Sify Technologies Ltd (SIFY) 2008 Q2 法說會逐字稿

Greetings, and welcome to the Sify Technologies Limited second quarter 2007 earnings results conference call and webcast. At this time, all participants are in 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. It is now my pleasure to introduce your host, Mr. David Serry, Investor Relations for Sify Technologies Limited. Thank you. Mr. Serry, you may now begin.

Thank you, operator. I would like to extend a warm welcome to all our participants today on behalf of Sify Technologies Ltd. I am joined on the call today by Raju Vegesna, Chairman of the Board and Chief Executive Officer, Suri Venkat, Chief Operating Officer, and 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 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 on 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 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, 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 the Sify 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 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, CEO of Sify Technologies Limited. Raju?

Thank you, David. I would like to welcome everyone on the call once again. Thank you for joining us. I will now commence with the opening remarks on our performance in the last quarter.

We have done well to accelerate our revenues in the enterprise market. With the business model, our team are now well set and begin yield the results. We will continue grow revenues with more aggressive marketing of these services going forwards. We also initiated the integration of our consumer service lines and infrastructure, leveraging synergies across all our consumer platforms. We believe we will be able to see the results of these initiatives over the next few quarters. However, the full benefits of these efforts will be realized during the course of the next year.

Now, I would like to introduce Mr. M.P. Vijay Kumar, our Chief Financial Officer, who joined recently. I will now request him to take us through our financial [results].

Thank you, Raju, and hello everyone. (Technical difficulty) that I am delighted to be part of the Sify team, and to be able to contribute to the Company's growth story. I shall now go into the details of our financial performance for the quarter.

Our revenues were $37.02m for the second quarter ended September 30, '07, 4.7% higher than the immediately preceding quarter and 6.4% over the same period last fiscal.

Sify's net profit was $1.12m as against $0.58m in the previous quarter. However, post exceptional (technical difficulty) $1.25m as compared to the previous quarter's net loss of $1.27m.

We incurred exceptional expenses of $1.8m for legal expenses this quarter, relating to a case against another Internet company. The total expenses incurred so far in this regard amount to $3.27m during the current year.

(Technical difficulty) $3.97m as against a cash profit of $3.32m in the previous quarter -- preceding quarter.

Our efforts to bring down the provision for doubtful debts previously have resulted in their coming down to less than significant levels, and I believe we will be able to manage them at these levels going forward. We have also done well to generate cash from operations during the quarter, and expect to continue doing so in the future.

I will now hand over to Suri, who will take you through some of the key initiatives during the quarter. Suri?

Thank you, Vijay, and good morning everyone. The domestic enterprise business continues to see gains from a number of new and prestigious customers, as well as additional business from our existing customers. Our approach to the market, with end-to-end managed services being promoted by a unified team, is also bearing fruit. We believe our efforts going forwards will accelerate with the aggressive marketing of our services.

We have launched a number of strategic new services during the quarter, including Hosted Contact Center solutions for the domestic and international IT enabled services and call center companies.

Managed Voice Services for inbound services on MPLS connectivity that enables voice, video and data carriage on internet protocol, and premium anti-virus and anti-spam services as a part of our Software as a Service offerings. This is targeted towards the small and medium enterprises segment to protect their messaging systems.

We also see momentum in our international enterprise services with the opening of our U.K. branch, which will be our base to pursue business in the U.K. and Europe.

We have also (technical difficulty) offshore pilot with a large global automobile major, subsequent to which we have received a number of RFPs from them.

Sify eLearning has won two more Brandon Hall Excellence in Learning Awards, a silver and a bronze, for eLearning courses developed for two of our key customers. This recognition follows our winning two gold awards last year, again for courses developed for key customers of ours.

(Technical difficulty) the Oscars, for example, when you look at the movie industry, which testifies to the fact that Sify is one of the leaders in the international eLearning space.

Details on some of the other key events across both these businesses are available to you in the press release.

One of the key initiatives in our retail access business was the launch of the innovative new service, Sify Anywhere, in Mumbai and Delhi. The high impact launch activities included various promotional events in Delhi and Bombay, including motorbike (technical difficulty).

Sify's Internet Telephone Booths enable the common man to walk in and make an international call at very low rates. A price revision during the quarter, making call charges simple and even more affordable, saw a (technical difficulty) market response. Instead of a long list of different rates for various countries, we innovatively clubbed countries together into four categories, either at INR2 per minute or INR4 or INR8 or INR10. This resulted in a 40% growth of voice minutes during the quarter vis-a-vis the previous quarter.

