Earnings Call: Q2 2021

Oct 23, 2020

Good day, ladies and gentlemen, and welcome to the Sify Technologies Financial Results for Second Quarter and Fiscal Year 2020 2021. All lines have been placed on a listen only mode and the floor will be opened for questions and comments following the presentation. At this time, it is my pleasure to turn the floor over to your host, Shue. Sir, the floor is yours. 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 Komal Nath, Chief Executive Officer and M. P. Vijay Kumar, Chief Financial Officer of Sify. Following our comments on the results, there will be an opportunity for questions. Information section on the company's corporate website at www.cptechnologies.com. A replay of today's call may be accessed by dialing in other numbers provided in the press release or by accessing the webcast in the Investor Information section of the Sify corporate website. Some factors referred to during this call and in the earnings release may include non GAAP measures. Sify's results are according to the International Financial Reporting Standard or IFRS. 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. Now 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. Forward looking statements is the company's 6 projections 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 Zhang Zhong in the company's SEC reports and public releases and 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 present represent a completeness of all risks and uncertainties inherent to the company's business. Mr. Raju Veghezna, Chairman of Sify Technologies Limited. Sir? Thank you, Sway. Good morning, everyone. Thank you for joining us on the call. As the pandemic continues, Sify has shifted its focus from business continuity, business transformation as our clients gain confidence in our ability to ensure their effective IT operations. They're increasingly turning to our digital services, seeking transformation capabilities to help them to further automate their operations in anticipation of the new normal. Our IT services infrastructure, network services, automation reset and knowledge of evolving IT landscape has ticked the right boxes for the client as they evolve their IT capability. The breadth of project Intuitive has helped Sify to mature its digital services and is establishing us as a digital transformation specialist with a full range of convergence capital gains. Now let me bring in Kamal Nath, our CEO, to expand on some of these business highlights for the current for the past quarter. Saman? Thank you, Raju. During the last quarter, we have witnessed the urgency among clients to adopt IT infrastructure models, which would provide them the agility and flexibility to run their businesses remotely during crisis. Hybrid IT model built on hybrid cloud infrastructure is evolving as the way to go. Our cloud at core model of products and services are completely aligned to the trend and is finding wide acceptance with customers who have realized the natural fitment of the model, not only for digital optimization, but also for digital transformation. 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 12% again in the same quarter last year. Segment wise, revenue from data center services, cloud and managed services and technology integration services grew 36%, 9% and 22%, respectively, while revenue from applications integration services fell by 37%. Revenue from network centric services fell by 8% over the same quarter last year. Segment wise again, revenue from data connectivity services grew 3%, while revenue from the VoIP business fell by 36%. Let me now expand upon the growth drivers. The pandemic has accelerated the primary growth drivers in the market for cloud adoption led by digital initiatives This trend is triggering movement of workloads from on premise data centers to hyperscale public cloud and hosted private cloud in varied degrees based on the digital objectives of the enterprises. These 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, dead flex, IoT, etcetera, shifting the balance to adoption of hyperscale public cloud versus private cloud. Collectively, these trends are generating opportunities for full scale cloud, data center and network service providers with digital services skills. Let me now summarize the categories of customers who are signing up with Sify. Customers choosing Sify for migration of their on to my data center to multi cloud platforms like Cloudinfinit, AWS and Azure and Oracle. They also entrusted Sify with management and security services. 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? Jay, you're on the mute. Jay, are you on the mute? Vijay? Yes. Thank you, Kamal. Good morning, everyone. Allow me to sum up the financial performance for the Q2 of financial year 2021. Revenue for the quarter was INR5899 million, a growth of 2% over the same quarter last year. EBITDA for the quarter was INR 1189000000, an increase of 12% over the same quarter last year. Profit before tax for the quarter was INR 414,000,000 an increase of 48% over the same quarter last year. Profit after tax for the quarter was INR 257,000,000 an increase of 35% over the same quarter last year. Capital expenditure during the quarter was INR797,000,000. Our people commitment and business continuity process have ensured that operating performance continued to remain steady throughout this period of pandemic impacted operating environment. We will be conservative in our operating spend, while we increase our capital expenditure to support the anticipated demand for our data center and network infrastructure. Cash balance at end of the quarter was INR 4242 1,000,000. I will now hand over to our Chairman for his closing remarks. Thank you, Vijay. As I remarked last quarter, the pandemic has pushed us and our clients to explore digital transformation service as a solution to bring the demand of an automated IT landscape. As the only converged ICT solution player in the market, we are best placed to deliver these solutions at the most appropriate cost and within the contracted time. And now that translates into great value for our clients. Thank you for joining on this call. I will now hand over to the operator for questions. Operator? Thank you. Our first question comes from Greg Burns from Sidoti and Company. Go ahead, Greg. Good morning. So you just mentioned about the pandemic accelerating or pushing the digital transformation of businesses. I think you'd also mentioned during the prepared remarks about how the companies are really focused on continuity rather than transformation, I guess, probably at the onset of the pandemic. But have you seen any change in the market? Are companies starting to move forward with projects? If you could just talk about the demand environment and if you're seeing any improvement there in terms of maybe an acceleration of these digital transformation services? Thank you. Yes, sure. Thank you, Raju. Yes. So yes, definitely in the last quarter we have seen as the businesses are coming back, the customers are getting prepared to build agile IT infrastructure, which can help them not only in a normal time, but also