Sify Technologies Limited (SIFY) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to Sify Technologies' Financial Results for the First Quarter Fiscal Year 2025 to 2026. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Praveen Krishna of Sify Technologies. Praveen, the floor is yours.

Thank you, Jenny. 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; and Mr. M.P. Vijay Kumar, Executive Director and Group CFO of Sify Technologies. 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 Weber Shandwick at 1 (212) 546-8260, and we'll 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's 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 a reconciliation of such non-GAAP measures and of the differences between such non-GAAP measures and the most comparable financial measures calculated 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 of Sify Technologies. Chairman?

Thank you, Praveen. Good morning, and thank you for joining us on the call. As India is entering into new generation of IT transformation, I firmly believe that next decade of digital infrastructure will be written in India. The pace at which public and private enterprises are investing in technology, cloud adoption and automation is unmatched, driven by an urgency, not just to participate in the digital economy, but to lead it. Government policy, industry ambitions and a vibrant innovation ecosystem are combining to create a perfect storm of opportunity. National programs like Digital India, the IndiaAI mission are bringing in investments in compute infrastructure and digital access, while regulatory clarity is unlocking private capital into hyperscale data centers, 5G and beyond. India is not just consuming AI, it's rapidly combining up with the value chain to become a creator of AI tools, frameworks and domain-specific solutions. This ambition will translate into robust demand for integrated infrastructure that supports high-performance workloads, edge computing and sovereign's data requirements. India will not just be the growth market, it will be the growth engine. Let me now bring in our Executive Director and Group CFO, Mr. M. P. Vijay Kumar, to explain both the business and the financial highlights of the last quarter. Vijay Kumar?

Thank you, Chairman. Greetings to all. We remain steadfast in our commitment to cost efficiency and fiscal discipline, as we navigate an increasingly complex business environment. Every investment decision is taken with long-term value creation in mind, overseen by a rigorous approach to risk management and effective execution. While our current results reflect the impact of depreciation, interest cost and increased manpower expense, these are highly conscious trade-off in our strategy to build future-ready capabilities across our businesses. At the same time, we are embedding sustainability as a foundational business tenet well beyond the requirements of regulatory compliance. Ultimately, our focus remains on delivering predictable, long-term value to the stakeholders while staying true to our disciplined investment philosophy and high standards of accountability. Let me now expand on the business highlights for the quarter. The revenue split between the 3 businesses for the quarter was: Network Services, 41%; Data Center Colocation Services, 37%; and Digital IT Services, 22%. During the quarter, Sify commissioned 8.6 megawatts of additional data center capacity. As of December 2024, Sify was providing services via fiber nodes across the country. And since then, we have seen an increase of 14% over the same quarter quarter-on-quarter. Sify has deployed about 9,473 contracted SD-WAN service points across the country. A detailed list of our key wins is recorded in our press release, which is now live on our website. Let me briefly sum up the financial performance for quarter 1 of financial year 2025-'26. Revenue was INR 10,723 million, an increase of 14% over the same quarter last year. EBITDA was INR 2,111 million, an increase of 18% over the same quarter last year. Loss before tax was INR 322 million. Loss after tax was INR 388 million after considering tax on the profits from our data center subsidiary. Capital expenditure during the quarter was INR 2,874 million. I will now hand over to our Chairman for his closing remarks. Chairman?

Thank you, Vijay Kumar. In the quarters to come, we will deepen our focus on enabling AI workloads and attracting a new generation of forward-thinking enterprises. With our integrated infrastructure -- digital infrastructure and proven service maturity, we are uniquely positioned to lead. I thank you for your continued belief in our journey. We remain energized by the possibilities that lie ahead. Thank you for joining on this call. I will now hand over to the operator for any questions. Operator?

[Operator Instructions] Your first question is coming from Greg Burns of Sidoti & Company.

Thanks for the update on the data center capacity that you added this quarter. Can you just remind us how much data center capacity has already been commissioned is in operation? And maybe what your expectations are for the next 12 months in terms of how much capacity you expect to be coming online?

Yes. So 2 things. One is 2 greenfield data center projects at the National Capital Region, Delhi, and at Chennai have gone live in the last 4 months, both of which have a design capacity of 26 megawatts each. From the operational capacity perspective, about 8.6 megawatt got added in the quarter, taking the total operational capacity, built capacity available for sale to 138 megawatts.

Okay. Great. And then, I guess, is there like a timeline or a roadmap for other greenfield data centers that you're bringing online this year? Or is that not something you're ready to share?

