Sify Technologies Ltd (SIFY) 2010 Q4 法說會逐字稿

Greetings, and welcome to the Sify Technologies full year financial results conference call.

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, Christopher Chu, Director of External Investor Relations. Thank you, Mr. Chu. You may begin.

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

Following our comments on the results, there will be an opportunity for questions. If you do not have a copy of the press release, please call Grayling at 646-284-9400 and we will have one sent to you. Alternatively, you may obtain a copy of the press 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 on the Sify corporate 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 previous years.

A presentation of the most directly comparable financial measures calculated and presented in accordance with GAAP and a reconciliation of such non-GAAP measures and 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'd 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?

All right. Thank you, Chris. Good morning. Thank you for joining us on the call. I'm very pleased with my team's execution of the plan in the Q4 fiscal 2010/2011 for the entire year, delivering revenue quarter-on-quarter against the backdrop of stiff competition while continuing to drive solid growth margins coupled with the strict control of our operational expenses. The results are here to show.

I would like to spend some time about how investors should think about Sify. Sify is a pioneer in providing internet services in India. And as internet users grows, as it -- it must grow slowly, too, whether it is on account of the corporates or on the consumer side. That will be the vehicle for Sify's growth.

Having invested well over the years in the strategic development investments in IT infrastructure in the form of a network and the data centers, which we have about five tier three data centers including the -- our upcoming NOIDA and about a half dozen [CF2] data centers and expanding our network reach to 645 cities and balanced with over 1,100 bay stations. The Company is now well positioned to take up in one of the fastest growing economies of the globe.

Sify is also the first ICT company that has invested in the consortium that is building undersea cables, enhancing our ability to provide global services to our Indian customers -- our Indian customer base and to serve our growing international customer base. We have, over the last few years, reengineered the Company as an enterprise player and is creating strong increases in business IT spending. The Company is now poised to leverage some of the major drivers pulling through the growth of server storage, network and infrastructure.

Growth in social networking, private and public cloud build outs, expansion of mobile networks and related smart phone and tablet services, rise in video graphics, exploding the growth in web conference -- web commerce and also some of the major trends that are driving strong growth in our markets. So, we have focused on creating infrastructure networks, data centers, but now we are trying to make one level up, differentiating Sify by creating convergence between the information technology and communication technology.

So, while we are focused on India's growth story, that is our primary market, we are also looking at positioning Sify to take advantage of global markets. How we are going to do that? We are now trying to transport our experience in India, in India, the technology, services, practices and learning from Indian markets to markets outside India. In addition to our existing offices in US and Europe and Delhi, we have opened an office in Singapore that will be our platform for future expansion in Asia. This will enable us to scale up our offerings on the platforms of the existing assets, thus making it extremely cost effective.

We have a clear strategy to differentiate our self from the amortization trend that is so visible in our market by moving into the services player, both in India and abroad. Sify will now play in managed services after as a services desk and the platform as a services desk to leverage on our [LMO] advantage as a cloud platform provider.

Our hands on expertise in the network management and data centers is what will differentiate Sify from others. We are the data center people. We have made our intent known with a solid beginning by tying up with Saudi Telecom. This strategic partner will enable Sify to offer individual services to [inaudible] and are building new revenue streams. Sify's portfolio of managed and account services will enable Sify to deliver robust network footprint for the Middle East, Africa and India. With the development of joint services, this partnership will enhance Sify's ability to deliver internal global capabilities, scalability, performance reliability to the customers worldwide who demand managed services and connectivity in these parts of the world.

Although Sify has evolved to become a primary corporate and enterprise business, we remain optimistic about the opportunities in consumers and small business segment. As you know, the government of India has restated its commitment to increase the broadband penetration in the country, issuing a policy which will enable the creation of broadband networks costing about up to $13.2 billion US to facilitate high speed data services and e-government across the country through the creation of a national broadband network targeted to reach 150 million broadband connections in India by 2014.

With this -- with the strong brand recognition, its nationwide infrastructure and its unit ICT strength, Sify is really well positioned to leverage the [exponential] growth when it comes. Sify's business model -- I would like to repeat myself -- whether corporate or consumer, whenever there is internet use, Sify's is determined to share in the growth opportunity.

