Sify Technologies Ltd (SIFY) 2025 Q2 法說會逐字稿

Good day and welcome to the Sify Technologies financial results for second quarter, fiscal year 2024-25. At this time, all participants are on a listen-only mode. After management's prepared remarks, there will be a question and answer session. I would now like to turn the call over to your host, Praveen Krishna of Investor relations. The floor is yours.

Thank you, Kelly. I'd like to extend a warm welcome to all our participants on behalf of Sify Technologies Limited.

I'm joined on the call today by Mr Raju Vegesna, Chairman M P Vijay Kumar, executive director and Group CFO and Kamal Nath Chief Executive Officer of Sify Technologies.

Following on the results, there will be an opportunity for questions. If you do not have a copy of our press release, please call Weber Shandwick at +1(212) 546-8260, and we'll have one sent to you. Alternatively, you may open a copy of the release at the Investor Information section on the company's corporate website at www.sifytechnologies.com/investors.

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 corporate website.

Some of the financial measures reported 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 Standards, or IFRS, and will defer some more from the GAAP announcements made in previous years. A presentation of the most directly comparable financial measures calculated and presented in accordance with the 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 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 our 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 of Sify Technologies Limited.

Thank you Praveen. Good morning and thank you for joining us on the call.

The enterprise landscape in India is undergoing a transformative evolution driven by a confluence of regulatory advancements, innovative business models and robust infrastructure development.

As we navigate this dynamic environment, it is clear that India is emerging as a global hub for Information and Communication Technology (ICT) regulatory frameworks are becoming increasingly conductive to business growth allowing for an ecosystem that encourages innovation and investment initiatives such as the digital India, the make in India campaign, streamline processes, incentivized entrepreneurship.

This shift is not just about adopting new tools, it is about reimagining how we conduct business and deliver value to our stakeholders. Let me now bring in our CEO Kamal Nath to explain the business silliness.

Yeah. Thank you, Raju.

As enterprises embark on their digital transformation journeys, they are reshaping their it frameworks to integrate a diverse array of innovative solutions.

The overarching goal remains the same which is to enhance user satisfaction, ensure operational resilience and safeguard digital assets. To support these ambitions we are making significant capital investments and expanding our range of offerings.

Our strategy focus on delivering innovative outcomes through our comprehensive suite of infrastructure and digital services. Uniquely positions us to partner with businesses during this pivotal transmission.

Let me now expand on the business highlights for the quarter.

The revenue speed between the businesses for the quarter was data center colocation services at 32% digital services at 32% and network services are 36%. During the quarter Sify commissioned 6.5 megawatt of data center capacity in Mumbai as of September 30th 2024 Sify provides services via 1069 fiber nodes across the country.

A 12% increase over the same quarter last year.

If we have now deployed 10,057 is the service points across the country.

A detailed list of our key wins is recorded in our press release. Now live on our website.

Let me bring in Vijay, our executive director group CFO to elaborate on the financials for the quarter.

Thank you, Kamal. Good morning, everyone. We draw our attention to Sify adopting the new standard of International Accounting Standards Board, recent issuance of IFRS 18 on presentation and disclosed in financial statements starting with the last quarter ending June 30, 2024. By adopting the new framework, we seek to maintain clarity and consistency in our financial communication. Importantly, while our presentation may change, there is no change in the total income or net profit.

Let me briefly sum up the financial performance for quarter two of financial year 2024/'25. Revenue was INR 10,275 million, an increase of 17% over the same quarter last year. EBITDA was INR 1,963 million, an increase of 29% over the same quarter last year. Profit before tax was INR 87 million and profit after tax was INR 49 million. Capital expenditure during the quarter was INR 2594 million. The cash balance at the end of the quarter was INR 7,574 million. We remain committed to cost-effectiveness and fiscal prudence in our operating decision-making. Our ongoing events reflect a forward-thinking perspective that anticipates market trends.

We expect these efforts will positively impact our net profit in the near future. However, it is essential to acknowledge that these investments also lead to increased depreciation and interest costs in the financial statements. We are actively scaling our sustainable practices across all our businesses with particular emphasis on our data centers. This commitment to sustainability is not just a compliance measure. It is integral to our long-term strategy and resonates with the broader digital transformation initiative being pursued by industries.

