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Sify Technology (NASDAQ:SIFY)
Q1 2019 Earnings Call
Jul 24, 2019, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and welcome to the Sify Technologies Financial Results for the First Quarter and Fiscal Year 2019-2020. [Operator Instructions]

At this time, it is my pleasure to turn the floor over to Mr. Shiwei Yin. Sir, the floor is yours.

Shiwei Yin -- Investor Relations

Thank you, Tom. I would like to extend a warm welcome to all of our participants on behalf of Sify Technologies Limited. I am joined on the call today by Raju Vegesna, Chairman; Kamal Nath, Chief Executive Officer; 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 our press release, please get in touch with us 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.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 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 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 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 Limited. Sir?

Raju Vegesna -- Chairman and Managing Director

Thank you, Shiwei. Good morning. Thank you for joining us on the call. The new government of India has chosen to continue with the pro-industry measures that we have started in their earlier term.

This is a good news for the industry and the investment community, as it assures the domestic and international multinational companies that their plans for India can now pick up speed. We are really seeing that. For us that translates into focused pursuit of opportunities that these domestic and multinational companies will present, while continuing to cater to our home-grown players.

Now I will ask Kamal Nath our CEO to expand on some of this business highlights for the -- our past quarter. Kamal?

Kamal Nath -- Chief Executive Officer

Thank you, Raju. We are continuing our focus on enabling enterprises to adopt cloud. Our assets and services are providing significant value-add to our clients to achieve their digital objectives without increasing the cost. With our Cloud@Core service lines on our recent Cloud interconnect alliances with global players, we are best placed to have them in this transition. Our order book revenue and profits reflect this change.

In line with the continuing this event, I would like to expand on the business highlights and our growth drivers. Our revenue from Data Center centric IT services grew by 26% over the same quarter last year. Segment-wise revenue from Data Center Services and Technology Integration Services grew by 13% and 92% respectively while those from Cloud and Managed Services and Application Integration Services fell by 4% and 5% respectively.

Revenue from Telecom centric services grew by 13% over the same quarter last year. Segment-wise revenue from Data and Managed Services grew 12% while revenue from the Voice business grew by 16%. Let me now expand upon the growth drivers in the market. The primary growth driver in the market continues to be cloud adoption led by digital initiatives and transformation. This trend is triggering movement of workloads from on-premise Data Centers to hyperscale Public Cloud and hosted Private Cloud in varied degrees, based on the digital objectives of the Enterprises.

This results in transformation of the traditional network architecture and transformation at the edge which connects the end user. The need for digital services like analytics, data lakes, IoT, etc are shifting the balance to adoption of hyperscale Public Cloud versus Private Cloud. Collectively, these trends are generating opportunities for full scale Cloud, Data Center and Network service providers with digital services skills.

Let me summarize the categories of customers who was sending about Sify. Customers choosing Sify for migration of their on-premise data center to multi-cloud platforms like Cloudinfinit, AWS and Azure.

They also entrusted Sify with management and security services. Customers choosing Sify as their Data Center Hosting partner as they embrace hybrid cloud strategy. Customers choosing Sify as their Digital services partner and customers choosing Sify as their Network Transformation and Management partner as they migrate to Cloud-ready network.

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 past quarter. Vijay?

M. P. Vijay Kumar -- Chief Financial Officer

Thank you, Kamal. Good morning, everyone. Allow me to present the financial performance for the first quarter of financial year 2019-'20.

Revenue for the quarter was INR5518 million, an increase of 18% over the same quarter last year. EBITDA for the quarter was INR874 million, an increase of 18% over the same quarter last year. However considering the new accounting standards IFRS 16 on leases, which was adopted from April 1, 2019 that increases 5% on a comparable basis.

Net profit for the quarter was INR216 million, an increase of 8% over the same quarter last year. Capital expenditure during the quarter was INR1407 million. Cash balance at the end of the quarter was INR1568 million. Our investments in building capabilities in managed services and applications-led integration services will continue alongside infrastructure, especially Data Centers. These will enable us to be relevant partners to Enterprises in an ecosystem where policies regarding data residency, data localization are taking final shape and the government accelerates the adoption of digitalization. The tax benefit of the past accumulated losses having been fully utilized, the net profit for the quarter is after tax expense.