Our new consumer model to provide services on the retail cloud is highly scalable and can lead up to different segments of the consumers and small businesses for their various needs. We have reoriented our business units to become more market facing and agile so we can take better advantage of these emerging growth opportunities in India.

Sify's new organization design comprises of three strong business units - Sify Enterprise Services, offering network and IT services to domestic and international customers, Sify Commercial and Consumer Services, which is focused on the unique needs of large consumers, SMB, segment, and Sify Software Services offering cloud data applications and emailing solutions.

The Company will operate in a group structure with each SBU expected to be profitable on an independent basis and contribute unit value to the Company. We will no longer treat international as a separate business, but as an integral part of the growth of the strategies of each of these business units as we seek to leverage our investments to our important global customer base. We believe that the new organization design will sustain Sify's push to the next level.

I will now ask Vijay, our CFO, to speak about the financial highlights of our performance, after which I will summarize our priorities for the next three years.

Thank you, Raju, and good morning, everyone. I would [inaudible] financial results for financial year 11/12. Sify's revenues for the year were at $154.24 million US as against previous year revenues of $150.28 million US, an increase of 2.6%.

The apparent epic growth needs to be seen in the backdrop of [inaudible] in a consumer business revenues almost 38% over previous year as we continue to restructure our consumer business model to achieve independent profitability. The improvement in the overall revenues was due to growth in the areas where we have been making continued investment, yielding a 30% growth in our international revenues and growth in enterprise revenues of about 6%.

Our portal business showed an improved performance and [inaudible] first ever operating profit in the last quarter. Our investments in [gulf bridge], international, cable landing station in Mumbai, EIG undersea cable and NOIDA data center are at various stages of completion and most likely will be come in commission in a site 2011/12. So, we will only see revenue growth attributable to these initiatives in the next fiscal year.

EBITDA for FY2011/12 improved to $6.10 million US as against $2.19 million US during previous year. The net drop before tax for FY10/11 stood at $10.410 million as against a net drop of $1.27 million US in FY2009/10, which included an item of extraordinary income amounting to $12 million.

I will now hand you over to Raju for his final comments. Raju?

Thank you, Vijay. I would like to briefly mention about our state data center build practice. This area has been a -- very important in our industry as it marks the maturity of the increased confidence in building the data centers. This gives us a potential platform implementation to go after large government projects and a commanding presence in each of the states that we are in. We realize that government will be the largest vendor in a business IT and will be instrumental in building the benefits of IT to government communities and small businesses.

I will leave you with the following thoughts that will give you a guidance of Sify's future operations. Sify's positioning as an ICT player with a uniquely differentiated set of skills, Sify moves one layer up by forfeiting unmanaged and cloud services. Sify to seek partnerships with companies offering capabilities in new and emerging technology and emerging countries. Sify's commitment to invest in IT infrastructure will continue in network reach, data centers and kin international connectivity. Sify's consumer business will increasingly address the small business opportunity and is committed to scaling up business on the back of the government's massive broadband internet plans.

Thank you for joining us on the call. I will now hand over to the operator for questions.

Thank you.

(Operator Instructions.)

Our first question is from the line of [Piera Chaundry] of J Goldman. Please state your question.

Hi, guys. Thanks for taking the question. I have a pretty simple question. Can you guys tell what was the share count at the end of the year? And then, a related question on that is that, last year, you showed 125 million shares to activities related to the CEO and how that will affect the [LDS] structure? Thank you.

Yes. Thanks for joining us on the call. The [Protela] share count is 128 million, of which the ADS, which are the traded and NADAQ is 38 million. There is profit on Indian stock, which are unlisted and not traded. The shares which have been issued to the promoters in the last fiscal, which are 125 million, are all Indian stock and do not represent ADS. This Indian stock is unlisted and they are not traded.

Okay, thank you.

Welcome.

Thank you.

(Operator Instructions.)

Our next question is from [Madu Kodaly] of [Desha Capital]. Please state your question.

Hi. I haven't seen a press release. I don't know if actually -- what time you released it. I couldn't find it on your website. I couldn't find it on any -- not even on SEC site. But, anyways, I was wondering if you can update us as to how much cash you have on balance sheet now and what was the cash flow from operations for last quarter and the full year.

