Sify Technologies Ltd (SIFY) 2006 Q2 法說會逐字稿

Good evening ladies and gentlemen. And welcome to the Sify Limited earnings results for the second quarter ended September 2006 conference call. [OPERATOR INSTRUCTIONS]. It is now my pleasure to introduce your host Miss. Truc Nguyen, Investor Relations for Sify Limited. Thank you Miss. Nguyen, you may begin.

Thank you, Dan. I would like to extend a warm welcome to all of our participants today on behalf of Sify Limited. I am joined on the call today by Raju Vegesna, Chairman and CEO of Sify Limited, Suri Venkat, Chief Operating Officer and 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 9407, and we will have one sent to you. Alternatively, you may obtain a copy of the release at the investor information section of the Company's corporate website at www.sifycorp.com.

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 website.

Some of the financial measures referred to during the 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 of 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 call, are forward-looking statements rather than historical facts that are subject to risk and uncertainties that would 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. Raju.

Thank you Truc. I would like to welcome everyone, on the call once again, and thank you for joining us. At the outset, I would like to introduce our Chief Operating Officer Mr. CVS Suri to all of you. Suri is a graduate from Delhi University and has a Masters in Management from XLRI, Jamshedpur, one of India's leading business schools.

After a successful career in large organizations such as ITC Limited, he has also built an infrastructure company as an entrepreneur. So he brings to Sify years of his experience in chain management, business development and human resource systems.

He will oversee operations with the focus on people, processes and synergies between Sify's multiple businesses, to unlock best value for our customers, with an [integrated] effort. Sify is in the public business, and we understand to the importance of developing our human resources, to maintain our industry leading quality outside [these levels].

I am confident that Suri will play a key role in helping draw the capability and the caliber of Sify team, an essential prerequisite to the growth of our business in India and of overseas.

I would also like to share with you the good news that we have won recognition from Frost and Sullivan for the third year running, for the market leadership in IPVPN services. We have just come from the award ceremonies, where we received the market leadership awards for 2005 and 2006, IPVPN services in India.

I will now comment with opening remarks on our performance in the last quarter. I am pleased to report that our profit for the quarter was $1.49m, with the revenues up $31m, about 18% higher than the revenues for the same quarter last year. We are able to build momentum for the year by growing our revenues for the first quarter over the previous quarter for the first time.

We also conducted a business analysis and a re-structuring during the past two quarters for this year, and are now beginning to see the results of this effort in the form of improved margins and better cost management. We intend to continue these efforts in the coming quarters.

However, I believe the full benefit of these changes will be more evident six to nine months from now, as we move closer to realizing our vision of ensuring smart growth, with the profitability through leveraging of the many synergies across our businesses.

I will now request Durgesh to take you through our financial performance for the last quarter.

Thank you Raju. Hello everyone. I have -- I will now go through into details of our financial performance during the quarter ended September 30, 2006.

Our revenues were $30.1m for the quarter, 17.9% higher than in the quarter ended September 30, 2005. The sequential growth in revenues, over the previous quarter, was 4.9%. Our cash profit, in adjusted EBITDA terms, grew threefold from $1.18m in the same quarter last year to $3.55m in the current quarter.

Our net profit, as Raju shared with you, was $1.49m compared to a net loss of $1.39m [sic - see press release] for the same quarter last year. Our net profit for the quarter, for the first quarter, was $1.36m, which included ForEx gains of $0.96m as compared to only $0.01m in the current quarter. Thus, our net profits this quarter, excluding foreign exchange gain has, therefore, improved from $0.4m to $1.48m and marked a significant improvement in our business profitability.

We ended the quarter with a cash balance of $50.39m after incurring capital expenditure of about $1.76m during the quarter. Further details are available to you in our press release. I believe the last two quarters have set the stage for a profitable growth, with better management of bandwidths and overhead costs.

The Company's increasing focus on synergies across businesses should also contribute towards this objective by improving the productivity and leveraging scale. Suri will now take you through some of the highlights of the quarter. Suri?

Thanks Durgesh. Good afternoon everyone. I'd like to start by sharing with you how excited I am to be here, and to contribute to the Sify success story.

Sify has tremendous human capital, and I am sure that with the process and synergy enhancers that we are working on, we will see growth and continued leadership going forward. Let me share with you now some of the highlights of our operations in the last quarter.

I'd first like to share with you some of the key events in our Portals business. Our revenues grew approximately 6% on a sequential basis, and 71% over the same quarter last year, driven by advertising, sponsorships, mobile content and e-commerce.

Our key broadband content initiative, SifyMax, went from strength to strength. Partnering with Zee Television during the quarter, for auditions for a popular reality TV show, Zee Cine Stars conducted from a 3,400 plus strong iWay Cyber Cafe chain. This program was a big hit across [urban] India. And this partnership meant that entrants from across the country could audition and upload their [renew tests] from a nearby iWay cafe. It is leveraging synergistic option of things like these that gives us a competitive edge and internet space in India.