during pandemic kind of kinds of situations. So this is 1. The second part is the customers are also looking at in the digital transformation, if you can divide into 2 parts, digital optimization and the real digital transformation. The customer are also optimizing their digital IT assets, which is a very significant trend, which we are able to see. The other trend, of course, once they do their digital optimization, they will go for digital transformation. Some customers who are already at a significantly higher part of the curve, they are going for digital transformation, particularly the manufacturing organizations who got badly hit during the pandemic. The other trend what we are seeing, a significant number of customers used to be in their on premise data center, which they face huge problem in managing their data center operations. So which is a good news for us because the customers, those sectors which are typically on premise, they are also now actively talking to move to and evaluating rather to move to a hosted cloud environment. Okay. So would you I guess, maybe how would you characterize your pipeline? Do you see a growing pipeline of opportunity for the company? Absolutely. So the pipeline is significantly increasing in the data center hosting space, the cloud space, and very interestingly in the hybrid cloud days because every time a customer intends to move from their data center, it's an opportunity for them also to not to just shift from 1 data center to the other data center, but also have a look at their entire IT architecture. So partly, the customer most of the customers are deciding for partly hosted environment and partly cloud environment. So as we can read all across like the hybrid cloud model is getting adopted and that is the way to go. So our investments, our pipeline, all are in the right direction and as far as this change is concerned. So Greg, to answer your question, one of the thing is having data centers and a network and a cloud. As an ICT player, we see one of the great opportunities for CP uniqueness having these 3 together. And that provides in this transformation, we are the unique opportunity we are the unique beneficial of this integrated plan, ICT, and that is very beneficial going forward. Yes. Okay. All right. I just want to also touch on some of the specific business units. So the Technology Integration Services, the growth there was a little bit better than we were expecting. Can you just talk about that business? What was driving that? Is project activity picking up there? And maybe what's the outlook for the remainder of the year for that part of the business? Yes. So this is also related to what I mentioned, that the customers because the technology integration services is about creating custom building processes for clients. So when the customers are moving from 1 data center to the other data center or more from an on premise environment to the hybrid environment, there is always a part of the infrastructure which will be addressed by your technology integration services business. So as our Chairman was mentioning, so when fast projects are undertaken, it increases the funnel as well as business for our data center business, our network business, our cloud business as well as our technology integration services business. So that is the synergy, which each of these businesses line are able to see because of hybrid cloud adoption. Okay. I guess so I mean this part of the business was underperforming over the last couple of quarters, but was a pretty solid bounce back this quarter. What's your outlook for the remainder of the year? Is the pipeline full? Do you have projects? We have quality. We have quality. We have quality. We have quality. We have quality. We have quality. We have quality. We have quality. We have quality. We have quality. We have quality. We have quality. We have quality. We have quality. We have not discussed about the future. But as coming out of this pandemic, like Kamal outlined, as the projects as this transformation is happening, this overall integration, technology integration where you integrate other provider services or products and solutions with our network services, our security services and our data center services. We see a good plan into the digital transformation. The technology integration plays a big role in the digital transformation projects. Okay. And the application integration services, the decline there, was that tied to a specific contract that maybe wasn't renewed or around was it specifically around testing or could you just describe what was driving the decline on that side of the business? Yes. So mainly Yes. So one of the portfolio in the technology sorry, in the application integration services are our online SaaS, which, of course, has because of the pandemic situation and for most of the quarter, partial lockdown, it has impacted. So because that used to be earlier a significant part of our revenue in that business. But since now, that business has not grown in terms of revenue in the previous quarters. So that impact is predominantly because of this. Okay. So it wasn't because of like a lost contract or anything, it's just because the pandemic's limiting testing? Yes, that's correct. Right, right. Okay. The augment test, yes. All right. And maybe could you give us an update on your data center your data centers in terms of how many you currently have, what's the utilization rate, maybe what are the plans in terms of adding extra capacity? Vijay, you want to take on that, Vijay? Yes, sir. So as far as the data centers are we currently have 10 facilities, which are PAN India across 6 metropolitan cities. And these facilities are all largely contracted and revenue generating. The rest of it are either contracted and about to generate revenue or we have small capacities left. As far as our expansion is concerned, we are now having plans for adding capacities across 4 cities. And we will soon do the groundbreaking for 2 of our facilities. And once we do it, we will keep you communicated in the subsequent earnings release. Great. Thanks. And what was the debt balance at the end of the quarter? The debt balance is about $70,000,000 Okay. And it looks like the interest expense went down a little bit in the quarter. Yes. Was there anything specifically driving that? Two reasons. One is the interest rates in India have generally softened. And second is we do have some interest credit, which we have got. What you see is the net finance expense. So you received an interest credit for one of our tax refunds. And as far as the interest on tax is concerned, given the uncertainty till it's released, it will need to be received, the accounting is as always done on receipt basis. Okay. Okay. Thank you very much. Thank you. And there appear to be no further questions at this time. I would now like to turn it back to management for any closing remarks. Thank you everyone for joining on this call. We will look forward to interacting with you throughout the year. Please stay safe and healthy and have a good day. Thank you. Thank you. This does conclude today's conference. We thank you for