Sify Technologies Ltd (SIFY) 2008 Q3 法說會逐字稿

Thanks, ladies and gentlemen, and welcome to the Sify Limited third quarter 2008 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, Truc Nguyen, Investor Relations with Sify Limited. Thank you, Miss. Nguyen. You may begin.

Thank you. I would like to extend a warm welcome to all our participants today on behalf of Sify Technologies Limited. I am joined on the call by Raju Vegesna, Chairman and CEO, Sify Technologies Limited, C.V.S. Suri, Chief Operating Officer and M.P. Vijay Kumar, Chief Financial Officer of Sify Technologies Limited.

Following our comments on these 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 9418 and we will have one sent to you. Alternatively, you can 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.

Among 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 the 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 conference call are forward-looking statements, rather than historical facts, but 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 protection afforded by the Private Securities Litigation Reform Act of 1995. These risks include a variety of factors, including competitive development 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.

Now, I would like to introduce Mr. Raju Vegesna, Chairman and CEO of Sify. Raju?

Yes, thank you, Truc. A warm welcome to 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 grow revenue sequentially, driven by the growth in our Enterprise business, with revenues of $38.38m and net profit up $1.55m.

We will be strengthening our position in Enterprise Services with the new managers (inaudible), but which we are emerging demand. Our strategy on the consumer front will be to make the Internet mainstream with the services of relevance to Indians in their daily lives. As such, instead of operating as an added-on portal and ISP, we will develop an integrated platform for the delivery of such services.

The restructuring of our Consumer businesses into such an integrated platform for access with the multiple content, for instance, including e-commerce, e-learning, entertainment and online games is underway and will take approximately four to six months to complete.

This includes new technologies that will allow us to scale as the demand for rich graphic and video content growth. We will re-launch the Consumer business ready to scale our revenues.

In the meantime, we continue to invest in our infrastructure for growth, expanding our network as well as building a new data center in Mumbai. We are also planning to invest in a data center in Delhi, as well as investing in land in Chennai where Sify is headquartered, with sophisticated data centers and network command centers will be developed.

Now, I request Mr. Vijay Kumar, our Chief Financial Officer, to take you through the financial performance of the last quarter. Vijay?

Thank you, Raju, and hello, everyone. I shall now go into the details of our financial performance for the quarter.

Revenues, cash profits and net profit have all shown good during the quarter under review. Our revenue is at $38.38m; 2.8% higher than the immediately preceding quarter and 8.7% over the same period last fiscal.

Sify's profit before tax and exceptional items was $2.23m, as against $1.09m in the previous quarter. Post exceptional items, the net profit before (sic - see Press Release) tax for the quarter was $1.55m, as compared to the previous quarter's net loss of $1.26m.

Our adjusted EBITDA was $5.03m for the quarter, as compared to $3.94m in the preceding quarter. For the same period last year, it was $4.14m.

We ended the quarter with a cash balance of $43.1m (sic - see Press Release) after a significant capital expenditure of $5.94m during the quarter. Cash [burned] from operation during the quarter, due to higher levels of investment, was $2.1m.

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. Our revenues were driven by growth in Enterprise Services, where we had some large business wins during the quarter. We also strengthened our position in the key banking financial services and insurance segment during the quarter for services offered by us. The details are available to you in the Release.

We also entered into a strategic alliance with a leading system integrator in the country for white-labeled Data Center Hosting Services. Another significant development was the forging of an alliance with Saba; a world leader in learning management solutions.

Our key strategy is to develop our business around our data centers and network infrastructure with value-added services to make us truly competitive. This is why we are investing in developing a network infrastructure across the country and a new data center in Mumbai, to be followed by another one in Delhi, in addition to the ones that we already have in Chennai, Bangalore and Mumbai.

We have also made progress in our International Services during the quarter, with the Sify Service Delivery Center becoming operational in Dubai.

This gives us the ability to service local managed services customers across the Middle East from Dubai. We are also strengthening our existing team in the U.K. to develop the market for our Infrastructure Management Services in Europe, while continuing to develop the market in the U.S. for these services.