I will now hand you over to our Chairman for his closing remarks. Sir.

Raju Vegesna -- Chairman and Managing Director

Thank you, Vijay. Over the years, the Enterprises have been seeking out service providers who has the right mix of services and are in tune with the demands of the evolving ICT Environment. With our mix of four sites, digital services and alliances we have been able to sync with their IT needs to their emerging business goals. As the landscape gets more challenging the focus and going forward to its cultivate the right mix of the partners and services.

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

Questions and Answers:

Operator

Thank you, sir. [Operator Instructions] We'll take our first question from Greg Burns with Sidoti & Company.

Gregory Burns -- Sidoti & Company -- Analyst

Good morning. First I just had a couple of housekeeping items. Going forward how should we model taxes? What tax rate should we be modeling for the company?

M. P. Vijay Kumar -- Chief Financial Officer

The tax rate are about 34%, but the effective tax rate up to around 30% considering some of the tax benefits on accelerated depreciation.

Gregory Burns -- Sidoti & Company -- Analyst

Okay, thank you. And for the full year what do you project capex could be?

M. P. Vijay Kumar -- Chief Financial Officer

It should be in the same order of -- the quarterly spend should be in the same order.

Gregory Burns -- Sidoti & Company -- Analyst

The same order as last year or?

M. P. Vijay Kumar -- Chief Financial Officer

Whatever we spent in quarter one, we should continue similar spend.

Gregory Burns -- Sidoti & Company -- Analyst

Similar rate for each quarter, OK. And then we look at -- could you just give us an update on your data centers? How many are currently operational? What's the capacity utilization of the existing data centers and kind of what your build plans are for this year?

M. P. Vijay Kumar -- Chief Financial Officer

We have about 10 data centers effectively. Out of it six are fully monetized. Full capacity is sold out. The others are capacities which are -- which have been recently built and are getting added in a modular manner. And to the extent of the capacities created in a modular manner they get tend to get populated within a period of nine to 12 months. In terms of IT power capacity. They currently are north of 60 megawatts.

Gregory Burns -- Sidoti & Company -- Analyst

Okay. And then just with the capex projections and what your -- the DCs you're building. How high do you see the leveraged on the balance sheet getting? What do you -- do you have a target or a comfort level in terms of leverage?

M. P. Vijay Kumar -- Chief Financial Officer

We expect to have leverage presently at the same ratio, which we have now between equity and debt. We generate an annual EBITDA of INR3000 million approx and net profit of INR1000 million, which gets added. So, we should be able to use this accruals or retained earnings along with fresh debt in the same ratio as what we are having now to fund our capital expenditure requirements.

Gregory Burns -- Sidoti & Company -- Analyst

Okay, thanks. And then lastly, I mean, I was a little bit surprised by the decline in the cloud and managed services. Did you lose a customer there? Can you just give us a little bit more color on why that declined year-over-year?

Kamal Nath -- Chief Executive Officer

Yeah. So, Vijay, I'll take this question. So, I'm Kamal here. So, what is happened is, I mean, in our cloud and managed services business apart from the generic view of the revenue. There are two components which is based on the execution of customer projects as well as usage pattern of our customers.

So, what is happened is this quarter vis-a-vis the previous quarter, the same quarter the previous year. The same quarter of the previous quarter we handed over some migration product to some of our customers right where it was a one-time services revenue, which got built and that was quite a number of projects were included in that category.

The second part is you know, as you know, that the cloud revenue is completely based on usage or mostly based on usage. So, we are also seeing some seasonal effect of lesser usage of the cloud infrastructure this quarter. So, we have taken a note of that, and obviously it is getting reflected in the revenue. But I don't think it's a matter of concern for us because we are acquiring more and more cloud customers as you might have seen in our press release.

Raju Vegesna -- Chairman and Managing Director

To answer your question, Greg. This is Raju. We are not seeing any downturn on the cloud usage in India. Every CIO we are talking, everybody is looking toward the cloud, OK. So that momentum is going. So, you will see, I think, maybe this one quarter we had something, but we are seeing a lot of the cases coming in the pipeline in the cloud cases, right. You will see that accelerating. India every CIO you thought everybody is talking about the cloud story you know.

