Business context and reporting period
Sify Technologies Limited filed this Form 20-F for the fiscal year ended March 31, 2021—not a standalone 2020 fourth quarter. The India-based ICT provider offers network, data center, cloud and managed, technology integration, and applications integration services. Financial statements are consolidated, prepared under IFRS, and presented in Indian rupees. Unless stated otherwise, amounts below are ₹ million; U.S. dollar figures in the filing are convenience translations.
During the year, Sify transferred its data center business to wholly owned Sify Infinit Spaces Limited and several IT services businesses to Sify Digital Services Limited, effective April 1, 2020. It also acquired Print House (India) Private Limited through an insolvency resolution process, with the intention of converting its facility into data center capacity. The company plans to report three operating segments from FY2022 following this reorganization.
Financial performance and position
| Metric | FY2021 | FY2020 | Change |
|---|---|---|---|
| Revenue | ₹24,319.5 | ₹22,952.1 | +6% |
| Operating profit | ₹2,390.6 | ₹1,880.0 | +27% |
| Operating margin | 9.83% | 8.18% | +1.65 percentage points |
| Profit before tax | ₹1,600.3 | ₹1,019.7 | +57% |
| Net profit | ₹1,531.9 | ₹705.4 | +117% |
| Net margin | 6.30% | 3.06% | +3.24 percentage points |
| Basic / diluted EPS | ₹8.53 / ₹8.45 | ₹3.94 / ₹3.90 | Higher year over year |
| Operating cash flow | ₹6,966.7 | ₹5,042.8 | +38% |
| Investing cash flow | (₹3,618.6) | (₹4,326.3) | Lower outflow |
| Capital expenditure | ₹3,449 | ₹6,460 | Lower year over year |
Operating margin improved as management cited higher asset utilization and a more favorable revenue mix. Cost of goods and services rose 2%, slower than revenue growth, while selling, general and administrative expenses were broadly flat. Depreciation and amortization increased 24% to ₹2,835.6 million, mainly due to newly capitalized assets. Finance expense declined to ₹962.7 million from ₹1,054.1 million.
Revenue mix shifted toward data centers and integration services. Data center revenue rose 45% to ₹5,540.9 million; cloud and managed services rose 22% to ₹1,947.0 million; and technology integration rose 19% to ₹3,610.4 million. Network services declined 7% to ₹11,760.2 million, principally reflecting lower voice-services revenue. Applications integration revenue fell 20% to ₹1,461.0 million, including fewer online examination projects. India accounted for 83.44% of revenue, up from 77.59% in FY2020.
At March 31, 2021, total assets were ₹36,664.6 million and equity was ₹13,165.5 million. Cash and cash equivalents were ₹5,101.1 million, with ₹401.0 million of restricted cash; the filing separately reports cash, cash equivalents and restricted cash of approximately ₹5,502.1 million. Net current assets were ₹286.6 million, but working capital excluding cash and cash equivalents was negative ₹5,091 million. The filing reports borrowings of ₹9,409.2 million and lease liabilities of ₹2,202.6 million on the balance sheet, excluding a ₹123.7 million bank overdraft. Management separately describes total borrowings including lease liabilities as ₹11,736 million; these presentations do not fully reconcile in the supplied filing text.
Operating cash flow benefited from cash generation before working-capital changes and receivable collections. Management cautions that the reported operating cash flow is significantly affected by IFRS 16 lease accounting, which moved rental expense out of operating costs and lease payments into financing cash flows. Cash increased during the year, while investment spending remained substantial. The company reported ₹2,762.6 million of capital-expenditure purchase commitments at year-end.
Material changes, outlook and management commentary
- Profit and tax: The company began incurring current income tax after using available tax losses and depreciation. Recognition of deferred tax assets increased to ₹636.5 million from ₹99.3 million; management said this recognition increased profit after tax. Net income also benefited from lower tax expense year over year.
- COVID-19: Management reported weaker new-customer sales activity, customer requests for discounts and delayed payments, postponed installations, and higher workplace safety costs. Existing customers’ increased connectivity, data center and cloud use partly offset these pressures. Continued pandemic disruption could affect demand, collections, employees, suppliers, project delivery, profitability and liquidity.
- Investment plans: The FY2021 strategy emphasized “cloud@core,” infrastructure investment, productizing solutions, employee reskilling and automation. Sify reported 71 MW of data center capacity and plans to add 30 MW in the upcoming year; it also described network expansion to three additional cities, extending hyperscale presence to eight major cities. These are operating plans, not quantified financial guidance.
- Capital and dividends: Management expects additional infrastructure capital expenditure in FY2022 and said operating cash and existing credit lines should meet liquidity needs. It disclosed ₹6,320 million of borrowings repayable within 12 months and expected interest outflow of ₹313 million for the next year. No dividend was recommended for FY2021 to conserve capital amid COVID-19 uncertainty and expansion needs.
- Risks and contingencies: Key exposures include customer credit and collection risk, pricing competition, infrastructure utilization and power costs, cybersecurity, foreign-exchange and interest-rate movements, spectrum availability, and Indian telecom regulation. DoT license-fee demands concerning non-telecom income are stayed and remain under litigation. A separate service-tax dispute concerning services classified as OIDAR involves a claimed ₹1,618 million plus interest and penalties; ₹646 million was paid under protest, and the company states it believes no further provision is required. The filing also reports other service-tax claims of ₹416.2 million, sales-tax claims of ₹9.4 million, and an EPFO demand of approximately ₹6.4 million, which is stayed. The company says it has defenses and does not expect these matters to materially affect its position, but outcomes remain uncertain.
- Governance and assurance: The auditor issued an unqualified opinion on the IFRS financial statements and on internal control over financial reporting. The auditor identified valuation and collectability of trade receivables as a critical audit matter. The company reported that its internal controls were effective at year-end. Affiliates of CEO and Chairman Raju Vegesna beneficially owned approximately 84.53% of the shares, concentrating voting control.
Important facts for investors to verify
- Reconcile the filing’s different descriptions of cash, restricted cash, overdrafts and total borrowings; review the ₹6,320 million due within 12 months, available facilities and refinancing needs.
- Assess trade receivable quality and subsequent collections: net receivables were ₹8,520.1 million, and FY2021 impairment charges were ₹755.5 million, including ₹599.6 million of write-offs.
- Track resolution and potential financial exposure from the DoT license-fee cases, OIDAR service-tax dispute, EPFO demand and other tax or legal proceedings.
- Test the sustainability of FY2021 profit growth, including the deferred-tax-asset recognition, IFRS 16 cash-flow presentation, and the contribution from higher data center utilization.
- Monitor execution and funding of the data center expansion and other capital commitments, as well as the effects of the subsidiary transfers on future segment reporting and results.