Sify Technologies Limited (SIFY) Q1 2022 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen, and welcome to the Sify Technologies Financial Results for First Quarter and Fiscal Year 2022 to 2023. [Operator Instructions] It is now my pleasure to turn the floor over to your host, Mr. Praveen Krishna. Praveen, over to you.

Thank you. 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 Chief Executive Officer; and M.P. Vijay Kumar, Chief Financial Officer. 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 Grayling Global at (646)284-9400, and we will have one sent to you. Alternatively, you may obtain a copy of the release at the Investor Information section on the company's corporate website at www.sifytechnologies.com/investors. 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 the earnings release, may include non-GAAP measures. Sify's results for the year are according to the International Financial Reporting Standard, or IFRS, and will differ [ apart ] 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 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 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 risks and uncertainties inherent to the company's business. I would now like to introduce Mr. Raju Vegesna, Chairman of the Sify Technologies. Chairman?

Thank you, Praveen. Good morning, everyone. Thank you for joining us on the call. Even though for the last couple of months, there's uncertainty in the macroeconomics of the world, India still retained a strong outlook for investments and growth. This is, in a large part, due to the consistent economic reforms of the government, and it started ambitions to pursue the digital methods to deliver the social benefits. The technology landscape has been the biggest beneficiary of these policies, and this is reflected in the growing number of incoming requests for the digital transformation. We see the Indian enterprises using this opportunity to adopt the best practices from the worldwide. Let me now bring [indiscernible], our CEO, to expand on some of the business highlights for the past quarter. [indiscernible]?

Yes. Thank you, Raju. Enterprises are displaying a growing comfort in digital adoption across all levels. They are leveraging digital transformation to spark innovation across enterprise. And this is resulting in an increasing number of new initiatives, delivered on a digital-only platform. While earlier, our mandate was to accelerate our clients' transformation goals. Our cloud-focused digital initiatives are now called upon to create new business processes, customer experiences and greater cost effectiveness. Enterprises increasing interest in outcome-based initiatives, incoming policies around data and the government's aggressive adoption around all things digital should act as tailwinds for our Data Center, Network and Digital services. Let me now expand on the business highlights for the quarter. Revenue from Data Center Services grew by 56% over same quarter last year. Revenue from Digital services stayed flat. Revenue from Network services grew by 11% over the same quarter last year. The revenue split between the businesses for the quarter was: Data Center colocation services at 34%, Digital services at 26% and Network services at 40%. During the quarter, Sify has invested USD [ 150,000 ] in startups in the Silicon Valley area as part of our Corporate Venture Capital initiative. To date, the cumulative investment stand at USD 3.44 million, if you commission incremental capacity of 4 megawatts across Noida and Hyderabad data center facilities in the quarter. As on June 30, 2022, Sify provides service via 824 fiber nodes and 1,910 wireless base stations across the country, a 11% and 5% increase, respectively, over the same quarter last year. The Network connectivity services crossed a critical milestone of deploying more than 5,000 [ SD-WAN ] service points across the country. 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 quarter. Vijay?

Thank you, [ Kamal ]. Good morning, everyone. Let me briefly present the financial performance for the first quarter of financial year 2022-2023. Revenue was INR 7,709 million, an increase of 20% over the same quarter last year. EBITDA was INR 1,525 million, an increase of 5% over the same quarter last year. Profit before tax was INR 395 million, a decrease of 10% over the same quarter last year. Profit after tax was INR 271 million, a decrease of 18% over the same quarter last year. Capital expenditure during the quarter was INR 2,241 million. We remain committed to expanding our Data Center and Network footprint and are gradually scaling up the adoption of renewable energy in our data centers. Investment into people and tools will be complementary to this growth without losing sight of fiscal discipline. As we scale, our focus would be on ensuring that costs are optimized and revenues are improved across our services mix. Cash balance at the end of the quarter was INR 3,794 million. I will now hand over to our Chairman for his closing remarks. Chairman?

Thank you, Vijay Kumar. Sify is in a strong position, given its historical performance. We will aggressively pursue our growth agenda. The focus is to build ahead of the demand so we can market the rebounds. There will be one obvious choice. Thank you for joining us on this call. I will now hand over to the operator for questions. Operator?

