United States Securities and Exchange Commission

Washington, DC 20549

 

FORM 6-K

 

Report of Foreign Private Issuer

Pursuant to Rule 13a-16 or 15d-16 of the Securities Exchange Act of 1934

 

For the half-year ended September 30, 2018

 

Commission File Number 000-27663

 

SIFY TECHNOLOGIES LIMITED

(Translation of registrant’s name into English)

 

Tidel Park, Second Floor

No. 4, Rajiv Gandhi Salai, Taramani

Chennai 600 113, India

(91) 44-2254-0770

(Address of principal executive office)

 

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F. Form 20F þ Form 40 F ¨

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b) (1). Yes ¨ No þ

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b) (7). Yes ¨ No þ

 

 

 

 

 

 

Table of Contents

 

SIFY TECHNOLOGIES LIMITED

 

FORM 6-K

 

For the half-year ended September 30, 2018

 

INDEX

 

Part I Financial Information  
   
Item 1. Financial Statements  
a) Unaudited Condensed Consolidated Interim Statement of Financial Position 4
b) Unaudited  Condensed Consolidated Interim Statement of Income 6
c) Unaudited Condensed Consolidated Interim Statement of Comprehensive Income 7
d) Unaudited Condensed Consolidated Interim Statement of Changes in Equity 8
e) Unaudited  Condensed Consolidated Interim Statement of Cash Flows 9
f) Notes to the Unaudited Condensed Consolidated Interim Financial Statements 11
   
Item 2. Information on the Company 37
   
Item 3. Management’s Discussion and Analysis of Financial Condition and Results of Operations 44
   
Item 4. Quantitative and Qualitative Disclosure About Market Risk 59
   
Item 5. Controls and Procedures 60
   
Part II Other Information  
   
Item 1. Legal Proceedings 61
   
Item 1A. Risk Factors 61
   
Item 2 Unregistered Sale of Equity Securities and Use of Proceeds 61
   
Item 3. Defaults Upon Senior Securities 61
   
Item 4. Mine Safety Disclosures 61
   
Item 5. Other Information 61
   
Item 6. Exhibits 61

 

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Currency of Presentation and Certain Defined Terms

 

Unless the context otherwise requires, references in this report to “we,” “us,” the “Company,” “Sify” or “Satyam Infoway” are to Sify Technologies Limited, a limited liability Company organized under the laws of the Republic of India. References to “U.S.” or the “United States” are to the United States of America, its territories and its possessions. References to “India” are to the Republic of India. In January 2003, we changed the name of our Company from Satyam Infoway Limited to Sify Limited. In October 2007, we again changed our name from Sify Limited to Sify Technologies Limited. Sify”, “SifyMax.in,”, “Sify e-ports” and “Sify online” are trademarks used by us for which we have already obtained registration certificates in India. All other trademarks or trade names used in this report are the property of their respective owners. In this Report, references to “$,” “Dollars” or “U.S. dollars” are to the legal currency of the United States, and references to “Rs,”, “₹.”, “rupees” or “Indian rupees” are to the legal currency of India . References to a particular “fiscal” year are to our fiscal year ended March 31 of such year.

 

For your convenience, this Report contains translations of some Indian rupee amounts into U.S. dollars which should not be construed as a representation that those Indian rupee or U.S. dollar amounts could have been, or could be, converted into U.S. dollars or Indian rupees, as the case may be, at any particular rate, the rate stated below, or at all. Except as otherwise stated in this Report, all translations from Indian rupees to U.S. dollars contained in this Report have been based on the reference rate in the City of Mumbai on September 30, 2018 for cable transfers in Indian rupees as published by the Reserve Bank of India (RBI), which was ₹72.55 per $1.00.

 

Our financial statements are presented in Indian rupees and prepared in accordance with English version of International Financial Reporting Standards as issued by the International Accounting Standards Board, or IFRS. In this Report, any discrepancies in any table between totals and the sums of the amounts listed are due to rounding.

 

Information contained in our websites, including our corporate website, www.sifytechnologies.com, is not part of our Annual Report for the year ended March 31, 2018 or this Report.

 

Forward-looking Statements

 

In addition to historical information, this Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Act of 1934, as amended. The forward-looking statements contained herein are subject to risks and uncertainties that could cause actual results to differ materially from those reflected in the forward-looking statements. For a discussion of some of the risks and important factors that could affect the Company’s future results and financial condition, please see the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our Annual Report on Form 20-F for the fiscal year ended March 31, 2018, filed with the Securities and Exchange Commission (the “SEC”) on June 20, 2018.

 

The forward-looking statements contained herein are identified by the use of terms and phrases such as “anticipate”, believe”, “could”, “estimate”, “expect”, “intend”, “may”, “plan”, “objectives”, “outlook”, “probably”, “project”, “will”, “seek”, “target” and similar terms and phrases. Such forward-looking statements include, but are not limited to, statements concerning:

 

  our expectations as to future revenue, margins, expenses and capital requirements;
     
  our exposure to market risks, including the effect of foreign currency exchange rates and interest rates on our financial results;
     
 

the effect of the international economic slowdown on our business; 

     
   our ability  to generate and manage growth and to manage our international operations;
     
  projections that our cash and cash equivalents, along with cash generated from operations will be sufficient to meet certain of our obligations; and
     
  the effect of future tax laws on our business.

