Sify Technologies Limited (NASDAQ:SIFY) Q1 2023 Earnings Conference Call June 22, 2022 8:30 AM ET
Company Participants
Praveen Krishna – IR & Public Relations
Kamal Nath – CEO
M. P. Vijay Kumar – CFO
Raju Vegesna – Chairman & MD
Conference Call Participants
Greg Burns – Sidoti & Company
Operator
Good morning, ladies and gentlemen and welcome to the Sify Technologies Financial Results for First Quarter and Fiscal Year 2022 to 2023. At this time, all participants have been placed on a listen-only mode and the floor will be open for questions-and-comments after the presentation.
It is now my pleasure to turn the floor over to your host, Mr. Praveen Krishna. Praveen, over to you.
Praveen Krishna
Thank you. I would like to extend a warm welcome to all our participants on behalf of Sify Technologies Limited. I’m joined on the call today by Raju Vegesna, our Chairman; Kamal Nath, Chief Executive Officer; and M. P. Vijay Kumar, Chief Financial Officer.
Following our comments on the results, there will be an opportunity for questions. If you do not have a copy of our press release, please call Grayling Global at 646-284-9400 and we will have one sent to you. Alternatively, you may obtain 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 referred to during this call and in the earnings release may include non-GAAP measures. Sify 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 reflect the 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. Chairman?
Raju Vegesna
Thank you, Praveen. Good morning, everyone. Thank you for joining us on the call. Even though for the last couple of months, there’s uncertainty in the macroeconomics of the world, India still retained a strong outlook for investments and growth. This is in a large part due to the consistent economic reforms of the government, and it started ambitions to pursue the digital methods to deliver the social benefits.
The technology landscape has been the biggest beneficiary of these policies, and this is reflected in the growing number of incoming requests for the digital transformation. We see the Indian enterprises using this opportunity to adopt the best practices from the worldwide.
Let me now bring in Kamal, our CEO to expand on some of the business highlights for the past quarter. Kamal?
Kamal Nath
Yes. Thank you, Raju. Enterprises are displaying a growing comfort in digital adoption across all levels. They are leveraging digital transformation to spark innovation across enterprise and this is resulting in an increasing number of new initiatives delivered on a digital-only platform.
While earlier, our mandate was to accelerate our clients’ transformation goals. Our cloud-focused digital initiatives are now called upon to create new business processes, customer experiences and greater cost effectiveness. Enterprises increasing interest in outcome-based initiatives, incoming policies around data and the government’s aggressive adoption around all things digital should act as tailwinds for our data center, network and digital services.
Let me now expand on the business highlights for the quarter. Revenue from data center services grew by 56% over same quarter last year. Revenue from digital services stayed flat. Revenue from network services grew by 11% over the same quarter last year. The revenue split between the businesses for the quarter was data center colocation services at 34%, digital services at 26% and network services at 40%.
During the quarter, Sify has invested $150,000 in start-ups in the Silicon Valley area as part of our corporate venture capital initiative. To date, the cumulative investment stand at $3.44 million. If you commissioned incremental capacity of four megawatts across Noida and Hyderabad data center facilities in the quarter.
As on June 30, 2022, Sify provides service via 824 fiber nodes and 1,910 wireless base stations across the country, a 11% and 5% increase, respectively, over the same quarter last year. The network connectivity services crossed a critical milestone of deploying more than 5,000 SD-WAN 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 CFO, to elaborate on the financial highlights for the quarter. Vijay?
M. P. Vijay Kumar
Thank you, Kamal. Good morning, everyone. Let me briefly present the financial performance for the first quarter of financial year 2022-’23. Revenue was INR7,709 million, an increase of 20% over the same quarter last year. EBITDA was INR1,525 million, an increase of 5% over the same quarter last year.
Profit before tax was INR395 million a decrease of 10% over the same quarter last year. Profit after tax was INR271 million, a decrease of 18% over the same quarter last year.
Capital expenditure during the quarter was INR2,241 million. We remain committed to expanding our data center and network footprint and are gradually scaling up the adoption of renewable energy in our data centers. Investment into people and tools will be complementary to this growth without losing sight of fiscal discipline.
As we scale, our focus would be on ensuring that costs are optimized and revenues are improved across our services mix. Cash balance at the end of the quarter was INR3,794 million.
I will now hand over to our Chairman for his closing remarks. Chairman?
Raju Vegesna
Thank you, Vijay Kumar. Sify is in a strong position given its historical performance. We will aggressively pursue our growth agenda. The focus is to build ahead of the demand, so we can market the rebounds. There will be one obvious choices. Thank you for joining us on this call.
I will now hand over to the operator for questions. Operator?