To widen our reach, improve the quality and the reliability of our broadband to home services, we have conducted a pilot wireless technology deployment for consumers in Bangalore. The objective of the pilot was to study customer acceptance as well as judge service delivery. The pilot saw 72 customers coming on board during the quarter. Our experience with this pilot will guide us in taking decisions in this regard in the future, for deployment of wireless technology broadband deployment.

Our direct selling agents program has been a further strategic initiative to improve customer acquisition. (Technical difficulty) 62% in customer acquisition during the quarter compared to the first quarter, due primarily this particular (technical difficulty).

During the quarter, through a new initiative, we ensured that 175 cafes now open at 6am and remain open for a longer period of time, to enable additional hours when subscribers can use the services provided by this infrastructure. This will be gradually extended, based on the market response and the traffic and revenue trends.

We also continue to focus on eCommerce services at our cafes, to make them into eStores for fulfillment of various kinds of eServices. The market is beginning to respond, with the number of transactions having grown by 60% -- 67% during the quarter, while the value of transactions grew by 72% during the quarter.

As part of the objective to progressively increase the range of services covered for additional revenues, 100 Sify cafes now have flat screens onto which advertisements are beamed on a revenue-share basis with an Out of Home Media company. We are also paid a monthly rental per cafe for the flat screens. Sify will also get 10 minutes per hour of airtime to broadcast commercials for our own services into these cafes.

We have also entered into an alliance with Xerox for photocopying services at the iWays cafes. Whilst a bank would fund (technical difficulty) available, a large number of free copies for the franchisees to kick start the business.

Local promotions around the iWays were also initiated during the quarter to expose them to new users. We hope to see the benefits of these initiatives going forwards.

Our portal, Sify.com, entered into an alliance with a popular TV channel, Sony Entertainment Television, to increase brand visibility and bring viewers of popular TV shows onto the Internet medium. In turn, (technical difficulty) through online information and interaction platforms on sify.com, like message boards, polls and chats. The success of this initiative was evident, with over 300,000 messages received from users on the reality show website for a program called Indian Idol on sify.com.

The official site for Indian idol on sify.com contributed to 15% of the incremental page views for our portal, and was accessed (technical difficulty) once again seen fit to partner with Sify.com for the website of Jhalak Dikhla Jaa, a new program, which is the Indian version of the dance-based reality show Dancing (technical difficulty) exclusive moments, recaps, etc., and is also highly interactive, offering polls, message boards and chats.

To gain new visitors from amongst young Indians living abroad to work and study, the leading website for overseas Indians, Samachar.com, was revamped with an all-new look and feel with new services, based on user feedback. Samachar.com brings India up close and personal to Indians overseas, with users now able to search archives for news by date and from over 100 publications in six languages. The Samachar.com directory was launched to enable users to list their business or services to be able to find buyers and sellers too.

During the quarter, Sify.com launched chennailive.in, the first broadband and video website for the city of Chennai. After the successful launch of mumbailive, bangalorelive and hyderabadlive, this is the fourth broadband to be portaled from Sify.com, which brings these cities live in video on the web for the citizens of these places.

Sify shopping also saw increasing business during the Raksha Bandhan festival season, celebrated throughout the country by Indians living abroad and in India, where gifts are exchanged between brothers and sisters. Sifymall.com has also entered into alliances with credit card companies to increase transactions and provide better value, offers, new products and discounts to their users.

This brings us to the end of this section, and I will hand over to Raju for his closing remarks. Raju?

(Technical difficulty) that our focus going forwards will be on growing our business profitability. We have [cast] the hurdle of doubtful debt and have cleaned up the financials. We are generating cash and are profitable, and have $50m cash reserves to fund our growth. We are well set with our enterprise business. We will see the benefits of new initiatives on our consumer side of the business going forwards, especially during the course of the next year.

I will now hand over to the operator for questions. Operator?

Thank you. (OPERATOR INSTRUCTIONS). Our first question is coming from Colin Gillis of Canaccord. You may ask your question.

Yes. Hello, everybody.

Hi there.

Hi, Colin.

Hi, Colin.

Hi, Raju. I just wasn't sure if you could hear me here. So, just briefly, what are you seeing for targets in the United States, and what is your appetite for expansion in that region?

Yes, hello. Now we have the money and we have the machine cleaned up, I think we are going to be looking at some acquisitions on our international markets, especially our infrastructure management services.

Okay, great. And then, just on the Internet side, you've got a pretty strong base of users. Any notion of turning that into a social community of any kind, or increasing that effort beyond the game plan?

Yes. So basically it is more of a social network kind of community; it would make sense. And we are coming up with new plans in that, how are we going to [turn our] portal business. And Suri, do you want to elaborate this?