Yes. No, there is -- there are 2 data center facilities, which are coming up in Mumbai, which are under construction, which will go live later part of this financial year. Both of them have a design capacity of about 52 megawatts. And besides that, there is another greenfield project also, which is under construction, which details we'll discuss once the project reaches a little advanced stage of completion.

Okay. Great. And then I just wanted to talk a little bit about the pay-per-use colocation AI model that you, I guess, press released a couple of months ago. Can you just talk about maybe how that model works? What kind of investment is required on your end? And maybe what you expect the returns to be, maybe the payback period or the types of returns you expect to get on that model?

Okay. So, Greg, the way payback Colo model works, see, we have 3 data center campuses, Mumbai, Chennai and Noida, all are certified by NVIDIA. We are the first guys certified by NVIDIA liquid cooling for 130 kilowatts per rack. So the way -- these data centers are ready to use for a liquid cooling. And now what we are doing, if anybody wants -- globally, want to host their GPUs in one of these facilities, we are offering Colo as a per usage model. So for example, we took about 5 or 6 different GPU types from NVIDIA, and we are offering per hour base, per demand base, per monthly base, per year base. That way, anybody wants to deploy like AI cloud for either AI training, AI inferencing globally, so they can host with us. And so that is a business model we are offered. I think we are offered probably unique. I don't think anybody offered Colo pay-as-you-go model. And we are getting some interest. We can -- all these 3 centers are capable of doing this. So we just started, and we are getting some interest, global presence -- global requirements to host here. At this point, we don't know the numbers, and we are marketing at this point, and there is some interest.

Okay. Great. So just so I understand, you are buying your own GPUs, hosting them in your own facilities and then leasing them out on a per-use basis. That's what's happening here, that's the model.

No, no. No, no. We are not buying GPUs. Other than GPUs, bring your own GPUs, and we can offer you pay-per-use model. So if you look at it, GPU per hour they charge, right, something like that. So to complement that, if somebody has GPUs, they can bring these GPUs, and we are offering Colo model to match that GPU pricing. So that way one can offer GPU as a pay-per-model service. Yes.

Okay. Okay. And then, Vijay, you talked about kind of the -- how you've been investing into the business and how that's maybe detracting from near-term profitability, but obviously you expect to benefit from that over time. Is there a timeline on maybe when we might see a little bit more leverage flowing through the model? Is there a horizon on that? Is it a 1-, 2-year kind of still investment period that's going to be going on? Is there anything you could help us there with kind of looking out to the future and when we might see a little bit more leverage in the business?

Yes. So, Greg, as you would have observed from the press release information, segment reporting, the Network business and Data Center business are doing pretty well. The Digital IT Services is the business where we continue to invest on people to build capabilities. In terms of a horizon at this point in time, while I don't want to sound forward-looking, but I see anywhere between 12 to 18 months for us to start seeing results from the efforts we have put in over the last 2 years should -- start flowing in.

Your next question is coming from [ Mihir Saka ] of [ Prithvi ].

So actually, I'm joining this call for the first time and I joined the call a little bit late. My question was on the data center cell [Technical Difficulty].

Mihir, your signal seems to be cutting out, and it's very difficult to hear. Can you just try a different location?

Yes. My question was regarding the data center business. What is our current capacity after the 8.3 megawatts that we have added as of today?

138 megawatt of capacity is built and operational.

Okay. And what is our plan for this financial year? How much are we planning to add?

As I was responding to the earlier queries, we have taken 2 greenfield data center projects live, where both of them have a design capacity of 26 megawatts each. And as the customer demand gets built up, we will keep operationalizing that portion of the capacity.

Okay. Okay. And are there any plans to -- for the IPO of the Digital Sify Infinite Space on the cards?

At this point in time, we continue to evaluate various sources of raising capital. And we'll get guided by our Board as to what would be the best option for raising capital and the timing of the same. We'll keep the market informed when there's a tangible decision.

Okay. Okay. And on the Digital Services business, so I was just going through the detailed segmental report. So on a year-on-year basis, I think so pretty much the top line has been flat and losses have also increased on the operational basis. So what kind of -- what are our plans for the Digital Services business? And can you throw some color, like paint some picture like why the top line has been flat? And what are our plans to turn around this segment?

Yes. Reason for top line to be flat is a change in the model, where there is a focus more on annuity revenues versus project-based revenues. So earlier, the share of project-based revenues used to be high. We have been gradually moving to recurring or annuity services business. So we'll continue to build our annuity business. And as far as the losses are concerned, they are a function of the investment we are making in people. We started this journey about 3 years back, and we continue to build capabilities to be relevant for the India IT Services market, about which we are very confident about India enterprises outsourcing their IT to enterprises -- to companies like us.

