Sify Technologies Ltd (SIFY) 2012 Q3 法說會逐字稿

Greetings and welcome to the Sify Technologies third-quarter, fiscal-year 2011/2012 financial results. 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. Thank you Miss. Nguyen, you may begin.

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

Following our comments of the results there will be an opportunity to ask questions. If you do not have a copy of our press release please call me at Grayling, 646 284 9400, and I can have one emailed to you. Alternatively, you can obtain a copy of the release at the Investor Information section of Sify'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 corporate website.

Some of the financial measures referred to during this call, and in earnings releases, may include non-GAAP measures, since these un-audited results for the year are according to the International Financial Reporting Standards, 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 in 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 would like to point out that certain statements contained in earnings releases, and on this conference call, are forward-looking statements rather than historical facts and are subject to risk 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 Litigations 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 principle 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 risk and uncertainties inherent to the Company's business.

With that, I would now like to introduce Mr. Raju Vegesna, Chairman and CEO of Sify. Raju, the floor is yours.

Thank you, Truc. Good morning. I wish you a very happy New Year and thank you for joining us on the call. As we set ourselves a few years ago on a path to become the ITC -- India's premier ICT Company, a couple of weeks ago we became the first Indian ICT company to launch our own cable landing station, thus, reaching an important milestone in the ICT ecosystem.

With the opening of this landing station Gulf Bridge International, GBI, became the first to land their sub-sea cable system in India. Sify also signed a Landing Party Agreement, LPA, with MENA Submarine Cable System S.A.E, a licensed telecommunications operator in Egypt. This cable landing station positions Sify well for the growing opportunities for ICT and Cloud services across the world.

That Europe India Gateway, EIG cable, which is also in which we invested, has gone live this quarter. A $700m high-capacity, fiber-optic cable, EIG, will be the first direct high-bandwidth optical fiber system from the UK to India. This cable will also support our expanding global operations across Europe, Middle East and Africa. All of these are in line with our focus to continue investing in our infrastructure and be ready when the demand for high-density data transport and storage capacity catches up.

The other big news is as we set for the government in our businesses. Our State Data Centers for Kerala went live recently, making it our second State Data Centers to go live. We won orders for the total of five State Data Centers to date. Our strategy to drive Network, IT services and Software as a complete portfolio is allowing to better utilization our manpower and technical skills and service offerings.

We are seeing a lot of demand from the tier-III cities, especially from the SMEs for our retail offerings. Both the Central and State governments are pursuing an agenda of digitizing existing records, building a central storage repository and augmenting connectivity. Going forward, we should see more opportunities emerging for our products and services.

I would like to focus for a few minutes to see what are the different businesses and their performance.

Overall, Sify registered a growth in revenue of 4% [towards] the same quarter last year; the Enterprise business raised 5% growth towards the same quarter of last year; Software services grow 16% over the same period; our International Voice business grew 11% over the same last year. Hosting and Managed services also include major wins and long-term contracts this quarter.

Our Security services also improved, impressive wins across industries like auto, direct marketing and insurance and banking. Our SMB customers based across multiple industries has grown for about 78% year to date.

The big wins (inaudible) are Hosting, Managed services and Network services, [EG&A], an indication that our next phase of growth will come from the government and from the enterprises, and we'll be ready for it when it happens.

Now I will ask Vijay -- Mr. Vijay Kumar, our CFO, to expand our financial highlights of our performance. Afterwards I will summarize this call. Mr. Vijay Kumar.

Thank you, Raju. Good morning and a very happy New Year to everyone. I will now provide detailed financial results for Q3, or financial year 2011/2012.

Sify's revenues for the quarter were at INR1.8b as against the same quarter previous-year revenues of INR1.7b. EBITDA for the quarter stood at INR136m, as compared to INR93m in the same quarter previous year. Net loss before tax for the quarter reduced to INR73m, as against a net loss of INR96m in the same quarter previous year.

