Sify Technologies Ltd (SIFY) 2005 Q4 法說會逐字稿

Good morning and welcome to the Sify Limited conference call for the earnings results for the fourth quarter and fiscal year ended 31 March 2006. At this time, all participants are on a listen-only mode. A brief question-and-answer session will follow the formal presentation. (OPERATOR INSTRUCTIONS). As a reminder, this conference is being recorded.

I would now like to introduce your host for the conference, Ms. Truc Nguyen, Investor Relations for Sify Limited. Thank you. You may now begin.

Thank you, operator. I would like to extend a very warm welcome to all of our participants today on behalf of Sify Limited. I'm joined on the call today by Mr. R. Ramaraj, Chief Executive Officer, and Mr. Durgesh Mehta, Chief Financial Officer of Sify Limited.

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 the Global Consulting Group at 646-284-9426 and we will have one sent to you. Alternatively, you may obtain a copy of the release at the Investor Relations section of the Company's corporate website at www.sifycorp.com.

A replay of today's call may be assessed by dialing in on the numbers provided in the press release or by accessing the webcast in the Investor Information section of the Sify website.

Some of the financial measures referred to during this call and in the earnings release may include non-GAAP measures. A presentation of the most directly comparable financial measures calculated and presented in accordance with GAAP and a reconciliation of such non-GAAP measures or the differences between such non-GAAP measures and the most comparable financial measures calculated and presented in accordance with GAAP are also 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 that 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 with 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. R. Ramaraj, CEO of Sify. Mr. Ramaraj?

Thank you, Truc. I would like to welcome everyone on the call once again and thank you for joining us. I will commence with a few opening remarks on our performance.

We are extremely pleased to report a net profit under U.S. GAAP of $470,000 for the fourth quarter, with consistent growth across all our businesses. Our growth over the year was led by new initiatives in our portal business, where revenues grew 74% over the previous year. We continue to lead the market for infrastructure managed services such as VPNs and have established leadership amongst private players in the high-speed Internet access to the home segment.

The iWay Cyber Cafe chain continues to grow. We have substantial leadership and we have over 1 million subscribers using the 3300 iWay Cyber Cafes across 153 cities in the last quarter.

We are well-positioned to continue growth across all our businesses in a nascent Internet and network services market in India. We have cutting-edge IP expertise and the active involvement of our majority stakeholder in accelerating our growth with international relationships and alliances.

I will now request Durgesh to take you through our financial performance for the last quarter, and then I will come back with some highlights of the last quarter. Durgesh?

As Ram announced, we achieved a net profit of $0.47 million for the quarter, compared to a net loss of $2.51 million for the fourth quarter and previous fiscal year. We achieved net profitability, with revenues of $28.9 million for quarter ending March 31, 2006, 24.9% higher than in the quarter ended 31 March 2005. Our cash profit in adjusted EBITDA terms for the quarter was $2.65 million, an increase of $2.07 million compared to the same quarter last year.

The fourth-quarter performance results are after considering a significantly higher provision for doubtful debts amounting to $0.98 million after we had done an intensive analysis of our receivables position. The provision for doubtful debt was $0.31 million in the previous year and $0.4 million in fourth quarter of the previous financial year.

Sify's net loss for the year was $3.35 million, a decrease of 52.4%, compared to a net loss of $6.9 million for the previous fiscal year. We ended the year with a cash balance of $63 million after a capital expenditure of about $2.8 million during the fourth quarter and $13.6 million during the year. Further details are available to you in our press release.

I would like to add that we have consistently invested in growth in the belief that this will lead to revenue growth, market leadership and profitability and are now beginning to see the benefits of this strategy. The markets in India continue to hold great potential for growth, as do our international services in infrastructure management and security space. It is our intention to continue to invest in growth to build the value for the Company and maximize stakeholder value.

Ram will now take you through some of the highlights of the quarter.

Thanks, Durgesh. I'd like to start with what we have been doing in our portal business, especially on the broadband side. We launched sifymax.in, our fast-breaking broadband portal, in the first quarter of the year, and have been quite successful in developing and leading the broadband content market with alliances and innovation.

SifyMax was the exclusive broadband partner for reality shows such as Indian Idol, Fame Gurukul, Business Baazigar and Sa Re Ga Ma Pa. There's a strong focus on entertainment, with song and dance videos from Bollywood hits, interviews with actors and directors from the Indian film industry, international and domestic music videos. The site also holds 15 radio stations with the latest Bollywood hits, latest chart busters, indy pop and international in multiple languages.