I'll now hand over to our Chairman for his closing remarks.

Thank you Vijay Kumar.

The network data center and digital businesses are now attracting the best of the breed of clients, partnerships and capital.

That is the beginning of our next phase of growth. Thank you for joining on this call. I will now hand over to the operator for questions

(Operator Instructions)

Greg Burns, Sidoti and company.

Good morning. Just a question about the demand environment. Where are you seeing the most demand growth coming from? Is it from hyper scalers or is it from enterprise customers? And then could you just talk about maybe how A I the growth of A I is maybe reshaping the demand environment? Thank you.

So Greg, this is Raju. So as we growth always between hyper scale enterprise, one of the thing is sify is in unique, we are not just depending upon hyper scale. We have a good footprint of enterprise customers in our data centers that you will, we look at it in the same ratio of scale and the enterprises we are continuously growing to answer your second question. A I, so A I is just starting in India.

So enterprises started looking A I and we have a big summit going this week and with A I summit.

So you know, we are part of the sponsors and we are getting ready our A plan. As you already know, we are the first certified by NVIDIA for the air cooling and liquid cooling up to 130 kilowatt per rack.

So we are very much excited and what is NVIDIA is doing? And we see a lot more potential, not only for Indian consumption, for a global consumption supplied by India with having a talent of it, resources to operate A I requirements, you know, so we see a great potential possible for India and and we are ready and we are the first one ready with such kind of data centers, a ready data centers across three cities, Mumbai Chennai and Noida means Delhi.

Perfect. You, you mentioned, I guess commissioning 6.5 megawatts of data center capacity in this past quarter. Can you just update us on maybe the number of data centers you operate? How much megawatt of capacity that you currently have operational and maybe what the road map is for the rest of the year? How much capacity do you expect to bring online for the remainder of this fiscal year?

So Vijaykumar here, we currently have data center capacity which is live and operational for about 120 megawatt of which 105 megawatt is already being consumed by the customers and rest of it are in different stages of contracting.

And beyond that, there are Greenfield projects which we commenced last year which are nearing completion and should go live in the next few months where these facilities have a design capacity at present of about 52 megawatt aggregate, but scalable much higher of which initially we will enable about six megawatt to go live.

All right, perfect. Thank you. The in the quarter digital services was a lot stronger than, than we were modeling. Was there anything in particular driving that was it from, you know, project based technology integration services work or more recurring cloud and managed services type of growth?

No, this is this turn around in quarter two is attributed to some project based revenues in our network, manage services business and that has contributed to the positive change in this quarter?

Perfect. Okay, thanks. And then in terms of the new non convertible debt that you took on, it seemed like the rate was pretty favorable. How did that rate compare to your existing debt? And are you planning to use that new debt to pay off some of your old debt or is it just going to be put towards maybe investments into the business?

Yeah. So this debt was raised in our data center co location subsidiary and it is listed on the Bombay Stock Exchange here.

This is a '15 year debt with a five year moratorium and repayment starting up from the 6th year onwards, 1/10 over the remaining '10 years thereafter.

In terms of the cost of this debt. It is about 40 basis points lower than the debt which it is replacing now.

And this entire proceeds have been used for replacing the existing debt.

Having said that the existing debt was due for repayment over the next '18 months.

Whereas this debt which is replacing the old debt has a longer tenor. So it is it in fact really for funding the growth of the data center capacities.

Okay, perfect. And the debt balance and the cash balance that you mentioned, does that include? Oh, I got it.

I guess I'm sorry, you're you're just re replacing but that includes this,

This

You got it, got it.

Okay.

And then in terms of spending your, your SG&A maybe as if we look at it as a percent of revenue. Do you expect that given the investment road map that you have laid out? Do you expect that to increase as a percent of revenue or kind of maintained at the current levels?

It it should maintain at the current level.

We have actually invested quite a bit on SG&A over the last three years and with the assets getting monetized, we should be able to maintain at the current level for foreseeable future.

