SIFY

Sify Technologies Limited (SIFY)

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TRANSCRIPT SPONSOR
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Sify Limited (SIFY)
F4Q06 Earnings Call
April 23, 2007 8:30 am ET

Executives

David Thierry - Investor Relations
Raju Vegesna - Chairman and CEO
Suri Venkat - COO
Pijush Das - CFO

Analysts

Sameet Sinha - Kauffman Brothers

Presentation

Operator

Greetings ladies and gentlemen, and welcome to the Sify Limited Fourth Quarter and Fiscal Year 2006 Earnings Results Conference Call and webcast. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions). As a reminder this conference is being recorded.

It is now my pleasure to introduce to your host Mr. David [Thierry], Investor Relations with Sify Limited. Mr. David, you may now begin.

David Thierry

Thank you, Operator. I would like to extend a warm welcome to all participants today on behalf of Sify Limited. I am joined on the call by Raju Vegesna, Chairman and CEO of Sify Limited; Suri Venkat, Chief Operating Officer; and Pijush Das, Chief Financial Officer of Sify Limited.

Following our comments on the results, there will be an opportunity for questions. If you do not have a copy of that press release, please call the Global Consulting Group at 646-284-9418 and we'll have one sent to you.

Alternatively you may obtain the copy of the release at the Investor Information section on the company's global website at www.sifycorp.com. A replay of today's call may be access by dialing in on the numbers provided in the press release or by accessing the webcast in the Investor Information section of the Sify website.

Some of the financial measures referred to you during this call and in the earnings release may include non-GAAP measures. A presentation of the most directly comparable financial measures calculated and presented in accordance with GAAP, and a reconciliation of such non-GAAP measures of the differences between such non-GAAP measures and the most comparable financial measures calculated and presented in accordance with GAAP are also available on the 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 risk and uncertainties that could cause actual results to differ materially from those described.

With respect to such forward-looking statements, the company seeks protection 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 company's SEC reports in public releases.

Those risks are intended to identify certain principle 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 risk and uncertainties inherent to the company's business.

I would like to now introduce Mr. Raju Vegesna, Chairman of Sify. Raju.

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Raju Vegesna

Hi, thank you David. I would like to welcome everyone on the call once again. Thank you for joining us. I will now commence with the opening remarks on our performance in the last quarter.

I am extremely pleased that we have been able to report a net profit for the year. For the first time, our profit for the full year was $2.2 million and the revenue of $128 million close to 18% higher than revenues for the previous financial year.

We have continued to grow despite restructuring our businesses for the last six months. These changes are now falling in place for the future growth and profitability. I am also satisfied that we now have a strong management team in place to build a business going forward.

We are also able to start building momentum in the consumer businesses with a number of new initiatives launched during the last quarter for Sify Broadband, iWays and Portals. I believe most of what we want to put in place by end of this fiscal year has been achieved, and now we can turn our focus and collective energies to building the profitable growth growing forward. The results of these efforts should be evident in the year ahead.

I will now request Pijush to take you through our financial performance for the year and for the last quarter. Pijush

Pijush Das

Thank you, Raju and hello everyone. I shall now go into the details of our financial performance for the year. Our revenue for the full year was $128 million, 17.9% higher than the previous year. Our net profit for the full year was $2.2 million compared to a net loss of $3.6 million for the previous fiscal. However, our net profit was impacted due to the provisions for doubtful debt on overdue amount carried on the book for a period of time amounting to $5.6 million.

As I had shared with you last quarter, we prefer to take a conservative approach in providing for them rather than the stunning amounts on our books, these are not likely to be realized although they are within industry norm. We had not been provided for in the past and are outstanding amounts in excess of 180 days and above. We had stated our intention of being clear of all such provisions while being profitable by the end of this financial year, so that we could start a new financial year clear of the burdens of the past and that’s what we are doing. We are also reworking our billing and collection systems to ensure that these are minimized in future.

Our cash profit in adjusted EBITDA term, grew from $6.6 million in the last financial year to $11.6 million for the current fiscal, a 76% increase over the previous year. Well, our gross margins for the year improved from 45.9% in the previous fiscal to 47.3% for the current year. Our revenue for the quarter was $33 million, 10.7% higher than the quarter ended 31 March, 2006. The sequential growth in revenue over the previous quarter was at 2.1%.

Our net loss for the quarter was $1.7 million compared to a net profit of $0.6 million in the same quarter of the previous fiscal year. Our net profit for the quarter was impacted due to the Provision for Doubtful Debts amounting to $2.39 million during the quarter. There was also an exchange loss of $0.4 million incurred on account of the stronger rupee against the dollar.

