Sify Technologies Ltd

NASDAQ:SIFY

Earnings Call Analysis

Sify Technologies Q3 Financials Dip

Sify Technologies reported a revenue of INR 8,659 million, marking a 3% decrease from the previous year's quarter. Yet, EBITDA grew by 4% to INR 1,689 million. The company faced a before-tax loss of INR 20 million and after-tax loss of INR 14 million, contrasting with the prior year's profit, largely due to elevated depreciation and interest tied to infrastructure growth. Capital expenditure stood at INR 1,087 million, as Sify continues to expand its data centers and network footprint, as well as upskill employees. These forward-looking investments are expected to improve future net profits. The cash balance closed at INR 6,037 million this quarter.

Financial Performance Overview

Sify Technologies reported a decrease in revenue of 3% year-over-year for the third quarter of the fiscal year 2023-2024, with total revenue amounting to INR 8,659 million. Despite the decline in revenue, EBITDA improved, registering a 4% increase over the same quarter from the previous year, standing at INR 1,689 million.

Profitability Challenges

The company faced a challenging profitability scenario, reflected by a loss before tax of INR 20 million and an after tax loss of INR 14 million, contrasting the profit achieved in the same quarter of the previous year. This downturn is partly attributed to a substantially higher depreciation from ongoing infrastructure expansion projects.

Investments and Future Expectations

Capital expenditures during the quarter were INR 1,087 million, as the company proactively invested in expanding data center capacity, increasing network footprint, and enhancing employee skills with new tools. These strategic investments are made with a long-term perspective and are expected to positively influence net profits in the coming periods.

Data Center Expansion

Sify Technologies continues to strengthen its data center infrastructure, with an operational capacity spread across 6 cities and 11 facilities totaling approximately 100 megawatts. Additional capacity expansions include a 38-megawatt facility set to become operational in January 2024, along with two new greenfield data center projects which are expected to contribute to the company's capacity in the following fiscal year.

Forward-looking Statements and Potential Risks

The company's forward-looking statements are based on current expectations and projections about future events. However, these should be considered in light of various risks and uncertainties, detailed in the company's SEC reports and public releases, which may cause actual results to differ materially from those anticipated.

Investments in Innovation

As part of its corporate venture capital initiative, Sify invested USD 0.15 million in startups located in the Silicon Valley area during the quarter. The company's total cumulative investments in these innovative ventures have reached USD 7.22 million, underscoring its commitment to fostering new technologies and business models.

Earnings Call Transcript 2024-Q3

[Operator]

Greetings. Welcome to the Sify Technologies Financial Results for Third Quarter Fiscal Year 2023 through 2024. [Operator Instructions] Please note, this conference is being recorded.

I will now turn the conference over to your host, Praveen Krishna. You may begin.

[Praveen Krishna, executive]

Thank you, Holly. On behalf of Sify Technologies, allow me to wish you a very Happy New Year. I'm joined on the call today by 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 [phone], and we will have 1 sent to you. Alternately, 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 GAAP measures and of the differences between such 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 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 Sify Technologies. Chairman?

[Raju Vegesna, executive]

Thank you, Praveen. Good morning, everyone. Thank you for joining us on the call. A combination of pro-industry regulatory initiatives in India and encouraging investment climate and a lot of skilled human capital are the factors that continues to dominate enterprise business strategies for India.

Business leaders are united in their view that India is central to their growth plans and are aggressively ramping up their local investments.

Let me bring in Kamal, our CEO, to expand our -- some of the business highlights for the last past quarter. Kamal?

[Kamal Nath, executive]

Yes. Thank you, Raju. As enterprises pursue their digital transformation and digitalization objectives, they are also recalibrating their digital infrastructure across hybrid cloud, network, security and edge infrastructures. Customer experience, business continuity, cybersecurity, application modernization and overall adoption of AI models are the prime drivers for this recalibration. Our infrastructure investments and services portfolio are fundamentally aligned to meet the customer goals. Simultaneously, we are continuously engaged with our customers to identify their specific needs and selectively recalibrating our propositions to support the same.

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 31st December 2023, Sify has deployed 6,920 contracted SD-WAN service points across the country. Sify provides services via 974 fiber nodes across the country, a 15% increase, respectively, over the same quarter last year. This quarter, Sify invested USD 0.15 million in startups in the Silicon Valley area as part of our corporate venture capital initiative. To date, the cumulative investment stands at USD 7.22 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, to elaborate on the financial highlights for the quarter. Vijay?