Okay. Okay, perfect. That's all for me. Thank you.

Thanks Rick.

Your next question is coming from Jonathan Atkin. With RBC capital markets. Please pose your question. Your line is live.

Thank you. Was interested in in what you're seeing among indian domestic enterprise commitments. This is now for your data center business or are we talking about multi year contract terms ,Can you give us a flavor for that and how that might compare with the the length of the commitments that you're signing with some of your international customers?

As far as the data center, customers are concerned as Mr Vesna mentioned, in response to the previous query, we have customers who are hyper scaler and the enterprise segment. The hyper scale contracts are an average length of about nine years which are renewable for the and the enterprise customers contracts are on an average about five years and with potential for renewable renewal thereafter, our past historical experience is we have had almost a nil churn in our customer base.

And then I'm interested in the the customer preferences, particularly on the the international side for your larger deals, are the customers expressing a preference for you to build the full turnkey data center? Or to what extent are they preferring or, or willing to perhaps take to shelves where they would then kind of complete the fit out work. After you deliver the shell,

It, it the Jonathan dear. So it is both ways there are built to suit opportunities. There is a shelf kind of models and also the Colo models, right? So they're mixing based on the demand, are the, these kind of things. So now is the bill to suits, you know, it takes longer time and when the opportunities comes, you know, they don't have a requirements, they can do it. I think they will, they're adopting even Colo models, you know,

I got a couple more if you, if you'll bear with me, so I'm interested in just kind of you mentioned A I any any inkling that you have as to what, what that means in terms of the customer use case, are we talking about machine learning? Are we talking about large foundation models? Is it A I inference at this point? What what, how do you see this today and then maybe going forward as best as you can tell over the next couple of years, how is the topology evolving within India?

So the way I look at is Johnson is A I still evolving in India. So Indian enterprise point of view, they're building the models are, collecting the data to use the A I in India. But what I see is some of the hyper scale is already having A I capability, people are adapting and also other opportunities, as you know, to deploy A I, you need to have certain kind of data centers and you know, other, you know, training, it resources to run those models. So being India equipped with, you know, having a data center, having a power, having skill sets of the people, I believe India is in a unique position to take advantage in this A I evolution. You know, that, that is the, that is the way I am betting, you know. Right. It's just starting in India.

Thank you. Last question or two. A lot of foreign capital, joint venture capital coming in the in the with, with, with very, very significant build ambitions and I'm interested in the implications it has on on you from a competitive standpoint. Or not, may maybe these are mutually validating types of capital allocation where it's kind of like a rising tide lifts all boats or do you view that as competitive and then any implications from this, this, you know, data center development on your network services business?

No, I think you know that that is always will be there. One is being India being an attractive for a lot of people deploy their capital. That means you know, they're trying to bet India. So being an established player, being a domestic player in India, Indian origin data centers, we have our mind share and our market share. So that is the way we look at it. And we are one of the few capable of delivering end to end data center services, you know, building from ground to, you know, capable of, you know, customizing the data centers and a different variants of the data centers. And how do you equip for the new A I readiness trying to do 130 kilowatt per rack. You know, we are not a there are a lot of real estate players entering into the market. We are not a real estate kind of player. We are a technology data center player and building, you know, over the '20 years and going through, you know, we are building generation three data centers that is an advantage for us, Jonathan.

Lastly, just the Indian fiber market particularly things like dark fiber. Can you maybe describe the landscape? You obviously have a lot it's a big part of your business but other kind of investments and deployments that you see going on for the for the industry overall around dark fiber.

Yeah. So as you see, you know, now, you know, having the cloud and the data center, the whole, you know, server client model is evolving.

Networking plays a big role. So as you can see our networking business also growing with the data centers and we're in a unique position to do both network and the data center opportunities. So it's it's not, it may not be our data centers. Still we provide a connectivity to the data centers. So it goes, you know, I believe, both network and the data center has to be it's growing and some of the existing networks are outdated and not capable of servicing the kind of bandwidth is required for especially for the A I applications. It's a great opportunity for us to building new networks with the new technologies, you know.