Another key initiative that is affecting the lives of people in Mumbai, which is the financial capital of the country, is a live video version, a religious rites of blessings, from the famous Siddhivinayak Temple on MumbaiLive.in, as well as live [reducing] minimum traffic on key arterial roads and junctions.

For the first time MumbaiLive was 24/7 traffic streaming, enabled citizens to view processions of devotees proceeding for idol immersions during the Ganesh festival, and plan their own travel routes accordingly. We covered also [promised] residents of Mumbai to see and check on travel routing and otherwise.

MumbaiLive also conducted India's first ever Net Jockey hunt. We are seeing an overwhelming response of over 400 contestants submitting video auditions. The best Net Jockey will be chosen by citizens, based on the audition videos of the contestants on the MumbaiLive site.

In a similar promotion, aimed at becoming the city's home on the web, BangaloreLive concluded a successful Best home in Bangalore contest. In this event, homeowners uploaded videos of their homes for citizens to view, and vote for, in a first ever initiative of this kind.

Mobile internet content from our Portals showed healthy growth during the quarter, with investments in marketing and technology processes to deliver compelling content seamlessly across mobile platforms.

I will now cover some of the key initiatives in our active media business. We grew the iWay Cyber Cafe chain by over 150 cafes to a total of 3,559 cafes, across 154 cities and towns during the quarter, once again, accelerating our rate of growth.

Progress was made on several fronts, in our attempts to leverage our retail presence by offering e-commerce services to customers desiring to make cash payments. We have signed an agreement with IRCTC, the railways agency, for its e-commerce initiatives, to enable the booking of rail e-tickets against cash payments at the iWays Cyber Cafes.

Pilot iWays have been initiated, and it will take about six months to ramp up the service to over 1,000 Cyber Cafes. The pilot will help us test the service so the roll out of the service could be expedited. What you need to note here is that more than 1m tickets are booked every day in India.

The Access Media division is also expanding its internet telephony business into the high volume ITES sector, and has signed up over 115 customers over the last few quarters. This expansion is a response to intense price competition from the telephone companies in the retail internet telephony business, which has impacted revenue from that segment.

We increased the registered user base of A3, this is on the online games, India's first MMORPG game launched by us, to over 65,000 users with continued promotion of online games through the Game Dromes and Cyber Cafes.

We are also working with a leading online game publisher to create awareness of online games, to grow the market in India. We are also growing the market to games we are participating in mega youth events like the Skoar Gaming Expo at Bangalore and various college festivals, to provide an opportunity to experience the MMORPG game.

Subscribers to Sify's high speed internet access to homes, our broadband service, crossed 200,000 subscribers for the first time during the quarter. Service offerings were rationalized according to user behavior. For example, high bandwidth users are being offered more affordable night time usage. The focus going forward would be to provide added value to users through bundled benefits and otherwise.

We are also in discussions, and we are also rolling out, a similar arrangement with Western Union for money transfers.

I will now briefly cover some highlights in our Enterprise Services. In response to the rising demand for primary and disaster recovery centers, we have established our third data center in India, after the first two at Mumbai and Chennai. The new data center, located in Bangalore, is now operational with new business and with a significant amount of business in the pipeline.

We continue to have significant business [rooms] across Network Services, Application Services and for services appendaged to [certificates]. Sify is now recognized in the information [sharer phase II], with rooms across the Middle East as well as many financial institutions recognizing us for our faithful to compliance practice. This brings us to the end of the highlights for operations over the quarter. I will now hand you over, once again, to Raju for concluding remarks. Raju.

Thank you, Suri. While we continue to lead the market in key lines such as [net share] the focus of our team will now be on activating growth across synergies. As you know, the markets in India are continuing to grow on the back of the rising economic [rise] in India. Our intention is to capitalize on this growth. However, our ability to still be in the growth phase available in India will come from our international value sales which is already one of our fastest growing lines of businesses, the total [addressable] market currently according to the Board is about $150b, so the potential upside is good. However, of one thing you can be sure, we will do our best to ensure smart growth in every business so that we can add a lot [analogies] across business and growth them profitability. I will now hand over to the operator for questions. Operator.

Thank you. [OPERATOR INSTRUCTIONS]. Our first question is coming from Trip Chowdhry of Global Equities Research. Please go ahead with your question.

Thank you and, again, good work on turning the Company around on profitability side. A question, in terms of the Portal, there's a lot of momentum which is coming because of [inaudible] initiatives, user generated content, social networking. Does Sify have any initiatives on that part? Then I have another follow on question.

We have started mobile blogs as well as number of blogs on Sify Max and that is one area that we'll be trying to push forward during this financial quarter, and other initiatives we will do only after consolidating this.

The other question I had was on the Enterprise Services business, any head ways you are getting? I'm thinking if we have some more, much more traction from, say, U.S. or Europe, that could really give some more boost to your bottom line? Any thoughts on it? Do we have any sales people parked in these countries and how are we planning tactically to capture the Enterprise Services business?