Our e-learning division continues to grow, with new contracts worth $1.5m by a global IT software major to develop software-related curriculum for global audiences. We were also awarded a $1.1m contract by a global development agency to develop e-learning programs for their worldwide staff and partner agencies.

We are further setting up an Innovation Lab for research and development of futuristic, Immersive Learning products and services that will become operational during the fourth quarter of the current financial year.

We are a work in progress in our Consumer business division, as we put in place the technologies and platforms to make us ready for future growth. For example, we have deployed a pilot project for Wireless Broadband services in Bangalore, potential feasibility, quality and market acceptance of the service with about 200 subscribers. Feedback from the customers has been satisfactory enough. We view this as an alternate Last Mile model, especially in areas not covered by Sify's Broadband Services currently.

As Raju had chat with you, our strategy on the Consumer side is to develop a single unified platform using which our subscribers can access the Internet from home, from the cyber cafes, or even standalone access kiosks in public places, such as malls from hotel rooms, or from Wi-Fi hotspots over which we will develop a multiple content services.

These services will include content, e-commerce services, learning services, entertainment etc. and will be done, both on our own, and in partnership with other service providers on a revenue share basis.

We believe that such initiatives with relevant services for the Indian consumer will help make the Internet mainstream in India. We have initiated such alliances a few quarters ago, for both the iWay cyber cafe chain and home Broadband access.

During the third quarter, Sify's alliance with leading travel portals, like Yatra and Red Bus, have enabled Sify Broadband partners, essentially cable television operators, to become a neighborhood one-stop travel solution provider. Such services have already been enabled in the cyber cafes and will eventually be available on the integrated platform to wherever a subscriber may be accessing them from.

This unified service, currently available as a service option in Delhi and Mumbai, was launched in Hyderabad during the quarter. Sify Anywhere, as it is called, enables the subscriber to access the Net as a Broadband account from home from any of the over 3,500 iWay cyber cafes, or as a dial-up connection from hotel rooms and even from the Wi-Fi spots, as mentioned earlier.

We have added new cities on the back of our basic network expansion, including small towns such as Udumalpet and Warangal in the south, Muzaffarpur in the east, Jalgaon in the west and Bahadurgah in the north to the Sify Broadband network this quarter.

We have been able to improve our efficiency and service delivery through initiatives by Sify's customer care team, as well as by the Last Mile Technology team. Customer satisfaction, due to these measures, has helped in reducing net churn by 13% over the previous quarter.

Our portals continue to lead in video entertainment with a number of initiatives. Sify.com brought television audiences online to engage actively with each other around the popular reality TV show Jhalak Dikhla Jaa from Sony Entertainment Television. This was done with online videos and interactive tools, like message boards and polls, on the show's official website at jhalak.sify.com. Over three million visitors visited the website, with channel promotions increasing our brand visibility with the television audiences.

We also entered into an association with popular [panel] film star Madhavan for his movie Evano Oruvan, where Sify's video website had an in-film placement. Sify.com also created the official website evanooruvan.sifymax.com, offering a synopsis, photo galleries, downloads, interviews and video clips from the movie. The website offered a contest with winners meeting Madhavan at a launch party for the movie.

Building on the renewed interest in cricket, following India's winning the World Twenty-20 series, Sify Sports offered comprehensive coverage of Pakistan's tour of India, as well as video highlights of the new Indian cricket League series.

Sify Sports also developed an online scorecard, offering new features like highlights, schedule, commentary and graphs.

Sify.com ensured that its users ended 2007 with an overview of the hits and misses of the year, so the Sify.com Year Ender, which featured events and important happenings of the year in the field of sports, business news and entertainment. The special feature also listed expectations for 2008 and was very popular amongst users who also voted the charismatic Hindi film star Shah Rukh Khan as the newsmaker of the year.

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

Thank you, Suri. In conclusion, I would like to reiterate that our focus going forward will be on sustaining our growth in revenues and profitability, backed by new initiatives across the businesses.

While the Enterprise business will continue to grow with the existing services and new services, the development of our Consumer business into a single integrated platform for access and delivery of services should help us drive our work in the future.