Thank you very much.

Thank you.

Once again, if you do have any remaining questions or comments, please press star one at this time.

Your next question coming from Sri Gopal Bajaj with Hifi Advisory Services. Please put your question. Your line is live.

Could you repeat the

Name of, can you repeat?

This is Sri Gopal Bajaj here from Stock Hifi Advisory.

Am I audible?

Yes. Yes, please go ahead.

Yeah. What is your current data center which is already on a co location?

And what is the future plan which is coming on stream?

No, we cannot talk about much over the future.

So, we cannot talk about much over the future. We have data centers in six markets in India. We have in Mumbai, Chennai, Bangalore, Hyderabad, Kolkata and Noida that is Delhi. So we are an established player. We are one of the top players of the data center and we are hosting some of the hyperscalers, we are hosting some of the enterprises. So we are an established player, more than 20 years in the data center business.

What is the current size? At least you can

Current size

Current size, we have 120 -- I'm Vijay Kumar here. We have 120-megawatt of capacity, which is built, of which about 105-megawatt is already under consumption by the customers, and the remaining is at different stages of contracting.

Going forward. Are you still intend to continue with your debt in the same manner or do you are having any plans to cut down on the debt?

No debt will be integral part of our data center capacity expansion. Typically, our model is to take two- thirds of our project cost as debt, rest of it is funded by equity including internal accruals.

You cannot disclose the future plans. Is that clear?

Yeah, yeah, we are bound by the forward-looking statements, restrictions which are there.

Okay.

Okay. Thank you.

Okay. Your next question is coming from Srika Pardu. Please put your question. Your line is live.

Yeah. Hi, good evening everybody. Mr Raju, Mr Kamal and Mr Vijay Kumar, congratulations on a good set of numbers and also returning back to profits.

I have some very specific questions, please excuse me, if there is anything which is -- which sounds out of normal due to lack of my knowledge about part of your business. If I understand correctly, the network services had -- royalty or some kind of an income this quarter. Is that evident to put the company this quarter back into -- are there any one-offs?

Sorry, your voice was not coming clearly. You said net worth something

Can you hear me now?

Yeah, it's better. You said something around network business.

Yeah, there was some additional income or license we are referring to in this quarter, or some kind of a fee or an income. How much of that has contributed to the, to the, to the profits this quarter? So the question is, are there any one offs in this quarter?

No, there are no -- in our network business, there are no one-off items. Network and data center business, largely our annuity kind of revenue. On the IT services business, there are always some projects, which get executed in quarters.

Okay. Okay. So if -- even if there is an additional one client in the next quarter, it could be some other client which could be contributing. Is that correct?

And the size could vary, size of the project could vary.

Right, right. I mean I have a few questions. I'll go to my second question, if it is okay.

So the gross margins are always going to be the study in that 30%, 35%, 36%, 34% kind of range, given that this is more of an IT, IT services kind of a company, I would have thought the gross margins would be closer to 50%. Is my understanding wrong?

Yes. We broadly have 3 businesses which have quite distinct characteristics and all the 3 businesses are in terms of revenue, 1/3 each approximately. As far as the network services are concerned, it's a reasonably asset-light model with substantial amount of expenses being capacity, which is leased out from third-party telecom operators. And on data center business, we have power as a significant cost, which is largely a pass-through from which we get from customers, which we pay to the state electricity boards.

And on the IT projects and IT services business, we have a combination of projects and services, and that's a business where over the last 2 years, we have been incurring substantial amount of expenses for capacity building. Both in terms of people, upskilling them and on tools. So the margins historically, as you mentioned, are at the range of 34%, 35%, but you need to dissect those and understand them separately.

But even at the consolidated level, overall, considering this is not like a manufacturing-intensive kind of business, do you -- is it even possible at some stage, the gross margins will be north of 50%? Is that even a possibility for a company -- for a business like this?

I wouldn't be able to comment on that. At least in the foreseeable future, it's unlikely to be that number.

Okay. Okay.