[Operator Instructions] Your first question is coming from Greg Burns of Sidoti & Company.

First, in terms of the Data Center Services performance this quarter, it came in a little bit better than we were expecting. Was that driven by any one-time items? Or is that a good number to build off of, going forward, for the rest of the year?

And I think it's a mix of both. I think we hope to see certain kind of a growth because the data centers in India is [ hot ]. And I think it is a good growth.

Okay. And then earlier this year, I guess, the government classified data centers, they gave it an infrastructure status. Can you just talk about what that means for the industry and how that impacts you and your ability to finance your Data Center growth?

The infrastructure status that the government had announced as part of its annual finance bill presentation, it's to be formally notified. What this actually means is access to long-term debt and at a relatively lower cost. And there are lots of institutions, particularly the insurance entities, who look at participating in long-term debt funding. So we will be able to raise needful resources to fund our Data Center expansion plan.

Okay. Does that change in any way that you look at funding or financing your Data Center expansion? I know you just recently had the partnership with Kotak. So -- just how does that in any way change your plans? And maybe you could just give us an update on how much you've drawn on that Kotak agreement already?

Yes. The Kotak partnership is a convertible instrument, so it's essentially equity. We have so far drawn about INR 2,000 million, 2-0-0-0 million and before in -- rupees. And before end of this financial year, we are committed to draw another INR 2,000 million, which is also a convertible instrument. And what this convertible instrument gives is, it effectively strengthens our equity base, gives us ability for more leveraging. And given the infrastructure status the government has recently committed to notify, we should be able to raise longer-term resources, where the repayment would be spread over a longer period, leaving more free cash flows within the company to fund the expansion plans.

Perfect. Okay. And then when we look at your competitive position in the market, I know -- could you just talk about how having the Network side of the business helps the Data Center business? How are those two kind of link -- does having the network give you advantage, going forward, as demand starts to build for a data center in India?

I think, both goes hand to hand, but we are going to go both the businesses parallelly. I think both Data Centers and the Network, we see the potential. As the more hyperscalers and the cloud platform is taking digital transformation, the -- yes, there are certain advantages, but we consider those two businesses are independent and run separate P&L.

Okay. Is there anyone else waiting to ask questions?

At the moment, no, not in the telephone lines. I don't know about the webcast, Praveen. Do you have many?

No. They would have popped up on your -- on the chat box.

Okay. Just checking. I have one more. So in terms of your investment plans for this year, you mentioned for -- you've commissioned, I guess, 4 megawatts of additional data center capacity this quarter. How much -- what's your total capacity right now? And what is -- what are the plans for your capacity by the end of this year, like how much incremental capacity are you bringing online this year?

So we currently have about 86 megawatts of IT power capacity, which is operational across 11 data centers, spread over 7 cities. And we are committed to 3 greenfield projects, which are under construction. And as in the past, we are not in a position to give forward-looking statements. But nevertheless, there are 3 large greenfield projects under construction at Mumbai, New Delhi, which is Noida, and at Chennai.

But I guess the plan still remains to add 200 megawatts of capacity over the next, I think, 4 years is what you laid out. Is that still the plan?

Over the next 4 years, the outlook is pretty positive, very positive. And we have done financial closure, which should support us to more than double our capacity in the next 2 to 3 years. And as we make the capacity operational, we'll evaluate adding more capacity.

Okay. And as we look at your leverage over this build cycle, how high do you think leverage is going to get? Do you have a target on kind of the maximum leverage over this investment cycle that you're going through?

Yes. So typically, we have 2, 3 benchmarks with the -- Board has set for the company. One is in terms of debt to equity, which currently we are [ sub 1 ] whereas we could go anywhere up to 1.5. Second is a debt-to-EBITDA ratio, which is fairly good. Accepted multiple is about 3x, and we are currently little over 2x, and we have enough leveraging ability. And on a debt service coverage ratio also, we have enough room to add debt.

[Operator Instructions] We are appeared to have no further questions in the queue. Praveen, do you have any questions on the webcast?

No, we can go ahead. There's nothing in the chat box.

Okay. Thank you. Thank you for your time on this call, and we look forward to interacting with you through the year, and have a great 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.

Thank you.