Okay. And like what kind of timeline or horizon have you planned to turn this around like into profit?

Yes. While I don't want to sound as forward-looking, the current plan is over the next 12 to 18 months, we should see the losses shrinking and the operating performance getting better.

Okay. Okay. And actually, I was trying to reach out to Mr. Praveen, who handles our IR, and I actually wanted to get more detailed understanding of our business model like offline. So would it be possible to arrange a call or can we connect offline after this con call?

Yes, you can.

We can, Mihir. We can, Mihir.

Yes. Yes. Actually, I already shoot you a mail like a month ago. I will send the mail again. So what would be the e-mail ID on which I can send?

[email protected].

[Operator Instructions] We have a question coming from [ Sri Sow ], who is a private investor.

This is [ Srikanth ] here. I have a couple of questions, which are more or less in line with what I have asked probably in the previous earnings call as well. The first question would be the newly opened Chennai DC has now started adding to the revenue?

Yes.

Okay. Okay. Second thing is that given that you are in IT services, that kind of a company, not a pure brick-and-mortar manufacturing company. I would have thought the EBITDA margin should expand, right? I mean, closer to the 25% range. But I see that it's consistently always in that 19%, 20%, including this quarter, it's about roughly 20%. When do you see that margins expanding? Given that so many DCs are already functional over a period of time, when do you see some kind of operating leverage kicking in?

Yes. [ Srikanth ], Vijay Kumar here. [ Srikanth ], we have these 3 distinct businesses with different capital deployment characteristics. The Data Center business has an EBITDA margin of close to 45%. And we have our Network business, which has an EBITDA margin of about 18%. And we have the IT Services business, which the earlier queries also sought information, which is work in progress.

Okay. Okay. And the full year -- I mean, I know generally, you don't give any guidance, in terms of growth across the 3 segments, would it be safe to assume a double-digit kind of a growth for rest of the year?

That's a wish list all of us work for.

Okay. Okay. And I see that the Network business has always been stable, roughly around 40% of the overall business. Data Center, obviously being an emerging sector and a growth sector, has slowly creeped up from -- I don't know, from 25% contribution to the top line to now almost close to 35%, 36%, I think. And the Digital has been kind of degrowing from 28%, 29% to now, I think, this quarter may be roughly 21%, 22%.

You're right.

This is in line with the conscious call that the Digital will remain a part of the offering, but we don't see that as a growth driver.

Yes. No, no, no. That will be a growth driver. But there's a change of the business model, which I was articulating earlier. The Digital Services earlier used to be more project-based revenue, whereas now it's more of a services-based revenue. And when you do annuity recurring kind of a business, the revenues are small, but they come over a longer period. So that's a conscious decision we took about a few years back, and it is work in progress as we are changing the mix.

Right. Right. And -- I'm not looking at the net income as such, but even the EBITDA margins have been slightly improving, not that much. What are the -- I'm sure it's a combination of both, like wherever we can get some kind of premium pricing or premium offerings or add-on services to get that additional margin and -- or maybe some sort of operating leverage or a reduction in SG&A., when do you see that the margins more towards the -- at the group level I am talking about, the consolidated level, seeing more in the 25% region?

No, at consol level we should -- no, no, of course, of course, of course.

We have bigger aspirational goals, but we are trying to achieve that.

So once we see the IT Services business gain traction, automatically, we should see that reflecting in the consolidated EBITDA.

Any -- of course, I know you guys are trying very hard, any -- will it see a gradual like a 100 basis point kind of improvement over the next several quarters? Or...

No, we are certainly working for that. Certainly working for that.

I think at 25% margin everything changes, right? The books look far more accretive.

Our focus is not on the consolidated one because all the 3 businesses are...

Different. Different characteristics.

So I think we will -- I don't want to spell out the target EBITDA, but Data Center will be more or less -- will get a little operating leverage benefit. Network, we will see a little higher operating leverage benefit. On the IT Services business, once we get the offerings more stable and it gets to profitability, it will improve.

Thank you very much. Well, we appear to have reached the end of our question-and-answer session. I will now hand back over to the management team for their closing remarks.

Thank you for your time on this call. Have a great day. Thank you.

Thank you very much. That does conclude today's conference call. You may disconnect your phone lines at this time, and have a wonderful day. We thank you for your participation.