Gregory Burns -- Sidoti & Company -- Analyst

Okay, thank you.

Operator

[Operator Instructions] We'll go next to Allen Klee with the Maxim Group.

Allen Klee -- Maxim group -- Analyst

Yes, hi. Also a few housekeeping and then some bigger picture questions. Can you tell us how much total debt was at quarter end and then related to that, I noticed that net finance expense of around INR64 million was down compared to the run rate it had been running at, and maybe if you could explain why that is and if that's sort of the new run rate of the kind of INR64 million it was this quarter? Thank you.

M. P. Vijay Kumar -- Chief Financial Officer

As far as the borrowings are concerned, net borrowings are concerned net of the cash we're carrying in the books. It is around INR5500 million approx and the interest cost compared to the earlier quarter is less for the reason that we had some interest income accruing that line item if you see is the net interest expense, net of interest income. And for the future quarter, the interest expense is likely to be in the same order as what we had in the last financial year.

Allen Klee -- Maxim group -- Analyst

Okay, thank you. Then another kind of a question just more financial related. Can you talk about if there's a -- it looks like there's typically some seasonality in the first quarter of it's maybe a little lower than the other quarters. Is that something we should continue to expect or is there anything to think about seasonality of revenue percent of revenue per quarters. And then the gross margin that you had this quarter, is there any reason to think that should meaningfully move in one direction up or down as we go through the year? Thank you.

M. P. Vijay Kumar -- Chief Financial Officer

I cannot confirm on seasonality, but if I were to look at the last four financial years. We have always had situations where the quarter one of a financial year happens to be lesser than the preceding quarter, which is the last quarter of the previous financial year.

That's the trend we have observed. And it appears to be largely because most of the customer orders, customer orders they tend to pick up momentum. Some times during the second quarter, third quarter and once they get executed, they tend to contribute to the revenue in the last quarter. So, that's the trend we have seen within the company in the last four years.

Allen Klee -- Maxim group -- Analyst

Okay. And then it's interesting how you talk about how you benefit from your cloud interconnecting with alliances with other global players that we might without knowing enough might just assume they would be competitors. But it sounds like you're actually gaining business. Could you maybe explain a little of how you benefit from that?

Raju Vegesna -- Chairman and Managing Director

Kamal, go ahead. Kamal, go ahead, yeah.

Kamal Nath -- Chief Executive Officer

Yeah. So the global players like AWS, Azure and even Oracle who will be launching Cloud in India very, very soon. They are not exactly our competitors. In fact we collaborate because if some of the projects which you might have followed in our press release. There are quite a lot of projects which we're just signing, where we are helping the customers to move from their data center to hyperscale cloud providers like AWS, Azure and in the coming days it will be Oracle also. Now when we connect each of these operators. Now when we connect to each of these operators, the cloud operators given an high-speed connectivity with the cloud. Sify being a networks services provider also, which is an additional advantage with Sify we have products, which are high speed secured connectivity to the hyperscale cloud providers.

So to that extent we not only migrate the customers to this hyperscale cloud providers, but also connect them from their data center to cloud or their users to cloud securely and also manage them over the entire contract period. So, that's our main business, which is being on the table vis-a-vis the other traditional cloud providers.

Allen Klee -- Maxim group -- Analyst

Okay. Thank you. And then could you expand a little on your comment that the new government has chosen to continue with pro-industry measures to maybe talk about what that is?

Raju Vegesna -- Chairman and Managing Director

No like the important thing is you know government initiatives for investments overall very promising. If you look at some of the finance budget numbers and all what they are proposing. So, some of the measures they are encouraging through start-ups, they are encouraging to do the manufacturing.

And so all these things, what happens ultimately creates more MNCs coming to India multinational companies and favorable for investment aspects all those processes regulations those are getting relaxed and also that will create more opportunities for the Indian industry to start new companies also.

