Sify Technologies Ltd (SIFY) 2009 Q1 法說會逐字稿

(Audio in progress) At this time, all participants are in a listen-only mode. A 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 you to your host for the conference, Christopher Chu, Investor Relations for Sify Technologies, Limited. Thank you, you may begin.

Thank you, operator. I would like to extend a warm welcome to all participants today on behalf of Sify Technologies, Limited. I am joined on the call by Raju Vegesna, Chairman and CEO, Sify Technologies, Ltd; C. V. S. Suri, Chief Operating Officer, and M. P. Vijay Kumar, Chief Financial Officer of Sify Technologies, Limited. Following our comments on the results, there will be an opportunity for comments. If you do not have a copy of our press release, please call Grayling Global at 646-284-9474, and we will have one sent to you. Alternatively, you may obtain the 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. Sify's results for the year are according to the International Financial Reporting Standard, or IFRS, and will differ somewhat from the GAAP announcements made in preceding quarters. 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, 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 and CEO of Sify. Raju?

Hi, thank you, Chris. A warm welcome to you all on the call once again, and thank you for joining us. I will now comment with opening remarks on our performance in the first quarter of this fiscal year. We continued to effect strong growth in our enterprise and international business segment of the business, which grew 17% and 38% respectively over the same period in the previous year. The results of our ongoing restructuring of the consumer business will be felt after the second quarter of this fiscal year, with new branding and marketing initiatives. While there are many new initiatives underway in the portal business, it will be re-launched during the second half of our current fiscal year.

The first quarter has been in line with the annual trends over the years. However, we believe we have set the platform for future growth in the coming quarters with a significant investment in the capacity of our backbone infrastructure, expansion of the network to over 500 points of presence, adoption of new technologies and standards for Wimax capabilities, and to move forward being a Next Generation Network for triple play. These are all aimed to make us more competitive in the services we offer across the enterprise and consumer services going forwards.

As I have shared with you last quarter, our planned progress towards a complete turnaround of the company is moving forward, with the build out of the world-class infrastructure to make us highly competitive both nationally and internationally. Now, I request Mr. M. P. Vijay Kumar, our Chief Financial Officer, to take through you our financial performance for the quarter. Vijay?

Thank you, Raju, and hello, everyone. I shall now go into the details of our financial performance for the quarter. Revenues for the quarter ended June 30, '08 were at $35 million, 7% higher than the same quarter in the previous year. The Enterprise and International segments of the business registered growth at 17% and 38% respectively, while the consumer segment recorded revenues 18% lower than the previous year. Net loss for the quarter was $2.39 million, compared to a net loss of $1.09 million in the same quarter in the previous year. Exceptional items during the quarter amounted to $0.44 million on account of legal fees, and a cost of $0.7 million incurred in network upgrades during the quarter. We entered the quarter with a cash balance of $18.04 million. After capital expenditure of $7.97 million during the quarter.

We continue to invest in network expansion and in sophisticated technologies to offer converged services to our customers during the quarter. A significant investment has been the scaling up of our core network, accomplished without significant increase in bandwidth costs, but for the cost of the network upgrade incurred during the quarter. This will enable us to scale to multiples of our current capacities without a steep increase in bandwidth costs going forward. These investments are being made on the back of robust demand for enterprise services, and to enhance our capabilities in consumer services for broadband access and delivery of rich media content going forward.

I'll 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 to all of you. Our revenues for the quarter were driven by growth in enterprise services, which grew at 17% over the same quarter in the previous year. Sify's order book on the enterprise side continues to show robust demand for services across connectivity, hosting, security and applications, and this will be further reflected in revenues in the subsequent quarters. The growing sophistication of our network and infrastructure capabilities will also give us an edge going forwards. Some large VPN and hosting contracts were won during the last quarter, from both existing and new clients. We also won a large security services contract with one of the leading private banks in the country. The quarter saw expansion of our initiatives aimed at the fast-emerging small and medium business segment in India. This segment is one of the fastest-growing ones today in terms of IT adoption. We have added more than 100 new channel partners during the quarter, across various locations in India, from better market penetration in the segment.

National long-distance wireless operations, using a backbone infrastructure, was launched during the end of the quarter, with live traffic of mobile operators. This represents an additional stream of income and caters to national long-distance carriage of traffic using voice over Internet Protocol of the mobile phone telecom segment in India.

