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Sify Technology (NASDAQ:SIFY)
Q2 2019 Earnings Call
Oct 18, 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 Sify Technologies' Financial Results for Second Quarter Fiscal Year 2019-2020. All lines have been place on a listen-only mode and the floor will be open for questions and comments, following the presentation.

[Operator Instructions]

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

Shiwei Yin -- Investor Relations

Thank you, Kath. 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 yet, please let us know 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 adjusted 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 and thank you for joining us on the call.

With the adoption of the digital technology across India, global enterprises and the domestic players now see a market opportunity. And as we have quickly transitioned to the digital economy in this process, we saw that the strength of the local IT-enablers, who has the capability and local knowledge to execute. This is the opportunity in front of Sify today.

Let me bring Kamal Nath, our CEO, to expand on some of the business highlights for the past quarter. Kamal?

Kamal Nath -- Chief Executive Officer

Thank you, Raju.

We continue to see increasing cloud adoption in enterprises as well as government clients. Our investments, skills and partnerships are attracting clients, who are renewing their erstwhile on-prem outsourcing, people heavy contracts, and looking for a hybrid or multi-cloud flavored models. We are also able to bring in benefits to clients with our hyperscale network services, which enables cloud adoption. The true value of Sify's ICT services is being unleashed in Cloud transformation projects.

I would like to expand on the business highlights and our growth drivers.

Segment-wise revenue from Data Center Services and Cloud and Managed Services grew by 18% and 30% respectively, while those from Technology Integration Services and Application Integration Services fell by 32% and 3% respectively. Revenue from Telecom-centric services grew by 16% over the same quarter last year. Segment-wise revenue from Data and Managed Services grew 15%, while revenue from the Voice business grew by 17%.

Let me now expand upon the growth drivers. 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 center to hyperscale Public Cloud and also Private Cloud in varied degrees, based on the[Phonetic] digital objectives of the enterprises. This results in transformation of the traditional network architectures and transformation at the edge, which connects the end user.

The need for digital services like analytics, data lakes, IoT, et cetera, 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 are signing up with 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. Customers choosing Sify as their data center hosting partner as they embrace hybrid cloud strategy. Customers choosing Sify as their digital services partner, and also 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.

Pleased to present the financial performance for the second quarter of financial year 2019-20. Revenue for the quarter was INR5,807 million, an increase of 5% over the same quarter last year. EBITDA for the quarter was INR1,061 million, an increase of 38% over the same quarter last year. Considering IFRS-16 leases adoption from April 1, 2019, the increase on a comparable basis is 24%.

Profit before tax for the quarter was INR280 million, an increase of 11% over the same quarter last year. Profit after tax for the quarter was INR191 million, a decrease of 25% over the same quarter last year, due to tax expense during the current quarter.

Capital expenditure during the quarter was INR983 million. Cash balance at the end of the quarter was INR1,375 million. With the focus on digital transformation, enterprises are actively engaging for multiple ICT services for the operational benefit of our comprehensive suite of services. We are seeing our managed services on top of the data center and cloud as having the most traction among them. While we expand our capacity, both data center and network infrastructure, we continue to exercise prudence in our capital investments.

This financial year, the increase in depreciation and interest is partly due to adoption of IFRS-16, which became applicable from 1st April, 2019 for leases, in particular for operating leases, and the tax expense is due to the Company being subject to income tax as the benefit of past losses has been utilized in full until last year.

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

Raju Vegesna -- Chairman and Managing Director

Thank you, Vijay.

Incoming multinational companies and Indian enterprises are seeing the benefit of alignment with Sify, owing to the breadth of services and the evidence of successful deliveries so far. As we expand our services, we will continue to strengthen our current partnerships and forge new ones. The pursuit is to be partner-of-choice for both enterprises and in the partner ecosystem.

Thank you for joining us on the call.

I will now hand over to operator for the questions. Operator?

Questions and Answers:

Operator

Thank you. The floor is now open for questions.

[Operator Instructions]

And our first question comes from Greg Burns from Sidoti & Company. Go ahead, Greg.

Greg Burns -- Sidoti & Company -- Analyst

Hi, good morning. So, we've been seen some headlines around a little bit slowing growth in the Indian economy. I know the government just passed a major stimulus package. So, I just wanted to get your view on your business. Are you seeing any impact from the slowdown on a macro level in India? How is the demand picture looks like for Sify? Thank you.

Kamal Nath -- Chief Executive Officer

Yes. Raju, I will take the question.

