Sify Technologies Limited (SIFY) Q1 2023 Earnings Report, Transcript and Summary

Greetings. Welcome to the Sify Technologies Financial Results for First Quarter and Fiscal Year 2023 to 2024. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host Praveen Krishna. You may begin.

Thank you, Holly. I'd like to extend a warm welcome to all our participants on behalf of Sify Technologies Limited. I am joined on the call today by Mr. Raju Vegesna, Chairman; M. P. Vijay Kumar, Executive Director and Group CFO; and Kamal Nath, CEO. 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 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 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'd now like to introduce Mr. Raju Vegesna, Chairman of Sify Technologies Limited. Chairman?

All you know India is a growth story. This is an exciting time India is going through. We have to build our services and how do we make a stable destination, the availability of relevant resources tools and significant untapped demand for the Indian enterprises. The government has been consistent using IT as an enablement tool to implement social measures and this is the contributed to a really mature IT ecosystem. And our next phase of the growth will leverage this favorable environment by introducing innovative and cost [Technical Difficulty]. Our next phase of the growth will leverage this favorable environment by introducing innovative and cost-effective digital services for our customers. Let me now bring Kamal Nath, our CEO, to expand on some of our business highlights for the past quarter. Kamal?

Thank you, Raju. As enterprises are pursuing their digital transformation and digitalization objectives, they are also recalibrating their digital infrastructure across hybrid cloud, network, security and edge infrastructures. This is a great opportunity for us to monetize our infrastructure, design for digital IT and transform the way digital infrastructures are managed through our digitalized services. We are topping that up by continuously building our core digital portfolio to support our customers' innovation journey. This portfolio places Sify in a unique position for all around customer engagement across their digital life cycle, which we believe would augment our growth strategy. Let me now expand on the business highlights for the quarter. The revenue split between the businesses for the quarter was, data center colocation services at 32%, digital services at 28%, and network services at 40%. As on June 30, 2023, Sify provide services via 910 fiber nodes across the country, a 10% increase over the same quarter last year. The network connectivity service has now deployed 6541 SDWAN service points across the country. During the quarter, Sify has invested US$193,000 in in startups the Silicon Valley area as part of our Corporate Venture Capital initiative. To date, the cumulative investment stands at US$5.57 million. A detailed list of our key wins is recorded in our press release, now live on our website. Let me bring in Vijay, our Executive Director and Group CFO, who will elaborate on the financial highlights for the quarter. Vijay?

Thank you, Kamal. Good morning, everyone. Let me briefly discuss some of the financial performance for the first quarter of financial year 2023/2024. Revenue was INR8547 million, an increase of 11% for the same quarter last year. [Technical Difficulty] EBITDA was INR1,724 million, an increase of 13% over the same quarter last year. Profit before tax was INR149 million. And profit after tax was INR95 million, a decrease [Technical Difficulty] Capital expenditure during the quarter was INR1,436 million. Sify and Sify Infinit Spaces Limited, a wholly owned subsidiary of Sify, which operates data center colocation business, have entered into an agreement with Kotak Data Center Fund on July 20, 2023, under which the fund will invest up to INR6,000 million [Technical Difficulty] Sify and Sify Infinit Spaces Limited, a wholly owned subsidiary of Sify, which operates the data center colocation business, have entered into an agreement with a leading investment bank led fund Kotak Data Center Fund on July 20, 2023 under which the fund will invest up to INR6,000 million, approximately US$73 million on today's exchange rate in the form of compulsorily convertible debentures Sify Infinit Spaces Limited. Sify Infinit Spaces Limited will use the proceeds for the expansion of data centers including land acquisition for new data center capacity, investment in procuring alternate source of power and repayment of debt. Fiscal discipline will remain the cornerstone of our growth strategy, as we scale investments into our data centers and networks. By judicially allocating investments and resources, we will seamlessly expand our infrastructure in new resources and build competencies and scale. While we expect to see these investments impact profitability in the near-term, this should enable us to aggressively pursue digital transformation engagements in the future. We will continue to prioritize resource optimization and sustainability, fortify our [Technical Difficulty] The cash balance at the end of the quarter was INR3,240 million. I will now hand over to our Chairman for his closing remarks.

Thank you, Vijay. At the beginning of this financial year, we enabled our ambition to become the digital bridge for enterprises who are either adopting or being [Technical Difficulty]. Our immediate milestone is to become the enabler of the choice of this transformation. And we are well on our way. Thank you for joining on this call. I will now hand over to the operator. So I know we are having a lot of disconnections, please reach our IR person for any questions. But I'm more than happy to connect -- answer any questions we have at this point. Operator?