An education-specific Internet bundle, to cater to the specific needs of the fast-growing education segment, particularly the smaller colleges and institutes, was launched during the quarter. This initiative, well accepted by the market, offers a unique solution, combining managed Internet connectivity services along with security services. This follows our strong position in the BFSI, retail, manufacturing, and pharma segments.

During this quarter, we entered into a partnership agreement with VeriSign Incorporated for selling SSL products across India, including some of their new product lines.

Our international services continued to grow, with a 38% growth in revenues over the same period in the previous year. Revenues from system integration services, as Cisco's Global PSS Partner, commenced during the quarter.

Sify has also successfully boarded a leading account, which is a wagering services company in the US, and is delivering application development and application management services to this company. Some of our other existing customers have also enlarged the scope of their engagement with Sify during this quarter. Sify has also been engaged by a large international university press, which was an existing customer of our international eLearning services, for some assignments on (inaudible) infrastructure sites.

Our eLearning business also continues to grow with contracts from companies and diverse verticals. Some of the notable wins during the quarter were in the domains of high-tech, with a global computer hardware retail giant, and a globally recognized provider of storage and data management solutions. We also signed on a company from the management and financial practices vertical, that is a global leader in financial services and products. During the quarter, we also showcased expertise in developing content on virtual learning environments at the world-famous ASCV event. Considerable interest was exhibited by numerous potential customers for this service.

Our consumer presence was expanded to 28 new cities across India during the quarter. With this expansion, Sify will add to its existing chain of over 2,000 ePorts spread across 180 cities, and the cable television operator network covering a subscriber base of more than 200,000. The company is also aggressively expanding broadband services in states across the northeast part of the country.

Wireless broadband, as the last mile for consumer access, was also rolled out this quarter, enhancing our geographic spread and reach within cities in areas where we do not have cable television operator partners. Customers can now enjoy the broadband internet experience direct to their homes, with wireless connectivity in the last mile. This service is a solution for faster expansion, and will help us increase penetration and geographic reach. Consumer services on the whole, however, are still a work in progress, with rationalization of our cafes pending the re-launch with the new identity. We are working to enhance the business model of the cafe chain to make them profitable, despite rising real estate costs. The re-launch will be effected with these reviews, and once the changes are in place.

As shared with you last quarter, we believe that, with the relaunch of these services, we will be able to see a turnaround in consumer revenues as well. At the same time, we will monitor and rationalize our offerings, locations, and relationships on an ongoing basis, to ensure the success of our partners. As you know, the chain has been re-branded to be ePorts, and each outlet will be a complete e-services hub, offering a host of value-added services, like travel ticketing, utility bill payments, mobile recharge, online education, etc., in addition to Internet access, games, and voice calls. Some orders have been received for the new kiosk version of the ePorts. These will be executed during the course of the coming quarter.

Our portal completed the revamp of its home page and key channels like Sify Sports, Sify News, etc., offering a fresh new look and ease of navigation. With this revamp exercise, the first quarter has seen a significant growth in numbers of visitors. Sify.com also continued its strong association with the popular TV channel Sony Entertainment Television, with tie-ups for key reality shows like [Dus ka Dum]. We offered the fans of the reality shows interactive tools, community features, videos, gallery, show recaps, message boards and opinion polls.

After the successful revamp of Sify Sports, the number of visitors increased considerably, with in-depth coverage of Euro 2008, Wimbledon 2008, and the Indian Premier League cricket series.

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

Thank you, Suri. In conclusion, I would like to reiterate that our quarter going forward is to sustain our growth of the revenues and profitability, backed by new initiatives (inaudible) business. Our enterprise business is growing robustly. We will re-launch the consumer business for the quarter following quarters. We will also continue to make investments in our network expansion and (inaudible) capabilities based on the growing demand for our services.

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

Thank you. We will now be conducting a question-and-answer session.

(OPERATOR INSTRUCTIONS)

We will pause for a few moments to poll for questions.

(OPERATOR INSTRUCTIONS)

We will pause for a few moments to poll for questions.

Our first question comes from [Himanshu Shah] with [Shah] Capital Management. Please state your question.

