Sify Technologies Limited

Ladies and gentlemen, thank you for your patience. This call will begin shortly. Once again, thank you for your patience, and this call will begin shortly. Thank you.

Good morning everyone and welcome to SIFI Technologies financial results for the first quarter fiscal year 2025 to 2026. At this time, all participants are placed in a listen-only mode and the floor will be open for questions following the presentation. If anyone should require operator assistance during the conference, please press star zero on your phone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Praveen Kushner of SIFI Technologies. Praveen, the floor is yours.

Thank you, Jonny. I'd like to extend a warm welcome to all our participants on behalf of CIFI Technologies Limited. I'm joined on the call today by Mr. Raju Veksanath, Chairman, and Mr. M.P. Vijayakumar, Executive Director and Group CFO of CIFI 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 Shanwick 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.sifitechnologies.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 SIFI corporate website. Some of the financial measures referred to during this call and in the earnings release may include non-GAAP measures, CFI'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 CFI'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 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 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 Exner, Chairman of CIFIS 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 India AI 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 data requirements. India will not just be the growth market, it will be the growth engine. Let me now bring in our Educator Director and Group CFO, Mr. M.E. 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 costs and increased manpower expense, these are highly conscious trade-offs 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. 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 three businesses for the quarter was network services 41%, data center co-location services 37% and digital IT services 22%. During the quarter, SIFI commissioned 8.6 megawatt of additional data center capacity. As of December 2024, SIFI 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. SIFI 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 one. 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 2874 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 operator for any questions. Operator?

Thank you very much, Chairman. At this time, we will be conducting our question and answer session. If you would like to ask a question, you can press star 1 on your phone keypad now. A confirmation tone will indicate that your line is in the queue. You may press star two if you would like to remove your question from the queue. For any participants using speaker equipment, it might be necessary to pick up your handset before you press the keys. Please wait a moment whilst we poll for questions. Thank you. Your first question is coming from Greg Burns of Sidoti and Company. Greg, your line is live.

Good morning. Thanks for the update on the 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?

Yeah, so two things.

One is two Greenfield data center projects at the National Capital Region, Delhi, and at Chennai have gone live in the last four 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, 238 megawatt.

Okay, great. Thank you.

And then I guess, is there 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?

Yeah. No, there is... There are two 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 megawatt. And beside 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. Thank you. And I just wanted to talk a little bit about the pay-per-use co-location AI model that you, I guess, press released a couple 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 that model. Thank you.

Okay. So, Greg, the way Payback Colo model works, see, we have three data center campuses, Mumbai, Chennai, and Noida. All are certified by NVIDIA. We are the first guy certified by NVIDIA liquid cooling for 130 kilowatt per rack. So, the way, you know, these data centers work, 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 five or six 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, you know, so that is a business model we are offered. I think we are offered probably unique products. I don't think anybody offered ColoPay as you go model. And we are getting some interest. You know, we can, you know, all these three 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, you know, marketing at this point and there is some interest.

Okay, great. Thanks. 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.

Okay.

So if you look at it, you know, GPU per hour, They charge, right? Something like that. So to complement that, if somebody has GPUs, they can bring these GPUs, and we offer COLO model to match that GPU pricing. So that way one can offer GPU as a pay-per-model service, you know? Yeah.

Okay. Okay, thanks. And then, you know, Vijay, you talked about kind of the – how you've been investing into the business and how that's maybe detracting from, from near term profitability, but obviously you expect to, to benefit from that over time. Is there, 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 one, two year kind of still investment period that's going to be going on? Is there any, anything you could help us there with, 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 the 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 an 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 two years should the flowers start flowing in.

Okay, great. That's very helpful. Thank you.

Thank you very much. Thank you. Your next question is coming from Mihir Thakur of Prithvi. Mihir, your line is live.

Thank you so much for the opportunity. So actually, I'm joining this call for the first time, and I joined the call a little bit late.

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

Yeah, just a second. Can you hear me now?

Yes, that's better. Okay, thank you.

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. 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 two Greenfield data center projects live, where both of them have a design capacity of 26 megawatt each. And as the customer demand gets built up, we will keep operationalizing that portion of the capacity.

Okay. And are there any plans for the IPO of the digital CC 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 directly. when there's a tangible decision.

Okay. And on the digital services business, so I was just going through the digital segmental report. So on 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 are the 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 plans to turn around this segment 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're a function of the investment we are making in people. We started this journey about three years back, and we continue to build our capabilities to be relevant for the India IT services market, about which we are very confident about... India enterprises outsourcing their IT to companies like us.

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

Yeah. Well, 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.

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 offline. Would it be possible to arrange a call or can we connect offline?

Yeah, you can. We can be here.

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

Praveen.Krishna P-R-A-V-E-N.Krishna at cpcorp.com

Okay. Thank you so much. That's it from me. Have a good day.

Thank you very much. Just a reminder there, if there are any remaining questions, you can still join the queue by pressing star 1 on your phone keypad now. Just wait a moment to see if anyone else has a question. Yes, we have a question come in from Sri So, who is a private investor. Sri, your line is live.

Good evening. This is Sri Kanth here. Thank you for the opportunity. 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, you know, given that you're in, you know, IT services, that kind of a company, not a pure brick and mortar manufacturing company, I would have thought the EBITDA margins 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?

Srikanth Vijayakumar here. Srikanth, we have these three distinct businesses with different capital deployment characteristics. The data center business has an EBITDA margin of close to 45%. And we have a 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 the The full year, I mean, I know generally, you know, you don't give any guidance. In terms of growth across the three segments, would it be safe to assume a double-digit kind of a growth for the 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 de-growing from, you know, 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, you know, the digital will remain a part of the offering, but we don't see that as a, you know, growth driver.

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 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 a work in progress as we are changing the mix.

Right. And I'm not looking at the net income as such, but even the EBITDA margins have been slightly improving, not that much. 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, you know, some sort of operating leverage or, you know, reduction in HG&A. When do you see that, you know, the margins more towards the, at the group level, I'm talking about the consolidated level, seeing more in the 25% region?

No, at a... I mean, is there an aspirational goal?

Yeah, yeah.

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

Once we see the IT services business gain traction, automatically we should see that reflecting in the consolidated EBITDA.

Of course, I know you guys are trying very hard. Will it be a gradual, like a 100 basis point kind of improvement over the next several quarters?

We are certainly working for that. Certainly working for that.

I think at 25% margin, everything changes. The books look far more creative.

Our focus is not on the consolidated ones. because all the three businesses are different characteristics. I don't want to spell out the target EBITDA, but data center will get little operating leverage benefit. Network, we will see 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.

Okay. That's it, sir. I don't have any further questions and I want to thank you for the opportunity and all the best for the future. Thank you.

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.