Raju Vegesna -- Chairman and Managing Director

Yes.

Kamal Nath -- Chief Executive Officer

Yes. So, Greg, this is a very interesting question. In fact, yes, there is a general feeling of a slowdown in the market. However, enterprises -- and that's what I mentioned in my statement previously -- that enterprises are looking for cloud-based models, which are -- and people like module[Phonetic]. And with our construct of the business, in fact, we are taking away contracts from the so-called established players like IBM or DXC's or Wipro or HCL. I know, in fact quite a few contracts we have moved away from them, annuity contracts, long-term three to five years contract.

The slowdown in a way is helping us. I mean, I didn't exactly want to be sound negative about the slowdown. But I think there's a big opportunity for companies like Sify in the slowdown, where we will be able to deliver on our integrated solutions at a lesser cost than the traditional IT services provider. So, we look this as an opportunity.

Greg Burns -- Sidoti & Company -- Analyst

Hey, great, thanks.

And then, maybe you could -- I know you've talked in the past about having a vertical focus and maybe you've been experimenting with some new billing models, when you pay go kind of[Phonetic] -- IT service billing models. Can you just talk about those initiatives, how maybe that differentiate you in the market? And are you seeing that focus drive increased demand?

Kamal Nath -- Chief Executive Officer

Yes. So, in fact, there are some engagements -- very active engagements, which are going on in the market in that particular model. And we are seeing very, very interesting trends like, for example in India, we have seen adoption of Cloud and Cloud-flavored models in the insurance segment. But the banking segment has been -- they have been shy of moving to Cloud. But we are seeing, started enrollments, we're closing to the banking segment, the banks are actively talking about moving to cloud.

And now, there is a big opportunity for companies like us, who are [Indecipherable] in data centers as well as on cloud, and the relevant partnerships with the hypyerscale provider. So, the amount of the money as those banks or the insurance company are spending earlier in buying infrastructure. At the moment, it is moving to consumption-based models. We are the front-runner in those kind of projects. And these are -- and interestingly, these are all multi-year annuity projects.

Greg Burns -- Sidoti & Company -- Analyst

Okay, great.

Now looking at the -- your data center business, can you just give us an update on the number of data centers, you currently operate? What the plans are in terms of bringing on additional capacity this year? And how much of that capacity is already sold? Thanks.

Kamal Nath -- Chief Executive Officer

Vijay, you want to take the question?

M P Vijay Kumar -- Chief Financial Officer

Yes, Greg, Vijay Kumar here, Greg.

We have about 10 facilities across the country, predominantly in Mumbai, most of it is in Mumbai. With the overall IT power capacity of 60 megawatt, which is substantially sold, we have limited inventory in couple of facilities. We are continuing to expand on our data center footprint, which is happening presently in two of the existing facilities, where we are adding additional modules. And we are also in the process of evaluating the timing of commencement of greenfield data center projects on the lands, which we own. I don't want to sound forward-looking at this point of time, but we are actively evaluating those in terms of timing of when we would like to commence that.

Greg Burns -- Sidoti & Company -- Analyst

When you say commence, like break ground on building them or they're already built and going live -- breaking ground?

M P Vijay Kumar -- Chief Financial Officer

You're right.

Greg Burns -- Sidoti & Company -- Analyst

Okay. So, when we look at the second half, are you bringing on new -- or do you have already built DCs that are coming online in the second half, I just wanted to kind of understand it, if we're adding capacity here in the second half?

M P Vijay Kumar -- Chief Financial Officer

With again, an element of caution, regarding sounding forward-looking, in respect of two of our existing data center, we are creating additional capacity, which is additional modules in the existing facilities. And in one of the town, one of the cities, a data center build, which is in progress will go live in this quarter.

Greg Burns -- Sidoti & Company -- Analyst

Okay, perfect.

And how much of the capacity in that new data center that's going to go live is already sold?

M P Vijay Kumar -- Chief Financial Officer

Okay. The new IT power capacity, which will get added over the next six months, should be about five meg. And in terms of customer occupancy, it will happen in phases. They would [Indecipherable].

Greg Burns -- Sidoti & Company -- Analyst

Okay. And with the investments you're making on your data centers and your network, what do you expect capex to be for the full-year?

M P Vijay Kumar -- Chief Financial Officer

The capex for the full year based on our current plans should be close to about INR350 crores, INR3,500 million[Phonetic], which works to close to about INR50 million to INR60 million[Phonetic] at the commit.