Hello, how are you? This is actually [Don Esby] in place of [Himanshu] right now. How's everyone?

Good.

Hi, Don.

Hi, Don.

I just have a couple of quick questions for you, I was wondering if you might be able to help us out on. To start, I was wondering if you could give us an update on your alliance with NEC. We last spoke about this in April. I was wondering if you could give us any update since what progress might have been made here since April?

Hi, Don, this is Suri here. What has been done is that we have run pilots based on the solutions that have been worked out, and we are now checking out the market entry points in terms of repricing on that.

Do you have additional questions, (inaudible) [Shah]?

Yes, I was wondering if you could give us an update on some progress made with the ePorts, and what feedback you're receiving, and how many ePorts are planned for 2009?

Don, Suri again. On the ePorts, as I mentioned to you, this is a work in progress. As you're aware, the basic model of ePorts was based on the rentals that we charged for browsing, and those rentals, historically, have come down significantly in the last five years, whereas the cost of administration and, essentially, the cost of real estate of the ePort actually gone up. So, consequently, even into the future, browsing rates will either continue to remain at the level they are, or they will be even more competitive and affordable for the customer. So consequently, the browsing model requires to change, which has been recognized. And what we have been working on is taking on board partners who provide commercial services on-line, in terms of, essentially, the software, the travel services and education-related services, and utility payment services related to municipal, corporations, etc.

So these are the services that we are taking each one and putting them on board, integrating with our back end, and doing the pilots on that. A lot of them have been completed, and we're now in the position of getting the ePorts to sign up to provide these services across the country. So this is something that will take a little time, which is why we say that this is work in progress, and we expect to see the results of this in the second half of the year.

Okay. And regarding these ePorts, regarding the competitive threat, I know Reliance seem to be your biggest competitor, and they only had about 240 cafes, I think, back in January. So you definitely have the clear lead in number. But what have you seen from a competition standpoint? Are you seeing it tightening on the ePort and cafe front? And how many cafes does your closest, most formidable competitor have right now?

I would say, Don, that we don't see any challenge on the branded cafe side. Reliance, too, has been pretty much in the same numbers. The true competition for us comes from the mom-and-pop cafes, which are not really a chain, but in terms of portability of browsing. So consequently, what we need to be doing is bringing on board services which increase number one, footfalls, and number two are relevant to the potential customer, in terms of what he or she can transact through our cafe.

Okay. And what are some of these strategies to defend your turf in this cafe segment?

No, we don't really need to defend our turf, in terms of, we don't see anybody encroaching onto the turf in the branded area. What we do need to be doing is providing services that bring in more footfalls.

Okay, I see.

So which means, this is an added activity, a new activity for people to get into.

Okay, great, great. And what ballpark target might management have set to when they hope to see the cafe business return to profitability, if anything you might be able to give?

I've not fully understood what you said, Don.

What rough-sketch target might management have set to when they expect the cafe business return to profitability?

I would certainly say that this is a long-term scenario, and would certainly take the better part of a year, and we would be in a better position to answer that once we do our formal re-launch.

Okay. Great. And, just one more question, if I may. Just wanted to ask you about any progress made in consulting, in the Middle East and Europe? I know this has been a topic a few months back.

We now have a team in place in the Middle East, and we also staffed our office in London. We have been successful in growing our engagements with the clients that we have in the UK, and (inaudible), where we've seen significant growth in the existing engagement itself. In the Middle East, too, we have taken on -- we have signed our partnerships with operators in the Middle East, and we have also signed on new business in the Middle East. In terms of percentage growth, that is not significant enough to be speaking about, as far as the Middle East is concerned. This is certainly something where we see a great potential and numbers we'll be talking about in the coming couple of quarters.

Okay. And with the consulting business, is it enough to move the needle on the top line yet?

Oh, yes.

About how much of the top line would you say it is?

(inaudible)

Just, in terms of top line revenue, how much of your business -- ?

You're talking about international consultants?

Yes.

Yes, that would be about 6% or so.

6%. Great. Thank you all so much. Best of luck to you all.

Thank you very much.

Thank you, Don.

There are no further questions at this time. I will turn the conference back to management for closing comments.

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

Thank you, 'bye.

This concludes the teleconference. All parties may disconnect now.