Yes. For example, the Sify live sites that we have cater to specific cities and people living in those cities. And we are also ramping up programs, the Sify programs, which are going to be built around building communities within those locations. From that, of course, we have a couple of other plans for cross-national community networks, which we will be coming forth with in due course of time.

Great. Just the last piece on that side of the business, any efforts to attract global brands into higher direct sales that might be based out of New York, say, or other major centers of the world?

I am not very clear about the question, Colin.

Sure. In order to attract direct advertisers, are you looking to expand the sales force and have representatives in major cities?

Yes, but if you look at (inaudible) business is in India. And we are Indian focused and Sify brand in India is very strong. And so we are going to count on that. And if you look at we are investing -- you see that Sify name also changed. We went to the Sify Technologies. And we are putting in the new branding campaign coming up. And that is the market we are looking at.

Sure. I guess what I'm (multiple speakers).

Colin, just to round it off, there are two aspects to this. One is related to Samachar, which is primarily targeted at Indians living abroad, a significant number of them also being in the U.S. We already do have some advertising going on there. The other aspect is that a significant number of the Fortune 500 companies are already present and operating in India, and they are a part of our target segment for advertising.

Sure, but do you need to target them directly, or do you need to target the ad agencies to get their budgets?

We have to do both.

Okay. So is it unthinkable that you might be expanding your presence in New York to target the ad agencies more?

No. A significant part of the advertising is done locally in India, through Indian advertising agencies or international agencies present in India. So those are the people that we currently work with.

Got it. Okay. Great. Thank you.

Thank you.

(OPERATOR INSTRUCTIONS). Our next question is coming from Mike Cahill of Chilton Investment Company.

Hi, guys. Nice quarter on the revenues. Just a couple of clarifications, because you were cutting in and out a little bit on the call. What was the actual provision for doubtful accounts in the quarter? Hello?

The provision for doubtful debts for this quarter is (inaudible) million dollars.

How much?

As against $1.28m last quarter.

What was the figure? I am sorry, I couldn't hear that.

I am Vijay Kumar, CFO.

No, no, how much was that figure, Vijay.

$0.75m.

Okay. And could you just go into a little more detail on this lawsuit with the other Internet company?

What would you like to understand, Mike?

Who is the company and what is the lawsuit over?

The company that we have this lawsuit is with Yahoo. And the lawsuit is about content and information about Sify which has been transported, transport, or whatever words you need to use, illegally into Yahoo.

Got it. Okay.

And they had access to this information, which we have contested, and to various other steps taken which have hurt our business.

And how much are you suing them for in terms of damages?

We don't have a number at this point of time to share as the matter is sub judice.

But given that you've spend $3.2m so far, it's a pretty large number?

Well, we certainly expect that to be so, yes.

Okay. Nice job on the cash this quarter. Thanks.

Thank you.

Thank you. Our next question is coming from Louis Corrigan of Kingsford Capital. You may proceed with your questions.

Hi. I had a question regarding the Internet access business.

Internet?

The retail Internet access business. It looks like the revenue was down sequentially, but at the same time the number of iWay cafes rose about 118 net and the number of broadband subscribers bounced back, if I remember, up about 3,000 net sequentially. And yet -- and the ARPU was also, it looked like, up slightly sequentially. So I am just wondering why was the retail Internet access revenue down? Was there weaker revenue for Internet [cafes]?

Yes. (Inaudible) our basic model that we've been working with over the last couple of quarters, which is now falling into place, has been to ramp up the kind of services that we are able to offer through the cafes, and that's where the first focus and investment has been.

You will appreciate that over a period of time there are people who move in and out of the iWay cafe access system, in terms of new users coming in and some of the old users going onto their own systems at home, through the broadband service. Similarly, in terms of competition and rates offered through various points of time during the day, there would be variations in revenue as long as it is restricted only to pure browsing, because broadband access through cafes is a price-sensitive component.

Sify is now graduating from a pure browsing model to a services model, where we are tying up partnerships at various levels for various kinds of eCommerce services or eServices, including what has been shared earlier in terms of railway ticketing, mobile recharge, etc. We are extending this further in terms of offering education platforms, access to net education platforms also, in addition to other new services that would be coming in through this quarter.

Well, I guess that makes it even more complicated for me, because it seems like if you are adding more services and you are getting better at pricing your services for a varied customer base that your revenue in that segment actually should be going up instead of down. So (multiple speakers) confused.

What we have said is these are steps that we have introduced now, and we expect to see the growth coming in during this quarter and the next. These are new initiatives.

Okay. So this is a transition period that we are going through now?

That's right.

Okay. Thank you.

Thank you.

(OPERATOR INSTRUCTIONS). Thank you. There are no further questions at this time. I'd like to hand the floor back over to management for any closing comments.

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

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