The operating expenses have been attained within our operating cash flows for 800 a quarter, and capacity utilization has gone up. CapEx for the quarter stood at INR225m and cash balance at end of the quarter was INR658m, and an un-drawn line of credit of INR335m. We should see cash generation from our investments in Cable Landing Station and EIG soon. We are looking at consistent recurring revenues from our Trade Data Centers for the next five years, now that two of them have gone live.

I am happy to conclude that our inclusion into the NASDAQ Global Select Markets is a significant endorsement of corporate governance practices and also the investor confidence in the Company.

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

Thank you, Vijay. Some of our successes have come against established names in the Industry and that [recounts] my conviction in Sify and our people and our processes. While there are increasing signs that the economic [scenario] is easing up, I am convinced that this is an appropriate time for Sify to be individual in people, products and 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). One moment, please, while we poll for questions. Thank you. Our first question is from the line of Hero Choudhary with Jay Goldman. Please proceed with your question.

Hi. Curious to know if a press release was issued for change in reporting currency from US dollar to Indian rupees.

There is no formal press release issue. We have been advised that since the functional currency of the Company is Indian rupees, and also, at the request made in the last earnings call, a few of the participants were reporting in Indian rupees because of the fluctuations and volatility brought in by the exchange rates, we are formally communicating this change in currency with this press release now.

Okay, thanks. Was there any one-time gain in your September quarter in revenue? If not, why top line is declining sequentially on quarter-on-quarter basis?

Yes. There was no one-time revenue in the previous quarter ended September and the quarter ended December. However, as far as the revenues' marginal decline, it is partly due to selectively picking up some of the large projects which have come our way. And a few of the projects are revenue-related projects, which were supposed to be monetized in Q3, have got deferred through quarter four, in particular the State Date Center project which Mr. Raju Vegesna mentioned in his remarks.

Okay, thanks. As per your 20-F filing Sify had $20m short-term debt due in less than a year, with $30m in cash on balance sheet.

Yes.

Can you discuss how much of that cash is in India and how much is in oversea accounts? Also, how much of that cash is actually restricted and cannot be used for this purpose?

Okay. As far as the cash and bank balance is concerned, all the cash balance is only in India and, as you are aware, our operations are predominantly India. We don't carry any significant cash balances outside of India, except in the nature of Imprest required for our International operations.

As of 38 -- December 31, 2011 the cash balance which we have is entirely unrestricted cash balance and there are no restrictions on the same. The cash balance which we have, as I mentioned in my address, is about INR658m and we have un-drawn lines of credit of about INR335m.

And how much short-term debt is due in less than a year?

We have a short-term debt which is due off, Indian rupees, $160m -- INR160m, but this INR160m is essentially a long-term debt which is maturing for complete payment in the next 12 months.

Okay, thanks. This is helpful. (Multiple speakers).

And -- I didn't get your name. As far as the cash balance is concerned, just to clarify, there is some small cash balances which are earmarked for the purpose of bank guarantee facilities.

Right.

And those are mostly without any restriction or without any lean. And details of those we will provide as part of our 6-K filings, subsequently, when we do them.

Okay. Can you also discuss the impact of MF Global bankruptcy filing, because Sify owns a 30% stake in MF Global India entity, and where it will show up in your income statement?

Yes. As you must be aware, MF Global Sify is the affiliate company for us and we follow the Equity Method of accounting, where we merely pick up our share of profit.

As far as MFG Sify India operations are concerned, it hasn't been impacted in terms of liquidation and this entity continues to carry on business. And the change of shareholding of the 70% shareholder, we are closely monitoring the progress, and, at this point of time, for the quarter ended December 2011 we have picked up our share of profits of about INR32 -- or INR320m -- no, INR3.2m.

So this is share of affiliates shown as INR3m in the current press release?

You are right. You are right.

Okay. Can you discuss also what is included in the other income of INR17m?

Yes. Other income basically comprises some of the write-backs because of past bad debts which we have recovered and some of the expenses where we have got a recovery on a subsequent accounting period. So those represent items of other income.

Okay. And one last one is related to how many shares outstanding at the end of the quarter?