Cash profit for the quarter in adjusted EBITDA terms was $0.5 million compared to $2.8 million in the same quarter of the previous fiscal year.

We ended the quarter with a cash balance $52.67 million after capital expenditures of $3.19 million during the quarter.

I believe that the business decisions that we have taken will benefit us going forward not only with growth but also financial help and profitability.

The company's increasing focus on synergies across businesses should also contribute towards this objective by leveraging scale and improving margins. Further details are available to you in our press release.

I will now hand over to Suri. Who will take you through some of the key initiatives during the quarter. Suri?

Suri Venkat

Thanks Pijush. Good morning everyone.

During the last quarter, I had shared with you, how we restructured the team, for greater efficiencies and synergies across business. The focus now is on building momentum across businesses with some key initiatives.

In the enterprise segment, we continued to maintain our leadership, especially in the key VPN connectivity market. We have won some very large engagements from existing customers, which are a testimony to the trust. They repose in us, and our capabilities.

Our efforts going forward would be supremely strengthened with the addition of industry veteran P.J. Nath, as Executive President of this business. We also continue to accelerate our growth in our international business across both: Remote Infrastructure Management and Corporate eLearning Services. Both lines of business are seeing excellent customer traction and several important wins in the last quarter.

We have also expanded our global footprint with sales offices in London and Dubai, in addition, to our existing offices in California and New Jersey.

Details of some of the key events across both these businesses are available to you in the press release.

We have had the number of new initiative in the consumer business and that increasing our competitiveness and our ability to grow revenues by providing more value to customer.

First, Sify Broadband. Our major initiative accomplished in the beginning of the quarter was a introduction of our Direct Renewal Facility with a renewal button on the log on the client for broadband subscribers. So the subscriber now has a freedom to recharge according to need convenience and time of pay without having to depend on anyone which was the case earlier.

Another major initiative launched during the quarter was a Sify Phone Voice-over-Internet Protocol initiative. With the Sify Phone, a Sify Broadband customer can now call anyone in India who also has a Sify Broadband connection and Sify Phone with unlimited calls for a subscription of just rupees 250 per month.

This is a value-added service with the potential to add revenues as well as brick wall our customers.

The third initiative launched during the quarter was online learning courses. Online learning offers a huge opportunity in India, where education is seen by the middle class as the key to upward mobility and is highly valued. As a result, school and college going students are under enormous pressure to excel, often doing a slew of value added courses, beyond what they cover in school or college to give them the edge.

The benefits of online learning with Sify go beyond convenience of time and place, with collective learning with exposure to peers adding to the student's ability to understand concepts.

Sify's courses are designed to shrink the country into a classroom where students can interact with peers across the country, and also have their doubts addressed by a panel of experts online. The first such initiative is Sify Mathguru, an innovative math-help program.

The second is Sify Class Teacher, an online science program for children from grade 1 through 10, designed to encourage independent learning with 300 hours of interactive, multi-media learning, and over 20,000 assessments.

With the launch of these two online learning services, Sify aims to usher in an era of anytime, anywhere learning at an extremely affordable price. These programs are available for the children of Sify broadband subscribers for a subscription of just Rs.100 per month.

A number of initiatives were launched in our Cyber Cafe business during the quarter, to draw in more footfalls and increase revenue opportunities. The first is the Rs.10 subscriber pack, introduced for both trial and for those stopping by for occasional use.

This pack also serves to correct the perception that iWays are more expensive than the average cyber cafes. This initiative resulted in the number of active registered users increasing by 45,000 during the quarter.

The second was the internet learning program launched across 38 smaller towns during the quarter. The launch of this program was widely reported in local newspaper and city editions of national papers, and featured on cable television too in a few of the towns.

Underprivileged students in every town were given free packages during the launch period. This is a Paid For program with some 5000 registrations during the launch period, which is quite encouraging.

In addition to the 500 iWay cyber cafes that signed up for railway ticket bookings in the previous quarter, an additional 695 cafes signed up during this quarter. Marketing activity was initiated during the quarter to increase awareness of the train ticket booking facility at iWays.

Another new initiative in the eServices area was the Electronic Bill Payment system introduced in 7 cities at over 300 of our cyber cafes. With this system, consumers can now pay the utility bills online with cash at the iWays closer to their home.

During the quarter, an agreement was signed with Western Union for iWays across 24 states to become money transfer points. This is being rolled out across iWays in these states in a phased manner.