[M. Vijay Kumar, executive]

Thank you, Kamal. Wish you all a very happy 2024. Let me briefly present to you the financial performance for the third quarter of financial year 2023-'24. Revenue was INR 8,659 million, a decrease of 3% over the same quarter last year. EBITDA was INR 1,689 million, an increase of 4% over the same quarter last year. Loss before tax was INR 20 million and after tax was INR 14 million. These are compared to a net profit in the same quarter last year with a substantially higher depreciation on account of ongoing infrastructure expansion projects and interest cost.

Capital expenditure during the quarter was INR 1,087 million. We continue to invest in adding more data center capacity, extending our network footprint and skilling our people on new tools. These investments are being made ahead of the curve and will reflect on our net profit for the near future. The interest on compulsory convertible debentures raised in our data center subsidiary for data center expansion has been accounted partly as equity in accordance with the GAAP and is recognized as expense in the statement of income. The cash balance at the end of quarter was INR 6,037 million.

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

[Raju Vegesna, executive]

Thank you, Vijay Kumar. As you can see, our investments, both in capital and resources are backed by our belief that the market is just warming up to our services. There is still a lot of runway, and we have the right portfolio of services. We just have to accelerate our engagements.

Thank you for joining us on this call. I will now hand over to the operator for any questions. Operator?

[Operator]

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

[Gregory Burns, analyst]

Could you just give us an update on your current data center capacity? How much -- how many maybe megawatts of capacity you might have added in the quarter and what your road map is for the rest of 2024?

[M. Vijay Kumar, executive]

Yes. We have data center operational capacity across 6 cities and 11 facilities of about 100 megawatt. And this quarter, that is January 2024, we will be making another 38-megawatt facility operational. Apart from this, there are 2 other greenfield data center projects at Delhi and Chennai, which will go live in quarter 1 of fiscal '24-'25. In Phase 1, both of them will have a design capacity of about 26 megawatt each.

[Gregory Burns, analyst]

Okay. So the 38 megawatts in -- is that in Mumbai? I think that's going to go -- that will go online in this fiscal fourth quarter?

[M. Vijay Kumar, executive]

Yes, it's going live January 2024 this month.

[Gregory Burns, analyst]

Okay. Okay. And I guess with this capacity coming live, do you expect to see a little bit better operating or earnings leverage next year now that you're going to start generating some revenue off of some of these investments you've been making?

[M. Vijay Kumar, executive]

Yes, you're right. It should happen.

[Gregory Burns, analyst]

Okay. Great. And then the decline in digital services this quarter, was that mainly driven by the technology integration services? Was it just timing of projects? Is there anything else going on there that we should take note of?

[M. Vijay Kumar, executive]

Two things. One is, it is timing of the existing projects in terms of effective handover to the customer. And second is a change in -- a conscious change in the profile of the technology integration services project, where the focus is largely on projects where there is services component, which is significant.

[Gregory Burns, analyst]

Okay. Okay. So given that change is -- are you just becoming more selective? Should we -- how will that, I guess, translate into the P&L? Just lower growth, more selective higher-margin projects, is that what you're looking for now?

[M. Vijay Kumar, executive]

Yes. So it would basically mean less of pass-through projects and more of services projects, which should be higher-margin projects.

[Gregory Burns, analyst]

Okay. Great. And then with the Kotak investment, how much have you drawn down on that? And how much remains available to you?

[M. Vijay Kumar, executive]

We have drawn down a total of INR 1,000 crores, out of which INR 400 crores has been deployed for projects we have executed in the last couple of years. INR 600 crores is meant for new projects, which we are picking up. And as per the arrangement, we are entitled to draw another INR 600 crores anytime up to October 2026.

[Gregory Burns, analyst]

2026. Okay. Perfect. And then you mentioned some industry regulations, positive industry regulations for you. I think one of those was the data security or data privacy regulation. Could you give us an update on that and maybe some other -- any other pro industry regulations that you might have been referencing in your prepared remarks?

[M. Vijay Kumar, executive]

Yes. So it is essentially the Data Protection Act, which is a material development. Apart from that, all the regulators have been encouraging enterprises to host their data within the country. And there is also an encouragement towards hosting these in clouds which are set up outside of their premises. So most of the banks or insurance companies are developing their digital transformation strategies to host in clouds, which are largely private clouds, hosted with data center providers like us.

[Gregory Burns, analyst]

Okay. The -- what is the status of the Data Protection Act? Is it near the point of getting passed? Or is it -- I guess -- sorry. Where is it in the process of being passed?

[M. Vijay Kumar, executive]

The law is live. The law is live as we speak. What is pending is the regulations relating to implementation of the law, which should hopefully come in the coming months.

[Operator]

[Operator Instructions] There are no questions in queue.

[Raju Vegesna, executive]

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

[M. Vijay Kumar, executive]

Thank you, Holly.

[Kamal Nath, executive]

Thank you.

[Raju Vegesna, executive]

Thank you.

[Operator]

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