For those wanting to stay in touch with the markets and news [violet] offers, SifyMax now streams business channel CNBC and news channel CNN-IBNLive to cover the stock market during the day and news and business roundups in the evening.

With regard to sport, SifyMax has the live streaming rights for all the seven one-day international cricket matches that were recently played between India and England. This in addition to SifyMax's very innovative video scorecard that continues to delight cricket fans with instant replays of the highlights almost as soon as they happen.

We launched India's first city-centric website, bangalorelive.in, during the quarter with original Bangalore-centric video content created exclusively for an online audience. The video focuses on city news, events, entertainment, lifestyle, commerce and politics.

The site is seeing an enthusiastic response and we will follow with other city-centric broadband sites. These open up new opportunities for city-centric retail advertising, sponsorships, advertisements for city-specific jobs amongst many others.

While revamping SifyMall and initiating offers such as the Deal of the Day, which are growing in popularity, we have also extended the reach of the mall by enabling mobile commerce that allows GPRS mobile users to shop on SifyMall using their mobile phone.

Our intention is to seize the initiative in the portal space with our early entry and lead in developing broadband content, as well as with our lead in providing content in Indian languages.

Moving on to access, the highlight of our access initiatives in enhancing the consumer Internet experience starts with our iWay chain. We now take broadband access to Indians from 3300 iWays across 153 cities in the country. Growing at the rate of 200 cafes in the last quarter, we added more than two new cafes per day to extend our dominant position in public Internet access.

We are now the largest high-speed Internet service provider amongst private players in India, with over 183,000 subscribers. We also have the widest geographic spread, with services expanded to 91 cities across the country.

By leading the market in broadband Internet content, public broadband Internet access and broadband access to homes, we have moved forward in our objective of being able to influence the Indian consumers' Internet experience by focusing on broadband.

And now I'd like to highlights some key initiatives in our VPN managed infrastructure services, managed hosting and security services. Our wireless broadband connectivity for the last mile has been a key competitive differentiator in winning contracts for VPN and connectivity services from large enterprise across the country.

In addition to this, I'm glad lead to inform you that we now have an agreement with the incumbent telephone company VSNL, the largest telephone company in the country, to give us access to their wireline links for the last mile. This further strengthens our competitive position in this space. Our mesh network consists of leased fiber optic lines from a number of telephone companies, as well as other providers that just [follow their incorporation], advanced fiber optics along the power line.

This approach has given us widespread reach, which we were able to compete effectively in a highly competitive market. For example, we have gained some significant wins such as Bombay [Dine], which was formerly with a competitor, but they were unable to implement connectivity across B and C class [dance]. We also won contracts from [Eureka Forbes] for a 90-location network and from Travel Corporation for a 200-location network because of the reach and quality of our services.

A special area of focus has been the small and medium enterprise segment, which represents a large and growing market in India. Our strategy is to approach the market by verticals for focus. For example, stockbroking in India is a rapidly growing segment. We have launched a basket of managed ASP services for this segment that includes hosted messaging, document management, hosting and digital security services, a solution which keeps data on remote PCs secure.

As electronically signed documents and digital certificates are becoming increasingly important and in use for stockbroking, we are providing these services to this segment. We intend to approach other verticals in the small and medium segment similarly by delivering solutions according to the needs of the vertical.

To extend our position in the hosting space, Sify is setting up a Level IV data center in Bangalore to cater to the rising demand for hosting primary and disaster recovery data centers. This will be Sify's third data center in the country after Mumbai and Chennai and will strengthen our leadership position in end-to-end infrastructure managed services.

We continue to win new accounts for our international remote infrastructure managed services with two new accounts signed recently. We are engaged in discussion with a number of other companies and you should see the results of this market development effort in the near future.

In a significant recognition of our leadership in VPN services, [Darknut], in comparing six VPN service providers rated us on top in every parameter and stated, and I quote, Sify has the most extensive portfolio of managed service offerings that include managed firewall, hosted email and management of desktop and desktop applications, end quote.

This brings us to the end of the highlights that I wanted to share with you across businesses, and I will now turn the call over to the operator for questions. Operator?

(OPERATOR INSTRUCTIONS). George Mihalos, Gilford Securities.

A couple of questions. To begin with, can you talk a little bit about your hiring plans for this fiscal year? And what should we be modeling in terms of wage inflation as we go forward?

George, part of our model has been that we leverage existing manpower over multiple businesses in terms of the technology and tools that we use. So unlike the software industry, increasing in dollars, revenues, need not necessarily have a direct impact on manpower costs.

