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Sify Technologies: On a growth trajectory

August 28, 2014
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For Sify Technologies, 2013-14 was a significant year as its enterprise business, which had been started in 2007 turned profitable. The company received several procurement orders during the year, which helped it achieve profits. Its current business strategy, Sify 3.0, under which it is shifting its focus from infrastructure to software solutions as well as expanding its global footprint, has also played a big role in achieving this growth momentum.

Sify Technologies entered the Indian market in the late 1990s, as an internet service provider, taking advantage of the internet boom in the country at the time. It listed its shares on the Nasdaq in 1999-2000 and raised about $220 million through two successive public offerings in the US. Thereafter, the company expanded its business operations by launching cyber cafés, branded as “iWay cybercafé”. When the demand for these cafés started declining, it shifted its focus to the enterprise segment. It launched several services targeted at this segment, including hosting, voice and security solutions. At the same time, it forayed into the cloud computing market while rebranding the iWay cyber cafés as e-Port cafés to offer e-commerce services such as e-ticketing, money transfer and bill payment.

Currently, Sify is amongst the leading information and communications technology (ICT) companies in the country with its telecom data network infrastructure connecting over 1,200 cities through its 36 data centres. Sify has licences to operate national and international long distance  services, and offers voice-over-internet protocol (VoIP) backhaul for international carriers. Further, with its partnerships with submarine cable companies globally, it is present in almost all the spheres of the ICT ecosystem.

Performance during 2013-14

During the year ended March 2014, Sify witnessed significant growth across all segments including telecom services, data centre services, cloud and managed services, application integration services, and technology integration services. The telecom business grew by 73 per cent, with the company adding over 1,000 enterprises to its customer base to offer a variety of services. Amongst all its offerings, Sify’s cloud and managed services grew at the highest rate (116 per cent). This growth was achieved by the company adding about 80 new customers across various verticals and signing several deals, including the major “Disaster Recovery as a Service” deal. The company’s applications integration service business grew by 71 per cent over the previous year and witnessed the addition of more than 40 new customers. While its talent management and forum business grew by over 40 per cent, its e-learning business grew 35 per cent.

Further, Sify’s technology integration business grew by 89 per cent during 2013-14. The company added about 11 large and 25 emerging enterprise customers to its growing portfolio and received orders from various government entities for building data centres. With regard to the wholesale voice services business, Sify won multiple deals from leading mobile operators. In the quarter ended March 2014, the company launched its Noida data centre, further extending its network coverage. 

Financial performance

As per the company’s recently released financial results, Sify made profits of Rs 40 million in the quarter ended March 2014, as against losses of Rs 16 million incurred during the corresponding quarter in 2013. Its earnings before interest, taxes, depreciation and amortisation (EBITDA) margin also improved from 10.18 per cent in March 2013 to 12 per cent in March 2014. This growth in profits is also evident in the yearly results. For the year ended March 2014, the company reported profits of Rs 373 million. Although it earned profits of around Rs 452 million in 2013-14, it included a one-time gain of Rs 658 million from the sale of stake in its associate company. Thus, since 2010, it is for the first time that the company has been able to witness profitability in its operations. Its total revenues, however, have been growing at a compound annual growth rate of 12.45 per cent over the past five years.

Challenges and the way forward

Although the company has witnessed growth, in terms of operations and the revenue derived from them, it holds only a small share of the country’s internet user base. As of December 2013, the company accounted for only 2.62 per cent of the country’s total narrowband subscribers and 9.93 per cent of the total broadband subscribers. In the coming years, Sify is set to witness competition as telecom operators, particularly those that hold spectrum in the 2300 MHz band, are focusing on the broadband space by launching 4G services. Further, with the introduction of the unified licensing regime, several operators are planning to launch 4G services in the 1800 MHz band as well. These schemes would attract the enterprise consumers currently using Sify’s offerings.

To counter the competition and retain its share in the enterprise market, Sify will have to establish itself as a specialised ICT company. Its Sify 3.0 strategy is accomplishing the same and has driven the company to achieve further growth. For instance, Sify is now planning to deploy a large national network and systems integration project slated for completion by early 2015. Besides, it would also have to look to diversify its operations portfolio beyond the enterprise segment in the coming years. This will be important in helping the company leverage the vast, untapped potential in the internet and broadband segment, while sustaining the company’s growth.

 
 
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