Okay, just give me a second. 178m, but it's part of the public filing. Off hand it's about 178m shares -- the total shares outstanding.

Okay. And is there any reason Sify doesn't report per-share best results in terms of EPS?

No specific reason, except that there hasn't been a requirement of mandatory reporting. Nevertheless, it is something which can be easily computed based on the shares outstanding. And for the quarter ended December '11 it is an EPS of minus 0.63.

Okay.

Based on the average number of shares.

Okay. So do you think, going forward, it will be possible for Sify to include in the press release at the bottom how many shares outstanding so that we can compute it on our own?

Yes, I will make it simpler by giving the EPS ladder.

Okay, and one last question. You just talked about capacity utilization increasing. Can you discuss in some detail how do we measure capacity utilization?

Our capacity utilization is largely in the form of Network assets and Data Center assets. As far as these assets are concerned, as we scale up business on those, and, as Raju stated in his remarks, there has been growth in the Network business as well as the Data Center business, and both of them have seen a higher capacity utilization.

Okay, thanks for taking my questions. That's all on my side.

Take care. Thank you.

One other clarification I want to give you. This is -- the third quarter is the shortest working days because of our Diwali and holidays. So that is also -- I want to make a note that the third quarter usually less working days.

Okay, thanks.

Thank you. (Operator Instructions). We'll pause a brief moment to poll for questions. Thank you. Our next question is from line of [Jake Thompson] with GEM Capital Management. Please proceed with your question.

Yes, hello. Thank you for clarifying the un-drawn line of credit. What was that?

Un-drawn line of credit is bank lines of credit which have been sanctioned but they have not utilized it, given that we have cash surpluses.

Okay, great.

And (multiple speakers).

Yes, with the related party, what was that? Do you have a related-party transaction? How much is available on that still?

I didn't get your question. What is the query?

Yes. On the related-party transaction with [Mr. Vaysoo], how much is left on that?

Okay, the balance and what's left is, in INR terms, INR2b.

And can you please talk about the plans to call that?

Okay. As we have shared in the past, and the filings which have already been done with NASDAQ, the balance capital will be called up as and when the expansion plans materialize, and after we have exhausted using the existing cash balances which we are carrying, for which expansions plans are already underway. I am not in a position to give a specific timeline, but it will synchronize with the expansions plans materializing.

Okay, thank you. And what was the average currency impact? Was it about 51?

Average currency impact on which currency?

The average -- the average INR of the USD in the quarter. Was it about 51?

Okay, it was about -- yes, close to 51.

Okay, so year-over-year end sequentially you were down?

Yes, on the revenues (multiple speakers).

In dollars.

Yes, yes. Well, both -- in both currencies, since you'll be using the same currency for translation -- same exchange rate for translation, whatever is seen INR the similar impact would be [that] in dollars as well.

Okay, so you will not go back to dollars?

(Multiple speakers). Yes.

You will not go back in dollars if it becomes [a tailwind]? Thank you.

You're welcome.

Thank you. (Operator Instructions). We will pause for a brief moment to poll for questions. Thank you. Our next question is a follow up from the line of Hero Choudhary with Jay Goldman. Please proceed with your question.

Thanks. Going back to the previous question about the stock issue and [San Andro] online, it looks like -- so, since 125m shares were issued through the [CU] in October 2010, if I understood correctly, not all of them have been drawn up yet because we don't need the capacity, right?

Yes. There has been deferment of the capital expenditure, since some of the capital expenditure projects did not materialize as planned.

Okay. So, when that additional capital will be required and pricing will be set and cash will come into account, will we still use that $0.69 issuance price, or we will use current stock price to determine at what price we should issue shares to the Chairman's company?

Yes. We have clarified all of these points as part of the filings which we have done, including the recent filing on October 26. Since these stock are essentially unlisted stock and Indian stock, by character, they are differing. And I would request you to go to the filing which has been done and I'm sure you will get complete clarity on the pricing and the nature of the stock.

Okay, thanks.