So that is actually one of the significant differentiations between us and the IT companies. We have that as an advantage because of the tools that we use. We expect, therefore, to add manpower on a lower level than the increase in revenues and expect maybe overall to add about 10 to 15% by the end of [technical difficulty].

The second part of your question, George, was in terms of inflation for salaries. This has been definitely a market that has seen, I think, disproportionate increase in salaries. We have been doing a balance here. What we have been doing is going to good engineering colleges, taking fresh engineers and have been training them so that we have, therefore, a balance, of course, between fresh and experienced people.

The average increase that we have been seeing in the industry is about 15% or so for similar industries like ours, whether telecom or related industry. And we think we should be somewhere in that ballpark.

And we should see this in the first quarter, right? That 15% increase over the March level?

I'm not sure that you will see all of that 15 in the first quarter. You may see that maybe staggered definitely towards the first, but spread over first and second quarter.

Also, can you talk a little bit more about the portal business? Excluding the Refco JV, was that profitable in the quarter? Or do you continue to invest in advertising and new technologies and are sort of capping the profitability near term?

The portal business, we are focusing, as you know, on two areas -- broadband and youth. We have, therefore, made investments toward making sure that we have the relevant content execution. The single largest cost, therefore, is content in that business. We need to source that content from different people, whether it is Bollywood, music or other people who generate this content. That is where we have been focusing on.

The business currently is at an EBITDA level positive and continuing to grow at about -- for the year was at 74%, but on the fourth quarter, it was actually a growth of about 86% in revenue from Q4 of last year. So there is momentum in the business, and we would like to invest in video and youth content.

So is it safe to say that those EBITDA margins will be relatively stable near term as you bring on additional content?

That is right. Yes.

And perhaps also -- in the past, you've provided a breakdown of your online revenues -- online advertising, e-commerce, so on and forth -- mobile as well. Can you provide us with that and maybe let us know what percentage of online revenue is coming from SifyMax?

SifyMax in the total is -- of the total advertising, online advertising, SifyMax has 35% of the revenues.

And can you break down in terms of online advertising, mobile revenues, so on and so forth, just so we can get a better picture of where the revenue is coming from?

Yes. Advertising revenues was 79%, e-commerce was 12 and mobile was 9.

What do you think it will take to really jumpstart the mobile side of the business? Is it simply the fact that the mobile carriers are taking a disproportionate amount of revenue within the sharing arrangements? Or is there something else?

It is only that. It is just that. It is so skewed in their favor, and that anything that we did, they try and copy and keep those revenues. So it is a structural issue at the moment, not an opportunity issue, until the structure changes, and I think structure will change as mobile users find alternative ways.

For example, we are trying to see how the mobile user can have direct access to some of our content at the iWays using Bluetooth. So there are many things that we're now starting to experiment to see are there some clever ways at the iWays that we could maybe bypass -- but that is still not -- has to be a structural change for any online company to have better revenues.

Is there any online user data or total number of advertisers that you can provide us as we try to compare that part of your business with some other peers?

122 for the quarter.

122. And you had mentioned a sharp increase in the allowance for doubtful accounts relative to the corporate end of the business. Can you elaborate on that a little bit, what sort of caused it?

I think it was more because many of the enterprises, for them also, this was their fiscal year end, and therefore, sometimes delayed it and instead of paying by 31 March will be paying in this quarter. We have a policy that based on number of days, we just make that provision. And since it was year ending for most Indian companies, I think it was just a question of paying us in this quarter rather than in the last. We have made that provision on a conservative basis.

So you're just being prudent. There's nothing there -- there's no real accounts that are extraordinarily dated or anything like that?

No, George. It's just prudence.

And last question -- shares outstanding for the quarter?

Same -- 42 -- 42 million approximately.

(OPERATOR INSTRUCTIONS). Sameet Sinha, Kaufman Brothers.

A couple of questions. Could you talk about some of the trends in the enterprise services business? Most of the growth -- do you see that as a result of new customer wins or higher revenue per customer?

We are seeing both. We've had repeat business. The way we're looking at this is focused on recurring revenue. And 70% of our recurring revenue has come from existing business. 66%, I believe, has come from the existing customers and 34 have come from new wins.

On the remote IT management services, you seem to have won two new contracts. Can you talk about some of your experiences in the international markets where you are marketing these solutions? How are you are going about approaching the companies and what sort of responses are you getting, lead times, etc.?