So what is that mean is, pro-government means doing all these initiatives, it is more becoming more business friendly, and opportunity is growth. At the end of the day and how the India GDP is growing, right and the highest fastest growing biggest GDP in the world now.

And what is that [Indecipherable] is as long as the industries and enterprises are going. So we are in the middle of those things providing either a connecting networking services providing the data centers for the cloud platform. So, we are in the middle of that growth story. That is our hope. That's what we are presenting.

Allen Klee -- Maxim group -- Analyst

Okay. That's, that's very helpful. Thank you. And then just lastly, I apologize, but I think I missed some of what was said about the number of data centers you had now, and how many were fully filled and how many you're planning to add this year?

M. P. Vijay Kumar -- Chief Financial Officer

We have total ten in the data center for us. Six of them are fully populated and monetized. The other four are capacities, which have just gone live or about to go live and they're all getting built on a modular basis.

Operator

Mr. Klee were you done?

Allen Klee -- Maxim group -- Analyst

Yes, maybe just one last thing of the -- so there's four that were, that are just gone live, and you're building, adding capacity. Are there or adding filling them up. Are there any new ones in addition to those four that are being planned to be built this year?

Raju Vegesna -- Chairman and Managing Director

There are plans and at this stage, I wouldn't like to make any observation, which is forward looking. We do have a land bank, which we have acquired in the past to create new facilities. Based on the progress of our customer conversations with large customers we will decide on the timing of taking of those projects.

Allen Klee -- Maxim group -- Analyst

Okay, great. Thank you so much and congrats on the results.

Raju Vegesna -- Chairman and Managing Director

Thank you.

Kamal Nath -- Chief Executive Officer

Thank you.

Operator

[Operator Instructions] We do have a follow up question from Greg Burns with Sidoti & Company.

Gregory Burns -- Sidoti & Company -- Analyst

Hi. I just had a question about your wireless spectrum. I think in the [Indecipherable] year you had mentioned that the government is repurposing some of that spectrum. So, I just wanted to see get your view on your wireless, the capacity of your wireless spectrum. Do you have enough and will you need to source some new spectrum in the future? Thank you.

Raju Vegesna -- Chairman and Managing Director

For our enterprise business, which is both wireless and some amount of fiber on the ground as well. The spectrum, which we use is largely in unlicensed band and the solutions which we provide do not require a license band or additional spectrum to be acquired. So, our business model does not envisage acquisition of spectrum or carrying on our enterprise network or telecom business.

Gregory Burns -- Sidoti & Company -- Analyst

Okay, thank you.

Operator

And we did receive another follow up question from Allen Klee with Maxim Group.

Allen Klee -- Maxim group -- Analyst

Yes, are you able to tell us what percent of your revenue came from the data center centric businesses as a percent of the total? And is there any reason we should be thinking that, that business should be growing at a faster rate than the telecom services centric going forward?

Raju Vegesna -- Chairman and Managing Director

As far as the revenue is concerned the data center centric services and telecom are approximately in the ratio of 50-50 more or less equal. Telecom centric being marginally higher. We expect both businesses to grow. But the data center centric IT services I don't want to again sorry for repeating.

I don't want to sound forward looking, but given the momentum of the government and the various companies toward digitalization, which is happening. It is quite possible that this part of the business might see a little higher growth rate than the telecom.

Allen Klee -- Maxim group -- Analyst

Okay. Thank you so much.

Operator

At this time there are no further questions in the queue. I'd like to turn the call back over to management for any closing remarks.

M. P. Vijay Kumar -- Chief Financial Officer

The accurate number is 58% for telecom concentric and 42% for data center centric IT services.

Raju Vegesna -- Chairman and Managing Director

So thank you, everyone for joining us on the call, and we look forward to interacting with you through the year. Have a good day. Thank you.

Operator

[Operator Closing Remarks]

Duration: 29 minutes

Call participants:

Shiwei Yin -- Investor Relations

Raju Vegesna -- Chairman and Managing Director

Kamal Nath -- Chief Executive Officer

M. P. Vijay Kumar -- Chief Financial Officer

Gregory Burns -- Sidoti & Company -- Analyst

Allen Klee -- Maxim group -- Analyst

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