Okay. You're welcome.

Our next question is from the line of Madhu Kodali with Yaksha Capital. Please proceed with your question.

Hi. I was wondering if you can elaborate a little on the Enterprise revenue segment. And also on the cable networks, on the new investments you're making, what sort of revenue are you getting today and what do you expect going forward, in the next two to three years? How do you see this panning out?

So, let me address that. One other thing is what we are doing, is connecting India to the rest of the world. What we are doing is we've built a Cable Landing station for multiple cable systems to be -- can be hosted in our Cable Landing system.

So what is -- that mean is, using this, we are building a port and people can bring their cable systems to that. So in (inaudible) there are already two Cable Landing systems already signed in. One is Gulf Bridge International, which is a unique Cable Landing system connecting 17 Gulf countries in one chart, and also it leads us ultimately to [the] Europe. Similarly, another Cable Landing system is MENA. It is Middle East and North Africa. That system also is getting a -- landing in our Cable Landing system.

In addition we also took a stake in EIG, Europe India Gateway system. That has also become active. By doing all these things what we are anticipating is we can -- when the -- the bandwidth requirement across the globe connecting to India, it comes through our Cable Landing system at our EIG Cable system.

But that we can invest -- any Enterprise customers coming to India and going from -- out from India, they can use our Cable Landing systems and also our Cable systems.

Do you currently generate any revenue from them, or these are new projects and you're ready for the customers?

These are the new projects we just turned on, so from now we aggressively planning this investment.

So this is something like a new initiative for the Company?

Yes, that's correct.

Okay. And what is the investment you have in the EIG project?

EIG we invested, Vijay, come and correct me if I'm wrong, about $10m?

You are right, Raju.

Yes. And then in the case of a Cable Landing system, Cable Landing station we build a Cable Landing --

Yes, $2m.

$2m into the Cable Landing station. Through that we can connect different Cable Landing systems.

Okay, and what about the Enterprise services? Can you elaborate a little bit in terms of what segments (multiple speakers) connectivity? Is it something else?

Yes, Enterprise -- basically, the two important investments we do in Enterprise is -- one is Network expansion, where we are continuously increasing our Network expansion. So that one -- how much we have invested, Vijay Kumar, on the Network expansion in the last -- that is we are continuously investing and we reached almost 1,000 cities and towns to expand our Network.

Secondly, we are bringing up our fourth Data -- fifth Data Center that is in [Noyra] and that should be functional in the next -- the billing is -- everything is completed. Now we are equipping with the Data Center requirements, which should be operational in the next two quarters. This year it's going to be live, that Data Center.

So almost all the revenue you are listing under the Enterprise segment is primarily derived from the Network connectivity?

Network connectivity and the Data Centers.

And the Data Centers.

And (multiple speakers) -- Managed services; three revenue streams.

Right. And how is the pricing? Do you see -- how do you see pricing going forward? And what kind of competition do you have in that space? Who do you primarily compete with?

Data, there is substantial competition in India, so I think is -- there's competition. And we are one of the well-recognized brand and we are getting our share of the market.

All right, one last question on the software and Commercial and Consumer, the other two segments. They haven't been growing that much. Have the strategies changed now, or are you still focusing on those two segments at this point?

No, we are still focusing on those two segments, but those are the things we are -- those structures with the small bases we are continuously growing on that. One other thing is, on the SMB market, we are seeing good growth, but it's a small portion in the overall scheme.

But in tier-II and tier-III cities the uses of the IT is started increasing, as we are increasing SMB markets in the tier II, tier III and also our [closer] basis. We can see the revenues coming from all solutions.

Okay. One more question on the CapEx. What sort of capital investments do you foresee for the rest of this year?

For the rest of the year, Vijay Kumar, what is our budget?

Yes, okay. I cannot make an off-hand commitment at this point in time because the annual budgeting exercise is underway. But it's all right to extrapolate the investment pattern we have followed the last few years. The investment should be not off $30m.

Okay, thank you. That's it for now.

Thank you.

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

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