Yes. I started with cash balance. On 31st March, we have a balance of $6.41 million and an undrawn line of credit of $3.47 million. The last quarter, operationally, we were cash break even.

And for the full year?

And for the full year, we had cash surplus of $3 million--.

--Do you have any debt on the balance sheet--?

--Operating cash flows.

Do you have any debt on the balance sheet?

We will carry some debt on the balance sheet, which is approximately about $20 million.

Okay. Can you give us some information as to what kind of investments you're making into these data centers and the undersea cable? What has been made so far and how much more do you intend to invest in these two ventures?

So, for that, we invested new data centers in the NOIDA. That is the [PS3] data center is the latest data center. And under the sea cable, we invested in the EIG as a co-sponsor. And also, we are investing in the GBI. That is we are building the landing station.

So, to give you what is we are planning to do, it's basically one of those -- two -- both of them -- three things - one, we are going to continuously expanding our network. So, as India is a growth story, as I discussed, network expansion is very important like having a road to supply your food. So, that -- we are going to strategically -- we are going to piggyback on the government initiatives. On top of that, we're also making some strategic investments in the network expansions within India.

Second is we are also going to increase the data centers because that is one of the areas is growing. And interest of the data center penetration is growing in India. So, we are going to continuously investing on the data centers.

And third one is the international -- we are the first ICT player providing the fiber international play. So, that is also we are planning to invest. So, all these three areas, we are going to continuously invest as the market tell us.

Right. How much have you invested so far, and what do you anticipate in terms of total investment going into them this year?

So, Vijay, you have any numbers exactly?

Yes. On the EIG, undersea cable, they have so far invested about $8 million. And on the data centers and the cable landing-station, which is coming up, our total investment will be close to about $52 million.

That includes investments you've made up till now or that is--?

--No, no, these are the investments which are to be made in FY11/12. As far as the community investments on the data center are concerned, in the last three years, the total investment reached approximately about $27 million.

Right. So, you have $6.4 million in cash and you have all these investments to be made. Do you expect to raise capital at some point?

As you are aware and it was part of the documents, we have issued capital of $125 million, of which the balance capital is -- as part of this [inaudible] is due to come as the need arises and the expenditure is to be incurred. Apart from that, we have deleveraging ability also, which together would be more than adequate to fund the investments.

Could you summarize, quantify $1 million issue, what did you guys do, why did you issue the shares, how much money you got, and how much more is due?

Yes, the total issue was for an amount of $88 million, at which this was meant to fund the incremental capital expenditure on network expansion and the data center expansion, of which $22 million are already flowing. And that money is being invested in the initial expansion of the data centers. And the balance, $66 million is set to flow in during the financial year 11/12.

Thank you. On the portal side, it looks like you made some progress and turned it profitable.

Yes.

Could you be able to break down what kind of revenue you generate through portal right now?

No, the way have is we don't go through that detail. We look at it because there are various components associated with that. So, Sify is not just a one kind of a productive outpost. I mean, it does with the portal multiple things - add sales and commerce, multiple things. So, the overall business of the portal is profitable.

Could you tell us maybe what drove -- what are the factors that drove to profitability? Is it--?

--One is we waited operationally the cost point. Second is also some of the initiatives we drove increased the [viewer store] portal. So, it helped both sides. We increased the revenue, and also, we cut down the cost already we had in the portal.

Right. And on the international revenue, you said you had -- it grew by 30%. What specific services are you providing in international market that--?

--Basically, we provide internationally managed services. So, we have the very rich capability of managing the network, and -- because we have one of the biggest [MPLS] networks in the country. Actually, we [inaudible] Network in India. And like we stated that our network reaches more than 625 cities and towns, we have a very good talented pool. How do we manage the network? Similarly, with our technology capability, how do we manage the data centers? We have an excellent skill set.

So, what we do for international and as opportunities comes from managed services, being it is a WAN, LAN or a wireless or a server for storage or a security, we offer services and deployed talented pool across the globe. Like we said, we have offices both sides of the United States, and then in UK and Dubai. And we have now offices in Singapore, also.

So, we deploy the people to onsite deployments, certain things of the technologies because of skill sets. And also, we do the remote management after -- once it's deployed. And that's what we do.