Hi Trip, this is Raju. So, as I presented, one of our growth plans is international business and there are certain things we are working in the pipeline which I cannot disclose until we close such an agreement, so there are certain things we are working towards international market.

Thank you.

Our next question is coming from Sameet Sinha of Kaufman Brothers. Please proceed with your question.

Thank you. I have a couple of questions. Starting with the Enterprise business, can you talk about the changes in comparative dynamics there? Infosys and TCS are reporting strong results. The telcos are getting aggressive on the VPN side and [VSN] is also expanding into international IT services. What are you seeing and what sort of differentiation do you offer versus some of these large competitors?

Sameet, this is Raju again. So, as you can see, yes, I agree with you, there is a competition coming from all these people but also if you look at the market share we had in IPVPN today, the award we received, we are still, we are a clear winner in the Indian market. But, at the same time, we are not going to be [sneaking] around and the market is growing and the more players are coming. That will help you say the [inaudible] proof that everybody is interested bigger players. At the same time, being we are the leader, we are trying to get a bigger piece of the pie.

Sure, so what sort of differentiation do you offer versus all these larger competitors and can you talk about new contract and new rates that you saw during the quarter?

I think we are holding our loyal customers who we have a relationships and also we are winning the major customers which are in the pipelines. And certainly our knowledge, our know-how and expertise and this technology, is much more superior than any competition we have so far. Suri, you want to come in here? One second.

Just one more point that I needed to hand over here which is that the one major area of differentiation that we have to offer vis a vis the other players in the segment, is that we are absolutely [carrier of logic] whereas any [political] company would be offering services on their product and lines we are in a position to offer double lines and double [noughts] etc. [considering on the reg] what happens is there are certain companies which are into mission critical applications and they are not happy to be dependent on one carrier and whereas when they work with us, working just with us, they are able to use the redundancy that we [build] them and provide us a special service.

Okay.

Our next question is coming from [Tom Gillers] of [Canaccord]. Please proceed with your question.

Yes, hello everyone. Can you talk a little bit about the degree of total traffic that you're seeing, that's getting pushed right now from the iWay cafes and your potential to increase that?

Yes, hi, this is Raju again. The -- we have potential because, if you look at it, still in India 60% of the Internet usage is coming from the Cyber Cafes. Cyber Cafes is going to continue see a big growth with access to the Internet. I think that is our leverage. One thing new servicing is we're successful. We, again, we added 150 plus Cyber Cafes in the last quarter and we are trying to commercialize much more from a Portal point of view, having a differentiated technology when the people access to the cyber café. So we are seeing benefits of having -- we providing the [entire] sector. At the same line, broadband to the home also we substantially we cross the 200,000 mark and still we have the private sector being the number one and also that it provides to the advantage providing the portal is a differentiation factor.

Our next question is coming from [Neil Ghandi] of [Bham]. Please proceed with your question.

Hi guys, I just wanted some clarification on the data center side. Can you give us a sense of your current revenue capacity and your current utilization rates and then kind of your game plan for future expansion?

Hi. In terms of [working] services, our total current revenue is about, I would say, 60% of our capacity and the total revenue is of the order of about $20m per quarter.

$20m, and we're talking about the data centers, correct?

Yes. Pardon. Sorry. $2m a quarter, I was just looking at the bit, $2m a quarter, that's our current revenue and our composite utilization is about 60%.

Our next question is coming from [Lewis Corrigon] of [Kingsford Capital]. Please proceed with your question.

Hi. I had a couple of questions. In the iWay Cyber Cafes the growth accelerated this quarter to 159 from about 100 last quarter, but I recall that on the last conference call you had talked about having 260 still in the pipeline and that were expected to close this quarter. And I guess the rate this quarter had been about 200 per quarter. So my question is, are you swallowing your growth in Cyber Cafes and what happened to the extra 100 or so that you had expected to close this quarter?

Well actually, in the area of iWays, what we have been focusing is on the profitable growth because that is one area where we want to make sure both Sify, as well as franchisee, has a profitable business and to that end we have made sure that we do a very vigorous analysis. Also we have ensured that in the places where we are present there's a flatter approach. So in some towns where we have just one or two Cyber Cafes we have found that it is uneconomic for us to service those in terms of the manpower. So we are going now to sites and cities where there is a minimum market opportunity of 10 cafes and that is what will resulting in lesser than our earlier planned growth. But I must tell you that 150 in itself is not a small number, if you consider that our major next competitor has total 250 cafes in the whole country.

At this time, I'd like to turn the floor back over to management for any further remarks.

I beg your pardon.

Gentlemen, we have no further questions in the queue. I'd like to turn to the floor back over to you for closing remarks.

Closing remarks.

Thank you for joining us on the call and we look forward to interacting with you all through the quarter and around this time thereafter. Thank you and goodbye.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.