Greg Burns -- Sidoti & Company -- Analyst

Okay, perfect.

Okay. Now looking at the -- your Application Integration Services and your Technology Integration Services, those have been pretty volatile. I know you lost a large government customer in the application business, but how should we think about those two businesses in terms of growth? Are those still growth drivers, are they going to become less meaningful going forward, how should we think about those two?

Kamal Nath -- Chief Executive Officer

Yes. So, Vijay, I'll take this question.

So, Greg, -- so let me first cover the Technology Integration Services business. As you know, this is more of a project-based business. So, I mean -- so there would be revenue reflection either on the upward trend or downward trend or maybe neutral also, based on the number of projects which are getting implemented during the quarter and which we were able to recognize the revenue. So, this is with respect to TI -- the Technology Integration Services business. But the good news is that with our Integrated Data Center Services, Network Services as well as Managed Services, we are seeing a pretty good growth of this business, with respect to our business line. So, this is about the Technology Integration Services business.

The application business obviously, as you are aware, this online test was a big business for us. We lost that contract. But at the same time --- our other application services business portfolio, which are more cloud-centric, which are digital services-centric, we have incubated lot of business lines or a lot of products, we have introduced, which are expected to drive the growth going forward. And we are also -- I mean getting newer contracts may not be as big as that specific customer, but we expect our application business to grow in future.

Greg Burns -- Sidoti & Company -- Analyst

Okay, thanks.

Has there been any movement on the data privacy bill, in India, any progress there?

Kamal Nath -- Chief Executive Officer

So, the data privacy is on. In fact, if you recollect some of my earlier statements during this conversation, almost all the cloud providers, global cloud providers are setting up their infrastructure in India right from Amazon, Microsoft, and the latest one being Oracle and Google. So, on one hand, the government has given a mandate, the data has to -- although there are conversations which happened on this specific subject, but the cloud providers are not waiting for that. They are setting up their cloud infrastructure in India. So, I think the data -- localization of data, data privacy, these are issues which will add the growth of data center and the cloud business in India. I mean, cloud business, which service from India.

M P Vijay Kumar -- Chief Financial Officer

The data privacy bill is yet to be enacted as a law. However, government has reiterated its commitment to bring it out as the legislation soon. So, the draft bill was issued last year. In between, we had the election, so that bill could not be taken up. And government is continuing discussions with all the parties concerned to incorporate their suggestion and bring about that particular bill as a lawsuit.

Greg Burns -- Sidoti & Company -- Analyst

Okay, great, thanks.

And when you talk about all the large global cloud players setting up their infrastructure in India, should we view that not as them coming in and competing with you, but then coming in and utilizing your services more partnering with you?

Kamal Nath -- Chief Executive Officer

Yes. In fact, they are more of our partners than competition. In fact, we have data centers, which are at a very low latency with those customers, with those hyperscale providers who are setting up their infrastructure in India. So, it helps us to service our clients in terms of their hybridcloud or multi-cloud adoption. In fact, in the coming days, you would see growth being triggered around our partnership with those hyperscale providers.

Greg Burns -- Sidoti & Company -- Analyst

Okay, all right. And then lastly, what was the total debt at the end of the quarter?

M P Vijay Kumar -- Chief Financial Officer

Total-term debt. Total-term debt was about $100 million, approximate.

Greg Burns -- Sidoti & Company -- Analyst

Okay. And the bank overdraft?

M P Vijay Kumar -- Chief Financial Officer

No. Bank overdraft is in addition to that, which will be about $35 million.

Greg Burns -- Sidoti & Company -- Analyst

$35 million? Okay. And the tax rate going forward, what's a good tax rate to model the business at?

Raju Vegesna -- Chairman and Managing Director

So, the new tax rates, which the government has announced, comes with a few riders in terms of availing some of the past equivalent of AMT, which we have in US. We have in India, what is called the minimum alternate tax credits, which we are having. So, we are evaluating as to the timing of when we should start using the benefit of a lower tax rate. So, for the time being, we are in the erstwhile tax rate, claiming the benefit of the past AMT equivalent, MAT tax credits, which we are eligible.

Greg Burns -- Sidoti & Company -- Analyst

Okay. So, I'm sorry, I have missed it. But what like -- what is your -- the effective tax rate now and maybe I guess what could it go to, once the new tax rates are implemented?

Raju Vegesna -- Chairman and Managing Director

Effective tax rate now is about 32% to 33%. And once the new tax credit gets adopted, which probably could be next year or the following year, it depends on how the MAT credits get avid. At that time, the rates would be 25%.