And also, second practice we have is called e-learning where we provide a content management of the learning skills and learning management system. So, we offer this product also to make it for the outsource services for the -- across the globe.

Right. So, would you -- I don't have the press release, so I'm asking questions [inaudible--.]

--That's fine, please go ahead, please go ahead.

Would you -- have you broken down any revenues by categories at all like international revenues at least for the past? I know that you've said you were going to break it down separately going forward.

See, one of the reasons is the way we are structuring is we are structuring the company into three groups. One is EP Enterprise Services and Sify Commercial and Consumer and Sify Top 12. So, if you look at international, if you look at for both enterprise and Sify Top 12, we have a lot more interest in international. So, we are going to look at those things as a profit and loss. And as we are driving the Company globally, and we want to take advantage of the experience we are gaining in India, so we are not going to break it down. And we see that thing as a part of those P&Ls.

Would you say, roughly, 20%, 30% of the revenue comes from the international at this point or--?

--Well, currently, I think it is -- it's like probably a teen numbers kind of thing.

Teen number.

But, we are getting -- we are cash flowing on that market.

Okay. One last question - on the consumer side, they -- you -- it -- kind of business is down. What is driving it down and how -- what's the plan in terms of either stabilizing it or growing it from there?

No, we -- no, no, we have complete intent to grow the business. And if you look at it over the last four, five years, what we change in the company, in the last five years back, consumer used to be bigger contributor on our top line - 40%, 45% of our revenue top line is coming from consumer. But, if you look at it, it's not that. It's anything different possibly across the globe. Consumer is the heart of it because scale to be successful.

So, as you see on the internet penetration in India is still small, now it's growing. And what we did is we changed the game. Now we don't. As we said, the enterprise business is a key strategy. And the consumer, what we did is we scaled it. That's that. We'll be positioned to be scalable when the market is ready. That's what we secured. So, our intent is put a plan and scalable model for a tangible business.

And what's going on with the cyber cafes? Are they growing?

Maybe these cyber cafes -- I mean, there is one of the biggest fiber café markets. And we change it how do we work with cyber cafes to make that more workable. So, we are continuously growing. Now, we changed the way we approach the model itself, a lot of handholding and those kind of things. We are looking at more of a very scalable model, and our intent to grow, increase the cyber cafes, providing our network services and IT services to the cyber cafes.

Thank you. Our next question is from [Haro Jawje] of J Goldman. Please state your question.

Sorry. Going back to the earlier question about the share count, you said that you had total 100 counting 8 million shares outstanding of which ADS is 38 million. So, does that represent 20-some percent stake in the company? If yes, what was that stake one year ago, two years ago? And -- I'm just trying to understand that -- what's happening today, ADS share count, and if it's being diluted or not. Thank you.

Yes. The ADS share count in absolute numbers have been same over the period. As far as the space capital is concerned, there is no fresh ADS which has been issued, not proposed to be issued. The entire capital is only the Indian stock, which does not go to reduce the ADS stock which is floating. And this Indian stock is unlisted.

Okay. So, how much -- ADS -- how much percentage of the company through present?

If you assume -- if you take ADS and share as compatible, the total ADS which is there is 21.77%.

21.77 percent of the company. And how much was that a year ago?

A year ago, in terms of -- I'll find -- I don't have the statistic. But, if I could -- a year ago, it could be maybe about -- okay, I need to do some math.

Yeah, let's do the calculation.

[Inaudible.]

Okay. And how many ADS shares outstanding you said are there currently?

38.82 million.

38.82 million. But, if I look at your 6K filing for September 2010, it shows the share count of 53.35 million used for the calculating the EPS. So, how do you reconcile these two numbers?

Okay. That is because of what we have is the weighted average number of shares because the fresh shares which have been issued, the Indian shares are partly paid up. So, for the purpose of EPS computation, you calculate a weighted average.

Okay. So, that number of shares includes Indian share count. So, if -- so then, what will be the current weighted -- what is the current weighted average number of shares outstanding right now which I should use to calculate the EPS?

Yes, the current weighted average number of shares I'll let you know. But, just to -- a small correction to the previous concept. You are referring to 68 for at the end of September 2010.

Right.