Forester in a report last year had covered us amongst 14 companies internationally. We have been attending analyst conferences where CIOs participate and have introduced Sify and its services. We have had a nice coverage in relevant technology magazines in the United States talking about Sify's remote management capabilities.

We have direct sales force both in the West Coast and the East Coast. We do telemarketing and telecalling from India. We have an agency that refines and gives us appointments. So multiple ways in which we have been reaching targeted audience. So that is how to get to the customer. Existing customers in India have also been references to the international customers, besides international customers themselves being references for the new customers.

Our experience has been that we have been able to migrate customers to our remote management once they have signed on, but in very quick time, usually between three to four weeks, but never exceeding five to six weeks. That experience of migrating it peacefully without upsetting their existing services is something that has been appreciated by the customers and has actually acted on increased engagement with the customers plus these two new wins.

Could you talk about lead times when you approach the customer and by the time they sign on?

On an average, it takes us about 12 weeks.

On the access media side, your revenue growth seems to have trickled down. Is this mostly from pricing pressures on the iWays, or have you seen continued pricing pressure on the residential access as well?

Actually, this is because in the month of March -- February and March is exam times in India. And that is why the number of kids coming into the iWays came down. We expect that with the exams over and holidays in this quarter that we should start seeing increases in the revenue. It is not pricing pressure, but just the fact that this was exam time for both colleges, engineering colleges, colleges and high school.

And how much of your revenues in the quarter came from Voice over IP calling through your various booths and iWays?

I will just give you that number. 7% of Company revenues came from new IP from these booths.

You recently also started streaming the India/England cricket matches. Can you talk about your experiences there -- the benefits, the traffic to your portal, as well as walk-in traffic to the iWays?

Actually, one of the challenges that we have when we have these cricket matches is that our traffic to the iWays usually go down. But for the exam factor, other than that, during the cricket matches, we did not see a drop at the iWay because of the radio streaming that we had.

Second is that at our offices, actually, the traffic, we had 11 servers that were fully occupied and were delivering high-quality streaming. So all of them are busy, but service was up and excellent response --

3.9 -- or [indiscernible]

On one day, more than 400,000 clips were viewed. So the response to the streaming has been very, very encouraging.

I did hear that the quality of the streaming was very good. So that was a good effort. On SifyMax side, I understand this is a new business for you. Can you talk about some of the methods you are using to market this and spread the awareness amongst advertisers? And if you can also touch on the inventory sellout rate for this quarter? And also, in the core sify.com site, how has the new rejuvenated site -- what sort of traction is it getting amongst advertisers?

Our page views are driven entirely through content. For us, therefore, when somebody comes to our site, it is because they want to see something. And therefore, it is driven by content, whether video or on sify.com. That makes it -- and whether through the iWay, broadband at home or wherever they come through, they are therefore able to spend some time on the site because it's coming for content.

We have been able, therefore, to get a disproportionate portion of advertising revenues compared to page views than some of our competitors have. So with far lower paid views, our advertising revenues are disproportionately higher.

The SifyMax, the way we have been promoting it is at the iWays, that is what comes up first. And therefore, that is something that the youngsters like to see and then go through to the Bollywood sites, the reality sites, all of that.

The second part that we have been doing is that we've had a launch of BangaloreLive using disc jockeys. We ran a contest for disc jockeys in Bangalore and gave away a nice SUV car. An SUV was given away to a young programmer. All of that created substantial hype, and this was done at a very large stadium which was jam-packed with these disc jockeys and the rest. Many ways in which -- at youth hangouts is where we have been promoting this.

And then finally, the key in Internet marketing, as you know, is viral marketing, and it is really this viral marketing that has gotten us the traffic.

On the sify.com, the feedback on the new site has been excellent. And the advertisers' response, therefore, has also reflected in the increased revenues in this quarter.

How are you marketing this to advertisers, both -- from a direct salesforce?

We have a direct salesforce located substantially in Mumbai and Delhi. And they go out and make these pitches, besides of course selling it to aggregators.

And can you talk about what sort of -- what percentage of these relationships are directly with the advertiser versus through agencies?

95% plus would be direct.

And one final question -- what was your cash flow from operations during the quarter?

It was about $200,000 after --

CapEx.

Okay, so free cash flow was about $200,000.

After 2.8 million CapEx.

Of capital.

Gentlemen, I am showing no further questions in queue at this time. Do you have any closing comments?

Yes. Thank you all for joining the call. And we look forward to interacting with you through the quarter and around this time in the next quarter. Thank you and goodbye.

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