Sify Technologies Limited Q2 FY2026 earnings call

• India's digital transformation is entering a decisive phase, with SIFI focusing on aligning with momentum through investments in hyperscale data centers, network expansion, and digital platforms.
• The network and data center businesses are scaling as planned, with the IT services business incurring losses due to strategic investments for future opportunities.
• During the quarter, SIFI sold 3-megawatt additional data center capacity, with 1,196 fiber nodes across the country (a 12% increase year-over-year) and 9,992 contracted SDWAN service points.
• The data center business has 188 megawatts of design capacity ready for sale, with about 130-megawatts built, and is positioned to capitalize on India's AI momentum with established brand presence.
• The digital services business is being revamped due to changes in IT consumption post-COVID and significant investments in people and IP for future relevance.

For the second quarter of Financial Year 2025-2026, SIFI Technologies reported revenue of INR 10,533 million, an increase of 3% compared to the same quarter last year. The revenue split by segments was: Network services accounted for 41%, data center services 13%, and digital services 20%. EBITDA was INR 2,361 million, a 20% increase year-over-year. Loss before tax was INR 194 million and loss after tax was INR 275 million. Capital expenditure during the quarter was INR 3,064 million, and the cash balance at the end of the quarter was INR 4,149 million. The data center services business has a hyperscale to enterprise ratio of approximately 2/3 to 1/3, with project IRRs historically north of 20%.

• Data center project IRRs have historically yielded north of 20%.
• Expectation of margin improvement in the network services segment, with the trend of margin improvement expected to continue towards 20% plus.
• Focus on reducing losses in the digital services business by monetizing investments early and potentially redesigning strategy if needed.

• Forward-looking statements are subject to risks and uncertainties, including competitive developments and factors listed in the company's SEC reports and public releases that could cause actual results to differ materially from forward-looking statements.

Q: Give a flavor for the financial returns of the 3-megawatt data center deal and all-in cost of capital?

A: The 3-megawatt deal is a small enterprise deal. Data center business has a hyperscale to enterprise ratio of approx 2/3 to 1/3, with project IRRs historically north of 20%.

Q: What's the sales pipeline for data center services given India's AI momentum and competitive environment?

A: SIFI is ready to expand with established brand presence in India and expects to capture share despite competition.

Q: Why was now the right time for Infinite Spaces IPO?

A: Tailwinds in data center/colocation industry growth, need for capital access to meet demand forecast.

Q: What's SIFI's ownership in Infinite Spaces post-IPO?

A: Will retain substantial percentage, exact known after book building; small portion offered for sale in public offering.

Q: How does network business integrate with data center operations post-split?

A: Customer relationships and go-to-market strategy remain integrated, presenting combined offerings of network, colocation, and IT services.

Q: What's the road map for data center design capacity in next 12 months?

A: Substantial new greenfield project construction in parallel, but specific forward statements restricted due to draft prospectus filing.

Q: Are network services margin compression structural or cyclical?

A: Structural, due to investments in new age networks for AI demand, with expectation of margin improvement towards 20% plus.

Q: What are the key factors behind digital services margin erosion?

A: Change in IT consumption post-COVID (shift to service-based from system integration), and significant investments in people/IP for future IT consumption relevance.

Q: Is the current 14%-16% margin in network services the new steady state?

A: No, expectation is for margin to improve to 20% plus.

Q: Will existing SIFI shareholders get opportunity to participate in Infinite Spaces IPO other than IPO application?

A: No specific work done yet, but will socialize with bankers to consider best for existing shareholders