At September 2010, the entire 52 is fully paid up. There is no partially paid up. Their entire 52 is fully paid up. And [inaudible] currently are partially paid up [inaudible]. And since the shares have been issued in the second half of the year, the weighted average needs to be computed considering the timing of the capital which has come in. Offhand, I don't have the weighted average number, but you could take 52 as available for the full year and 125 as being available on a partly paid up basis for a good [inaudible].

Okay. So, 125 for the four months.

Yes.

Okay. And now switching gears, going back to your data center, once you are done with the investments, do you guys plan to target the government revenue or commercial revenue? And then, what is the revenue number which you are trying to target and what is the EBITDA margin which you guys are trying to target in that segment? And the last question will be that--?

--Let me answer that. We don't give really forecast numbers. And also, we are not going to stop building the data centers. So, we are going to continuously, because India is a growth story, we have to invest. So, that means we are not stopping after the things -- these data centers. We are going to continuously increase. We have covered so far in Mumbai, Delhi, Shanghai, Bangalore. And there is other opportunities coming building the data centers. We are going to continuously investing the data centers. And we will not give you -- we are going to aggressively pursuing our business in the government, but we cannot tell you the numbers, forecast the numbers.

Thank you. Our next question will be coming from [Alex Delgaro] of ACQ. Please state your question.

Hi, thanks for taking my question. My question was when do you guys expect to find a new auditor after KPMG, and is the idea to try to select a big four or what's kind of the thought process and the timeline around that?

New auditors have been appointed today. And we will be communicating to the market after we get this formal constraint of the new auditors and the appropriate process as per the SEC requirements.

Got it, thank you. And just a follow up to that - would you expect any restatements as a result of the issues raised by KPMG last year?

We don't expect any restatements to be done. And the issues raised by KPMG last year were, as mentioned in the report, were not material and was more of an accounting principal application for selected transactions [inaudible].

Got it. And just a last question on this - the operations regarding the related party you mentioned and the 20th last year, and that's global. Would that be included in this year's audit?

I did not get your question fully. I note that the question is related to MS Global.

Correct.

Can you repeat once again?

Sure. I believe KPMG mentioned that they did not, in fact, audit the -- that related party in part of an audit last year, and I was wondering if that would be included this year around.

Got it. As far as MSG, which is our associate entity of concern, the audit has never been done by KPMG. They have their own independent auditors. And those independent auditor statements are relied upon by the auditors of Sify -- while consolidating the financial statements. The same approach is continued for the current financial year, as well.

Got it. Great. Thanks very much.

Welcome.

Thank you.

(Operator Instructions.)

Our next question is from Haro Jawje of J Goldman. Please state your question.

Hey, guys. I haven't seen your quarterly revenue number and EPS number. Sorry. I think I may have missed it somewhere. Can you guys give that number for last quarter?

Yes. The quarter revenue number is $38.23 million, EBITDA is 2.31, and a net loss of 1.23.

That is $1.23 million US or $1.23 per share?

No, no, $1.23 million US.

Okay. And what should be the number of shares that I should use to compute the EPS per share?

The number of shares, as I mentioned to the previous participant, is $52 million outstanding for the whole year -- 52 million shares outstanding for the fully year, and 125 million shares, which should be considered for [a product] for a period of four months. And paid up to the expense -- paid up partially.

Okay. Thank you.

Welcome.

Thank you. Our next question is from [Alex Portia] of J Goldman.

Hi, guys. Thanks again for hosting the call. So, if I'm an owner of the American depository receipts, the ADS cover what percentage of the overall capital structure of the company? The 52 million ADS outstanding are just like 35% of the overall company?

The ADS outstanding represent [21.7 inaudible] total capital of the company.

Okay. And so, the overall market capitalization of the company would be about $1 billion US or so?

It depends on how you compute for the reason that the Indian shares which are there, those are currently not listed. And so, that explains our liquid and our partially paid up. So, you need to factor those while arriving at the overall company valuation.

But, one American, one ADS was equivalent to [inaudible].

Yes, one ADS is equivalent to one share.

Okay, got it. Thank you.

Welcome.

Thank you. There are no further questions at this time. I would like to turn the floor back to management for closing comments.

Thank you, everyone, for joining us on the call. We look forward to interacting with you on the new financial year. Thank you.

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