Sify Technologies Limited — Form 20-F Summary
Period clarification: Although the request metadata says “2018 Q4,” this filing is an annual report for the fiscal year ended March 31, 2019, not a quarterly filing. Financial statements are prepared under IFRS as issued by the IASB. Figures below are in Indian rupees (INR); USD figures are convenience translations.
Business context and reporting period
Sify provides enterprise ICT services in India, including telecom and network connectivity, data centers, cloud and managed services, technology integration, and applications integration. Its network reaches more than 1,600 towns and cities; it operates six concurrently maintainable data centers. The filing covers the consolidated group.
Key financial metrics
| Metric | FY2019 | FY2018 |
|---|---|---|
| Revenue | INR 21.547bn (USD 311.5m) | INR 20.686bn |
| Operating profit | INR 1.753bn; 8.14% margin | INR 1.291bn; 6.24% margin |
| Net finance expense | INR 682m | INR 367m |
| Profit before tax | INR 1.071bn | INR 924m |
| Net profit | INR 1.069bn; 4.96% margin | INR 923m; 4.46% margin |
| Basic / diluted EPS | INR 6.92 / INR 6.86 | INR 6.14 / INR 6.11 |
| Operating cash flow | INR 1.441bn | INR 2.121bn |
| Cash and cash equivalents, including restricted cash | INR 2.248bn | INR 2.288bn |
| Net current assets | INR 2.671bn | INR 1.851bn |
| Total assets / equity | INR 29.936bn / INR 10.779bn | INR 24.462bn / INR 9.005bn |
Balance-sheet borrowings were INR 6.657bn, with a further INR 1.553bn bank overdraft; finance lease liabilities were INR 97m. Management separately states borrowings of INR 8.308bn, including INR 5.431bn due within 12 months. The filing’s different debt figures should be reconciled. Working-capital facilities of INR 2.733bn were used against a INR 2.750bn limit; unused non-fund facilities were INR 1.009bn.
Capital expenditure was INR 2.382bn. Investing cash outflow was INR 3.974bn, while financing cash inflow was INR 3.054bn. Capital purchase commitments at year-end were INR 3.158bn. Trade and other receivables were INR 12.627bn, including net trade receivables of INR 10.004bn; inventories rose to INR 1.715bn from INR 646m.
Material changes versus FY2018
- Revenue grew 4%. Telecom services rose 16% to INR 11.601bn; data center services rose 29% to INR 3.145bn; and cloud and managed services rose 54% to INR 1.474bn.
- Applications integration revenue fell 52% to INR 1.840bn, mainly because a large online examination project was completed in the prior year. Technology integration revenue increased 1% to INR 3.487bn.
- Operating profit increased 36% and net profit increased 16%. Management attributed improved operating margin to lower cost of services and depreciation as a share of revenue, partly offset by higher SG&A.
- Net finance expense increased to INR 682m from INR 367m, largely due to higher borrowing costs associated with data center expansion and working-capital funding.
- Operating cash flow declined 32%, primarily amid increases in receivables and inventories. The cash-flow statement shows an INR 2.183bn increase in receivables and INR 1.069bn increase in inventories.
- The company adopted IFRS 15 from April 1, 2018 using the cumulative-effect method; comparative periods were not restated. The filing reports an INR 38.215m opening retained-earnings adjustment and an INR 8.418m increase in FY2019 profit versus the stated “without adoption” comparison.
Outlook, risks, contingencies, and unusual items
- No quantified revenue or earnings guidance is provided. Management expects further FY2020 capital expenditure to strengthen infrastructure and says operating cash and existing credit lines should meet liquidity needs, while noting future funding requirements may change.
- Management recommended a 12% cash dividend, subject to shareholder approval at the July 5, 2019 AGM. FY2019 dividends and distribution tax paid totaled about INR 218m.
- Key business risks include intense competition and pricing pressure, infrastructure utilization and data-center power costs, large ongoing investment needs, currency and interest-rate exposure, and uncertainty around spectrum availability and regulation. The company reported a net foreign-exchange loss of INR 51.9m.
- DoT license-fee disputes include claims concerning whether non-telecom income is subject to fees and whether fees apply to pure internet services. A tribunal stay was in place for the latter issue. Other stated legal exposure was up to INR 91.6m; separate contingent claims include service tax of INR 443.0m and income-tax claims of INR 8.0m.
- The company faces export obligations under 58 EPCG licenses, with stated obligations of INR 4.851bn; failure to meet them could require repayment of duty savings with interest.
- An online examination incident in February 2018 led to cancellation and re-examination. The CBI investigated allegations involving candidates and third-party personnel, and one Sify employee was named in an FIR in an individual capacity. The filing says Sify cooperated; proceedings and reputational exposure remain matters to monitor.
- Auditors issued an unqualified opinion on the IFRS financial statements and on internal control over financial reporting; management also concluded disclosure controls were effective.
- IFRS 16 adoption from April 2019 was expected to add approximately INR 810m of right-of-use assets and INR 960m of lease liabilities, according to the filing.
Most important facts for investors to verify
- Reconcile the reported debt measures, near-term maturities, overdraft, and interest costs against the underlying notes and financing arrangements.
- Track collections, overdue receivables, doubtful-debt provisions, and inventory growth, given lower operating cash flow and substantial working-capital balances.
- Assess whether data-center and network investment commitments can be funded while maintaining liquidity and improving returns on invested capital.
- Monitor segment performance, especially whether growth in telecom, data centers, and cloud can offset the sharp decline in applications integration revenue.
- Check developments in DoT license-fee and spectrum matters, the EPFO claim, tax and service-tax proceedings, and the examination-related investigation.
- Confirm shareholder approval and payment of the proposed dividend, and review the effect of IFRS 16 and IFRS 15 on future comparability.