside cloud, network and digital services business. In line with the precedent, I would like to expand on the business highlights and our growth drivers. Revenue from data center centric IT services grew 45% against the same quarter last year. Segment wise, revenue from data center services grew 38%, cloud and managed services grew 24%, applications integration services grew 153% and technology integration services grew 200%. Revenue from Network Centric services grew by 3% over the same quarter last year. Segment wise, revenue from data center data connectivity services grew 7%, while revenue from the VoIP business fell by 14%. Let me expand up on the growth drivers. The pandemic has accelerated the primary growth drivers in the market for cloud adoption led by digital initiatives and transformation. The trend is triggering movement of workloads from on premise data centers to hyperscale public cloud and hosted private cloud in varied degrees based on their digital objectives of the enterprises. This results in transformation of the traditional network architecture and transformation at the edge, which connects the end user. The need for digital services like analytics, data lakes, IoT, etcetera, shifting the focus towards adoption of hybrid and public cloud versus private cloud. Collectively, all these trends are generating opportunities for full scale cloud, data center and network service providers with digital services skills. Let me summarize the categories of customers who are signing up with Sify. Customers choosing Sify for migration of their on premise data center to multi cloud platforms like Cloudinfinit, Azure, AWS and Ora2. They also often entrust Sify with management and security. Customers choosing Sify as their data center hosting partner as they embrace hybrid cloud strategy. Customers choosing Sify as their multi service digital transformation partner and customers choosing Sify as their network transformation and management partner as they migrate to cloud ready networks. A detailed list of our key wins is recorded in our press release, now live on our website. Let me bring in Vijay, our CFO, to elaborate on the financial highlights for the past quarter. Vijay? Thank you, Kamal. Good morning, everyone. Let me briefly sum up the financial performance for the Q1 of financial year 2021-twenty 2. Revenue for the quarter was INR 6,451,000,000 a growth of 23% over the same quarter last year. EBITDA for the quarter was INR 1454,000,000, an increase of 26% over the same quarter last year. Profit before tax for the quarter was INR $440,000,000 an increase of 65% over the same quarter last year. Profit after tax for the quarter was INR 329,000,000 Capital expenditure during the quarter was INR 917,000,000. The operating performance has been stable. We continue to invest in expansion of our data centers, network connectivity and digital services. We will stay focused on cost efficiency and liquidity management given that the economic recovery is still regaining lost ground due to the pandemic. Cash balance at the end of the quarter was INR 3515,000,000. I will now hand over to our Chairman for his closing remarks. Chairman? Thank you, Vijay. A large number of enterprises have realized that their current IT landscape is not equipped to handle such disruption like this pandemic. This has translated to inquiries on the relevance and cost effectiveness of our digital transformation services. As we continue to build vertical strength, we should be able to cater to wide cross section of business and offer appropriate outcome based solutions. Thank you for joining on this call. Now I will hand over to operators for questions. Operator? Thank We have a question coming from Greg Burns from Sidoti. Greg, your line is live. Good morning. In terms of your plans for DC expansion, could you just remind us the number of DCs you currently operate, the amount of megawatt capacity you have and how much megawatt capacity you plan on adding this year and maybe the timing of that coming online? Thank you. Vijay, you want to address that, Vijay? Yes, yes, yes. We presently have 10 data centers spread across 6 cities with capacity which is in operation of 72 megawatt of IT power. While it is forward looking on the for the current year in our existing facilities, we will be adding an additional 10 megawatt of capacity which will become operational. Apart from that, we are commencing work on 2 greenfield data center projects, one of which will go live early calendar year 2022 or maybe a month earlier and which will be a significant capacity which will be available for service. Great. Thanks. And then in terms of the growth of Application and Integration Services, can you just give us a little bit more color on what was between that growth? Was there like a specific like return of testing, a large test or something going on in the quarter? And is what you're seeing this quarter sustainable? Yes. So this specific result is because of a large email transformation project, which we have done with 1 of the largest public sector banks. So you can treat this this is an annuity contract spread over 3 years. So yes, a similar revenue recognition you will see in the quarter one off next year. So this is not this is not a Q quarter by quarter revenue growth for this specific client. But yes, this contract is annuity and for 3 years, this is the 1st year billing, which you have done by virtue of implementation of the project. Okay. So I'm sorry, just so I understand, it gets billed on an annual basis? So like Yes, it gets billed on an annual basis, yes. Okay. So, okay. Okay. All right. And then in terms of the competitive landscape, obviously, a lot of investments happening in India now. Has there been any change in the competitive landscape in any parts of the business, particularly in the data center or in the cloud services side of the business? We see Greg, this is Raju. We see the competition continuously. As you see, a lot of people wants to win the data center. And I think we are doing the similar kind of thing. And we have customer base and we have proven we are in the data center business for last 20 years. And we are delivering for hyperscalers and we are delivering for Indian enterprise market. So to give you an idea of what we are looking at is even though forward statement, we are thinking to build probably next 200 megawatts capacity in the next 4, 5 years and it's very competitive. And we will continuously top 3 or top 2 data center provider in India. What differentiates Sify? Like why would a hyperscaler or an enterprise choose Sify over maybe some other service provider in the market? So that so yes, because we are in the business for a long time and we deliver for Eiffelscaler and we are continuing that relationship, That's what it makes the difference. So our delivery capability and approval in the market And then also we deliver the Indian cost effectiveness data centers. So we'll always to be in the competition in the market and we have a proven regard to deliver to the hyperscalers. Okay. And lastly, cash is down a little bit sequentially. What was the primary driver of that? Was it that like a working capital issue? Yes. Greg, it is essentially a working capital issue. You would recall that this quarter, April, May, June, we had the 2nd wave of pandemic and the consequent lockdown. So consequently, there have been little bit of a slowdown as far as the working capital is concerned. But equally importantly, we haven't borrowed money for our capital expenditures. We have been using our existing cash for the capital expenditure. So these are two reasons. Okay, perfect. Thank you. Thank you. And there were no other questions from the lines at this time. Okay. Thank you everyone for joining us on the call and we look forward to interacting with you through the year. Stay safe, stay healthy. Have a good day. Thank you. Thank you. Ladies and gentlemen, this does conclude today's conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.