We will also continue to make investments in network expansion and other specialties, based on the growing demand for our services.

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

Thank you. We'll now be conducting a question and answer session. (OPERATOR INSTRUCTIONS). One moment please, while we poll for questions.

(OPERATOR INSTRUCTIONS). Our first question comes from Don [Esby] from Shaw Capital Management. Please proceed with your question.

Hello, Raju, how are you?

Very good, how are you?

Good, thank you. I just have two questions for you. First one is regarding the Portals business. What are some reasons why you have not decided to sell the Portals business?

And furthermore, is selling the Portals business something you are looking at in 2008?

No, there is -- always people are interested in our Portal business and also there is a potential for our expansion. So we are evaluating any opportunities, people are coming, but at this point we do not see any attractive price for our Portal business.

Okay. And the second question, Raju, in spite of all the efforts that you've made in the last two years that you've been at the helm, stock has continued to head downwards in that time. What further actions do you need to take for the Company to get back to the 30% growth rate? And what inning are you in to attain this growth rate?

So, one is I cannot dictate the stock price and, similarly, even as a stockholder, I am also disappointed with the performance of the stock, but that is not in our control.

But if we look at the performance of the Company and what is happening the whole IT industry across the globe, we should be doing reasonably, performance is good. But we don't know the way the whole IT industry will go heading into the next one year. Will depending upon all the global country economies.

So we are trying to do our best. And this Company, when I took over the thing, [two years] last seven years, was [under loss] and very disorganized. And for the since last two years, it's a major work to make this Company to be organized. And now you'll see the thing -- we are doing a [smart] expansion. I would also like to go faster and -- but we are trying our best.

Okay, thanks, Raju. [Good to see you so well.]

Yes, thank you.

Thank you. (OPERATOR INSTRUCTIONS). Our next question comes from Govin Sharma with Thomas Weisel Partners. Please proceed with your question.

Hello, Mr. Raju.

Hello.

I just wanted to understand what has led to the decline in subscribers, [IV] subscribers, [these] active subscribers in three months. There is more than 20% decline. And do you think this trend would continue?

To be explained that thing, what happened is when the people started the cyber cafes, it's not just our cyber cafe iWay, it's across India. Cyber cafes started with the intent of browsing, Internet browsing. But more of the time what happening is just Internet browsing is not attractive for the subscribers. We need to add more services on top of it.

So, while you are seeing the trend up for just browsing subscribers, we are trying to add more value-add services. Making in cyber cafes just as a browsing centers we are trying to convert it to the e-commerce and e-store and the people can do more things at the cyber cafes. And like a -- for a kind of a -- like a [kincos] kind of model. And we are in the process of building that.

During this process of building we are losing some subscribers, but we are adding some more subscribers. So I don't see -- I think we don't hit the point where we have enough services at our cyber cafes that we can hold more subscribers.

So that is the kind of things our team is working very hard on the consumer. And that is one other thing is, we made the point in our Release, yes, we have made it unified consumer. We have integrated all the functions we are doing (inaudible), so we combine all those functions and we are offering as an integrated solution that our consumers will get benefit out of it.

Yes. I saw in your Press Release that you've given a timeframe of six months to integrate your customized infrastructure, right?

Right.

Right. And what kind of goal are you expecting going forward and what kind of impact it would make?

I cannot promise the growth, but there is to be one to hold a number of the subscribers what we have today and providing services what we can offer. And the growth is depending upon so many things; how the economy goes tomorrow, macro economy in India and all those kind of things, you know?

But what is we are doing is doing this. At least we can offer these services at a better plus point, so that means we will do this business but smarter than discreet kind of thing.

Okay, good, thank you.

Thank you. (OPERATOR INSTRUCTIONS). Our next question comes from Vincent [Navell] with [Finesse] Security Limited.

Mr. Navell, please proceed with your question.

There appears to be no further questions. I will now turn the call back over to management for any closing comments.

Thank you, again, everyone joining us on the call. And we look forward to talking with you through the quarter around this time thereafter. Thank you and goodbye.

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