Question-and-Answer Session
Operator
[Operator Instructions] Your first question is coming from Greg Burns of Sidoti & Company. Greg, over to you.
Greg Burns
Good morning. First, in terms of the data center services performance this quarter, it came in a little bit better than we were expecting. Was that driven by any onetime items? Or is that a good number to build off of going forward for the rest of the year?
Raju Vegesna
And I think it’s a mix of both. I think we hope to see certain kind of growth because the data centers in India is hot. And I think it is a good growth.
Greg Burns
Okay. And then earlier this year, I guess, the government classified data centers, they gave in infrastructure status. Can you just talk about what that means for the industry and how that impacts you and your ability to finance your data center growth?
Kamal Nath
The infrastructure status with the government had announced as part of its annual finance bill presentation. It’s it to be formally notified. What this actually means is access to long-term debt and at a relatively lower cost — relatively lower cost. And there are lots of institutions, particularly the insurance entities who look at participating in long-term debt funding. So we will be able to raise needful resources to fund our data center expansion plan.
Greg Burns
Okay. Does that change in any way that you look at funding or financing your data center expansion? I know you just recently had the partnership with Kotak. So — just how does that in any way change your plans and maybe you could just give us an update on how much you’ve drawn on that Kotak agreement already?
M. P. Vijay Kumar
Yes. The Kotak partnership is a convertible instrument, so it’s essentially equity. We have so far drawn about INR2,000 million, 2000 million and before in rupees and before end of this financial year, we are committed to draw another INR2,000 million which is also a convertible instrument.
And what this convertible instrument gives is? It effectively strengthens our equity base gives us ability for more leveraging. And given the infrastructure status is the government has recently committed to notify we should be able to raise longer-term resources where the repayment would be spread over a longer period, leaving more free cash flows within the company to fund the expansion plans.
Greg Burns
Perfect. Okay. And then when we look at your competitive position in the market, I know could you just talk about how having the network side of the business helps the data center business? How are those two kind of link — does having the network give you advantage going forward as demand starts to build for a data center in India?
Raju Vegesna
I think both goes hand to hand, but we are going to go both the businesses parallelly. I think both data centers and the network, we see the potential. As the more hyperscalers and the cloud platform is taking digital transformation, the — Yes, there are certain advantages, but we consider those two businesses are independent and run separate P&L.
Greg Burns
Okay. Is there anyone else waiting to ask questions?
Operator
At the moment, no, not in the telephone lines. I don’t know about the webcast, Praveen. Do you have many?
Praveen Krishna
No. They would have popped up on your — on the chat box.
Greg Burns
Okay. Just checking. I have one more. So in terms of your investment plans for this year, you mentioned for — you’ve commissioned, I guess, four megawatts of additional data center capacity this quarter. How much — what’s your total capacity right now? And what is — what are the plans for your capacity by the end of this year, like how much incremental capacity are you bringing online this year?
M. P. Vijay Kumar
So we currently have about 86 megawatt of IT power capacity, which is operational across 11 data centers spread over seven cities and we are committed to three greenfield projects, which are under construction. And as in the past, we are not in a position to give forward-looking statements. But nevertheless, there are three large greenfield projects under construction at Mumbai, New Delhi, which is Noida and at Chennai.
Greg Burns
But I guess the plan still remains to add 200 megawatts of capacity over the next, I think, four years is what you laid out. Is that still the plan?
M. P. Vijay Kumar
Over the next four years, the outlook is pretty positive, very positive. And we have done financial closure, which should support us to more than double our capacity in the next two to three years. And as we make the capacity operational, we’ll evaluate adding more capacity.
Greg Burns
Okay. And as we look at your leverage over this build cycle, how high do you think leverage is going to get? Do you have a target on kind of the maximum leverage over this investment cycle that you’re going through?
M. P. Vijay Kumar
Yes. So typically, we have two, three benchmarks with the Board has set for the company. One is in terms of debt to equity, which currently we are sub one whereas we could go anywhere up to INR1.5 million. Second is a debt-to-EBITDA ratio, which fairly good accepted multiple is about three times, and we are currently little over two times and we have enough leveraging ability and on a debt service coverage ratio also, we have enough room to add debt.
Greg Burns
Okay. All right. Perfect. Thank you very much. That’s it for me.
Operator
[Operator Instructions] Okay. We appear to have no further questions in the queue. Praveen, do you have any questions on the webcast?
Praveen Krishna
No, we can go ahead at the chatbox.
Raju Vegesna
Okay. Thank you. Thank you for your time on this call, and we look forward to interacting with you through the year, and have a great day. Thank you.
Operator
Thank you, ladies and gentlemen. 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.
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