So I'll move on to my next question. Given that, you know, the interest as an expense and depreciation for, you know, a company which is building a lot of capacities will always be be, you know, proportionately going growing along with the the revenue. Can, can we consider that the numbers currently we are seeing this quarter both for the depreciation and the interest expense and of at the peak level.

Are these the peak levels or you,

We have the depreciation will increase quite substantially. There are a couple of Greenfield projects which are expected to go live in the coming months and once those facilities go live, the depreciation number will increase and since the interest capitalization on the projects under construction will also cease, there will be an impact on the interest as well.

And all all the loans are INR denominated or do you have any foreign loans?

No, all the loans are I and are denominated?

Okay. Okay. And you know, I see that the, you know, the cash balance probably from maybe 50 million to 9 million million. Is that right? I'm really too, but you know, from 50 million now, we have closed about 90 million cash balance. And what has helped that?

You're right. Two reasons. One is we recently did a rights issue, and those proceeds are to be fully deployed in expansion. And second, is some marginal improvement in the operating efficiency.

And in terms of any specific numbers, I know there is some moratorium of initial 5 years for maybe the loan, which was recently converted into bonds. There is a 5-year moratorium. Does it mean that the interest doesn't have to be expensed into the P&L for 5 years?

No. The interest will come into P&L and the interest will also be a cash flow. Only the moratorium is only for the principal.

Okay. Thank you for the clarification. So now -- no, sorry, one last question. Now that these three are the SG&A depreciation and interest expense, that actually take away the substantial amount of contribution or margin generated by the business as such. At what stage -- considering that you have ambitious plans to build more data centers, I see that almost INR 5,000 crores, INR 6,000 crores to be deployed over the next several years to build additional capacities. The path to free cash flows is several quarters away or several years away, that would -- that is something investors would always be interested to see, right, in the generation of any free cash flows.

Yes. So if you're looking at free cash flow after considering new capital expenditure, then it is certainly a few years away because the data center industry is poised for a fairly higher CAGR and a substantial amount of capacity will be added by us and our peers in the industry as well. So I don't think any of us will stop -- slow down expansion of our data center capacity. But if you're looking at free cash flow only after replacement CapEx, of course, even now, we are pretty well positioned, and we'll continue to have positive cash flows.

And all the future expansion, the numbers I see close to $600 million, $700 million to be deployed over the next few years, will be a combination of, again, debt as well as internal accruals?

Yeah. Yeah, you're right.

Okay. Thank you, Mr. Vijay Kumar. I'm done with my questions. But once again, congratulations to the team turning back into profits and we hope next quarter you will do better than this quarter.

Thank you. Thank you.

We do have a follow-up question from (indiscernible) with HiFi Advisory Services.

Mr. Vijay Kumar, can I just know what is your realization per megawatt?

See these are customer specific numbers. Gopal.

I don't think we -- I don't think it will be appropriate. But it's available in our published financials, the gross revenue. And I told you about the capacity. You could do a reverse working on that. Because the reason -- I'd just like to...

So

Because

One thing that I was giving you,

Yeah, I I just like

I did the backward calculation. I was getting around INR 1 crores per month -- INR 1,04,00,000 per month in Indian terms...

Okay. Okay. Okay. Okay.

So what I was -- the other two businesses are giving you very thin margins. Are you doing anything for that part of it, one is the networking, the other part is, which is like hardly on gross profit of a few percentage below mid-teens also.

Correct. So there's a lot of work we are putting across for our IT services business. That's -- we see a huge opportunity for that as India embraces more of digitalization. But when new services business in India, it comes at a low margin and scope creeps, which are there. So we are getting our processes better but fundamentally, we have belief in India enterprises consuming more IT services from service providers like us in and we'd like to stay invested in that business.

Okay.

Thank you, sir. Once again, Congrats,

Thank you. Thank

There appear to be no further questions in queue at this time. I would now like to turn the floor back over to Praveen Krishna for any closing remarks.

Yes. This is Raju again. Thank you for your time on this call. We look forward to interacting with you through the year. Have a good day. Thank you.

Thank you, everyone. This does conclude today's conference call. You may disconnect your phone lines at this time, and have a wonderful day. Thank you for your participation.