These eServices initiatives launched during this quarter are expected to increase for footfalls and revenues at the iWays in the future. The strategy is to further penetrate the market by adding value to customers beyond browsing.

Our Portals business had a number of industry leading initiatives, details of which are available in the press release. We also continue to lead in the broadband content space, with a special focus on films and entertainment content. Delhi Live a broadband content portal for the citizens of Delhi, went live during the quarter. This is a third such Sify portal in addition to Bangalore Live and Mumbai Live. We intend to cover other major cities in the very near future. This brings us to the end of this section, and I hand over to Raju, for his closing remarks. Raju.

Raju Vegesna

Thank you, Suri. In conclusion, I would like to reiterate my belief in the size of the market opportunity going forward and Sify's capability to take a large share of this growth market. All our efforts have been unsetting the stage for efficient operation and growth going forward as well as in ensuring financial systems that are robust and reliable. I believe that most of what we want to accomplish by end of this fiscal year has been achieved and we can now focus on building profitable growth in the future.

Our goal remains same to ensure smart growth in every business, so that we unlock synergies across businesses and grow them fast and grow them profitability. I will now hand over to the operator for questions. Operator.

Question-and-Answer Session

Operator

Thank you. Ladies and gentlemen, at this time we will be conducting a question-and-answer session. (Operator Instructions). Our first question is coming from Sameet Sinha, with Kauffman Brothers. You may proceed with your question.

Sameet Sinha - Kauffman Brothers

Thank you. Good morning. Just a couple of questions, what in terms of the PDD's; do you think this is a last quarter, or we could see at least one or two more quarters where you'll need to take some bad debt expenses or incremental debts expenses?

Raju Vegesna

Hi, Sameet this is Raju, and we are tightening up our financial system and the processes, we see maybe one or two quarter some residual effect of some of things what we see, and still I think there is some debt, and we are in the process of meeting up.

Sameet Sinha - Kauffman Brothers

Okay, thank you. The second one is, how many cafes did you open during this quarter and if you could also talk the end of the broadband subs?

Raju Vegesna

Yeah. We are now, it's about 3638 somewhere.

Sameet Sinha - Kauffman Brothers

Yes.

Raju Vegesna

And other thing is also in this process, what we are doing is, there is some of the cleanup of process and all current cyber café is happening.

Sameet Sinha - Kauffman Brothers

Sure.

Raju Vegesna

And that is also we are doing. And basically we are trying to make the cyber café business also profitable. And instead of building more, we are looking at strategically what makes sense and more of a cleaning up process also is being done.

Sameet Sinha - Kauffman Brothers

Sure. Can we expect that to go back to like 200 cafes per quarter --

Raju Vegesna

I think, one of the strategies we are looking at this time, we are looking at different kind of model of cafes also. Its basically, a smaller size and also looking at strategically, because, one of the thing is, we can claim the number and also we want to make this business profitable and growing cyber cafes is interest, also we want to make it profitable bringing enough value add services in each cyber cafe.

Sameet Sinha - Kauffman Brothers

Sure. On that topic, you have launched a number of initiatives, railway ticket bookings, the Western Union, eLearning all these on cyber cafes. When do you expect these services to start gaining traction and contributing material revenues to that segment?

Suri Venkat

This is Suri here.

Sameet Sinha - Kauffman Brothers

Yeah.

Suri Venkat

We are still in the process of rolling out enabling some of our others cyber cafes also to provide these services. So, that is going to happen during this quarter. So, by the end of this quarter, we would see the number of people using these services going up. And I expect full traction to come and meet in second quarter.

Raju Vegesna

But to add to that, the thing is, we started railways then we are doing billing. All these initiatives, we have some of those things also in pipeline. We are not going to end with the thing. Ultimately our idea is to make the cyber cafes to use stuff like just browsing centers. So, there is nothing to say we are done. That is the way, we are going to convert these cyber cafes into eStores with this kind of value-add services.

Sameet Sinha - Kauffman Brothers

Sure. And if you could give me the number of broadband subscribers at the end of the quarter?

Raju Vegesna

215,000.

Sameet Sinha - Kauffman Brothers

Okay. Thank you very much.

Operator

(Operator Instructions). Thank you, there are no questions in queue. I would like to hand the floor back over to management for any closing comments.

Raju Vegesna

Thank you everyone for joining us on the call. We look forward to interacting with you on through the quarter around this time thereafter. Thank you, bye.

Operator

This concludes today's conference. Thank you for your participation.

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