Good morning. So, in terms of co-tax investment, what is their total investment now, including the first round of investment that they did, I guess, little over a year ago? I'm assuming that's fully pulled now, but where do they stand in terms of their investment into Sify Infinit Spaces? And the conversion rates on the nodes, how much -- what percent of equity does that convert into?

Holly, do you have M.P. Vijay Kumar?

It looks like the speaker line dropped again. Just one moment.

Holly, that's okay. My suggestion is that my CEO, Mr. Kamal Nath, can take this call. Kamal?

So, Praveen, Vijay has to take this call. Vijay has to take this call. So, he'll be --

Okay. I can ask another -- I have another question. So, maybe it's better for all, but -- okay.

Go on, Greg.

Yeah. So, you mentioned like a new kind of phase growth and taking advantage of moving beyond just kind of infrastructure and emphasizing digital services. So, when you talk about that, is that just putting more resources behind the digital services that you're already reporting? Or does that envision something beyond that, some new services that you're bringing to market? Because I saw on your website, you had something called Marketplace. And I don't know if that's new and part of this initiative, but maybe if you could elaborate on your -- what you mean by digital services and your vision there for how that drives growth for Sify?

Yeah. Very good. So, yeah, it's a good question. So, we have -- so our entire portfolio can be logically divided it into -- can be looked at from a customer's point of view in three parts. One, of course, are the infrastructures for digital IT, cutting across data center network, cloud, et cetera, et cetera. The second set of services we are calling them digitalized services, which are basically services to better manage the digital infrastructure to get the best out of the digital infrastructure when the digital applications are being run on the infrastructure, so those are the digitalized services. And some of the digitalized services -- some of these services were basically -- were existing earlier also, but they have got digitalized by insertion of digital technologies like AI/ML. So, a lot of our software services have got digitalized by enabling them with AI/ML technologies. The third set of services, which we call the core digital services, are across certain digital platforms. So, we have invested, as you hear in our quarterly calls, in multiple deep tech companies, new age deep tech companies, which are -- by using those platforms, we offer digital services to our customers. So, customers can build digital business models or can digitalize their services based on those platforms. So, we will be continually adding more and more portfolio around those core digital platforms. And in the coming days, I'm sure we'll be able to announce some more exciting partnerships in that regard. So, from a customer standpoint, we are engaging with the customers for their core infrastructure. We are engaging with them for managing their core infrastructure better and also in the customer's innovation journey. So that's how I would like to put. And in that way, we are able to engage with customers cutting across their entire life cycle of their digital journey.

Okay. Great. And I don't know if this is -- one for Vijay or Nath. But can you just give us an update on your data center footprint. I think the last report was around 11 DCs and about 100 megawatts of power. What's the roadmap like for this year? How much capacity in fiscal 2024? Are you bringing online? And what's the timing of that?

Yes, we are in fact -- yeah, Vijay, are you there?

Yeah. Kamal, I'm here. So, we have three greenfield projects which are currently under construction. One of them is expected to go live later this quarter. And that particular capacity designed for about 38 megawatts and will get occupied by the customer in a phased manner. The other two facilities, the civil construction will get completed in the quarter 4 of the fiscal year. And basis our customer engagements will create the initial IT capacity required for the customers.

Okay. So, between those three, how much -- I guess you mentioned 38 megawatts and the one that's coming online. But how much added capacity is that put you at? And then, I guess, could you just remind us of what your longer term targets are in terms of your data center investments? And does the new investment from Kotak increased -- like increase your goals in terms of investment and capacity?

I lost a part of your question because I got disconnected. I guess you are referring to additional capacities to be created in the future based on the new capital, which is coming from Kotak.

Yes.

Yeah. That is for new capacities, which we intend to create over the next 18 to 24 months, beyond the three greenfield projects which are currently under construction. The new capacities -- we are currently completed our land acquisition. The design and planning work is in [Technical Difficulty]

That's okay. I could -- we could connect offline and do this at another time.

Yeah. Yeah.

All right. No problem.

Okay. I'm back here. So, it's basically for new capacities beyond the current greenfield project. What we have done is financial closure ahead of new projects to be started.

Okay. Great. Thank you.

Thank you.

[Operator Instructions] There appear to be no further questions in queue. I would like to turn the call over to the management for closing remarks. End of Q&A:

Thank you for your time on this call. We look forward to interacting with you through the year. Thanks very much. Have a great day.

Thank you. This concludes today's…

Thank you.

Thank you. This concludes today's conference. You may disconnect your lines at this time.

Holly, if you don't mind. To everybody on the call, we're sorry about the interruptions that have been frequently happening. But if you have any further questions, you can reach out to me marked in the press release. My e-mail ID and my coordinates are there. Thank you very much, Holly.

Thank you. This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.