Greg Burns -- Sidoti & Company -- Analyst

25%? Okay, perfect. Thank you. That does it for me. Thanks.

Raju Vegesna -- Chairman and Managing Director

Thanks, Greg.

Operator

And our next question comes from Allen Klee from National Securities. Go ahead, Allen.

Allen Klee -- National Securities -- Analyst

Yes, hi. If I look at your SG&A and what is the rate that it's been running at so far this fiscal year, it's at a lower rate than last year. Can you explain what's going on there and what you think[Phonetic] that's kind of the new run rate?

Kamal Nath -- Chief Executive Officer

Yes. The SG&A we had some one-time expenses in the previous period. What you see in the current fiscal and you can compare it with what's happened in the previous quarter as well, represents the run rate at the moment.

Allen Klee -- National Securities -- Analyst

Okay, thank you.

And then, as you were talking about Tech Integration and App Integration segments, I wasn't sure that I understood the bottom line on the Tech Integration, where you mentioned it's project-based and that there is some opportunities to grow. But what is the conclusion there? Do we think that this is a segment that overall we should expect over the 12-month longer-term periods to have growth to it or not?

Kamal Nath -- Chief Executive Officer

Yes. Overall, you can't expect because we are -- in fact we have won some of very large deals as we speak. So, those projects are expected to be kind of executed and revenue realization happening over the next six months.

Allen Klee -- National Securities -- Analyst

Okay. In terms of -- this is more of a commentary, I am not sure if you can answer this. But I think it would be very helpful if I want[Phonetic] all the quarters' if it would be possible to get the revenue breakout by each segment and sub-segments. So, I think it would be helpful for investors to try to understand the pieces a little bit better. I don't know if that's something you would consider.

M P Vijay Kumar -- Chief Financial Officer

Sure, Allen. We have been providing segment information as part of the half-year financial reporting through our 6-K filing, which will follow approximately about three weeks to four weeks from now. So, we do provide that segment information and we will evaluate your position in terms of whether we could consider it quarterly.

Allen Klee -- National Securities -- Analyst

Okay. And then, could you talk a little on what you see on the telecom services side as being the lone drivers of both the data and of the voice pieces?

M P Vijay Kumar -- Chief Financial Officer

Kamal, you would like to comment? So, yes Kamal. yes.

Kamal Nath -- Chief Executive Officer

Can you please repeat the question?

Allen Klee -- National Securities -- Analyst

Yes. Basically on your telecom-centric segment, I just wanted to, what would you point to to be kind of the growth drivers there that we should be thinking about?

Kamal Nath -- Chief Executive Officer

Fine. So, let me respond to this. Telecom services, if I break the portfolio of our overall telecom services, we have our traditional MPLS and Internet Services, and then we have the new services like the Network Managed Services, the Network Transformation Services, the hyperconnect, telecom services connecting various data centers as well as the hyperscale cloud. Plus on top of that, we do quite a few very large, chunky network integration projects, where the customers use our telecom infrastructure plus third-party infrastructure, but we manage the entire project. So, while the MPLS -- MPLS is a run rate business, but we are seeing lot of traction around Sify's overall Integration Services and Managed Services business, including hyperscale connectivity. So, we will continue to grow that business. In spite of the fact that on the traditional MPLS, there are some mobile operators, who are expected to eat away some pie of that from a mobile telecom perspective, from module-related[Phonetic] service provider perspective.

Allen Klee -- National Securities -- Analyst

Okay.

Kamal Nath -- Chief Executive Officer

And we are going on the business -- So, overall we are continuously growing on that.

Allen Klee -- National Securities -- Analyst

Okay. And then my last question -- just what I have understood what I think I heard you say on the Data Center business that you had a combined 60 megawatts today. You're going to be adding five megawatts in your fiscal second half on top of that. Is that the way to think of it?

Raju Vegesna -- Chairman and Managing Director

You're right, Allen.

Allen Klee -- National Securities -- Analyst

Okay, great, thank you so much.

Operator

And at this time, I would like to turn it back to the management crew. Thank you.

Raju Vegesna -- Chairman and Managing Director

Thank you for everyone joining us on the call and we're looking forward to interacting with you throughout the year. Have a good day.

Operator

[Operator Closing Remarks]

Duration: 35 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

Greg Burns -- Sidoti & Company -- Analyst

Allen Klee -- National Securities -- Analyst

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