 

You are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s analysis only as of the date of this Report. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In addition, you should carefully review the other information in this Report, our other periodic reports and other documents filed with the SEC from time to time. Our filings with the SEC are available on its website at www.sec.gov.

 

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Sify Technologies Limited

Unaudited Condensed Consolidated Interim Statement of Financial Position

(In thousands of Rupees, except share data and as otherwise stated)

 

   Note  As at   As at
September 30,
2018
 
      September 30,
2018
   March 31,
2018 *
   Convenience
translation into
US$
(In thousands)
 
                
ASSETS                  
Property, plant and equipment  4   7,244,897    7,213,421    99,864 
Intangible assets  5   610,550    582,512    8,416 
Lease prepayments  7   1,333,784    1,344,845    18,385 
Other assets      1,348,549    1,108,532    18,589 
Deferred contract costs  8C   30,320    -    418 
Other investments      162,330    145,718    2,238 
Deferred tax assets      146,132    -    2,014 
Total non-current assets      10,876,562    10,395,028    149,924 
                   
Inventories      1,605,384    645,848    22,129 
Trade and other receivables, net  8A   12,365,530    10,713,886    170,448 
Contract assets  8B   232,368    -    3,203 
Deferred contract costs  8C   92,993    -    1,282 
Prepayments for current assets      674,698    419,221    9,300 
Restricted cash  6   269,062    296,275    3,709 
Cash and cash equivalents  6   1,196,687    1,991,846    16,495 
Total current assets      16,436,722    14,067,076    226,566 
Total assets      27,313,284    24,462,104    376,490 
                   
EQUITY AND LIABILITIES                  
Equity                  
Share capital      1,520,871    1,518,413    20,964 
Share premium      18,715,618    18,694,030    257,978 
Share based payment reserve      307,122    309,695    4,233 
Other components of equity      78,327    33,635    1,080 
Accumulated deficit      (11,353,197)   (11,550,820)   (156,494)
Equity attributable to equity holders of the Company      9,268,741    9,004,953    127,761 

 

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Sify Technologies Limited

Unaudited Condensed Consolidated Interim Statement of Financial Position

(In thousands of Rupees, except share data and as otherwise stated)

 

   Note  As at   As at
September
30, 2018
 
      September
30, 2018
   March
31, 2018*
   Convenience
translation
into US$
(In thousands)
 
                
Liabilities                  
Finance lease obligations, other than current instalments      52,996    96,879    730 
Borrowings      2,250,137    2,013,688    31,016 
Contract liabilities  8B   974,501    -    13,433 
Employee benefits  9   150,576    147,480    2,076 
Other liabilities      210,838    983,152    2,906 
Total non-current liabilities      3,639,048    3,241,199    50,161 
                   
Finance lease obligations current instalments      89,556    89,086    1,234 
Borrowings      1,884,066    1,472,177    25,970 
Bank overdraft  6   2,331,184    2,121,537    32,134 
Trade and other payables      8,326,753    7,361,091    114,778 
Contract liabilities  8B   1,627,804    -    22,438 
Deferred income      -    1,172,061    - 
Current tax liabilities      146,132    -    2,014 
Total current liabilities      14,405,495    12,215,952    198,568 
                   
Total liabilities      18,044,543    15,457,151    248,729 
                   
Total equity and liabilities      27,313,284    24,462,104    376,490 

 

The accompanying notes form an integral part of these unaudited condensed consolidated interim financial statements

 

*Derived from the audited consolidated financial statements

 

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Sify Technologies Limited

Unaudited Condensed Consolidated Interim Statement of Income

(In thousands of Rupees, except share data and as otherwise stated)

 

   Note  Quarter ended
September 30,
   Quarter
ended
September 30,
2018
   Half year ended
September 30,
   Half year
ended
September
30, 2018
 
      2018
   2017
   Convenience
translation into
US$
(In thousands)
   2018
   2017
   Convenience
translation
into US$
(In
thousands)
 
Revenue  10   5,509,350    4,839,905    75,941    10,192,148    9,395,388    140,489 
Cost of goods sold and services rendered  11   (3,464,544)   (3,066,241)   (47,755)   (6,281,670)   (5,872,785)   (86,586)
Other income      66,514    84,500    917    100,237    112,413    1,382 
Selling, general and administrative expense  12   (1,299,372)   (1,057,234)   (17,911)   (2,477,254)   (2,106,889)   (34,147)
Depreciation and amortization  4&5   (383,679)   (524,524)   (5,289)   (770,588)   (985,136)   (10,622)
Profit from operating activities      428,269    276,406    5,903    762,873    542,991    10,516 
Finance income  13   9,106    43,336    126    22,947    63,754    316 
Finance expenses  13   (184,725)   (117,110)   (2,546)   (332,111)   (229,885)   (4,578)
Net finance expense      (175,619)   (73,774)   (2,420)   (309,164)   (166,131)   (4,262)
                                  
Profit before tax      252,650    202,632    3,483    453,709    376,860    6,254 
Income tax (expense)/ benefit      4    -         4    (90)   - 
Profit for the period      252,654    202,632    3,483    453,713    376,770    6,254 
Basic earnings per share  14   1.68    1.35         3.01    2.51      
Diluted earnings per share  14   1.66    1.35         2.97    2.51      

 

The accompanying notes form an integral part of these unaudited condensed consolidated interim financial statements

 

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Sify Technologies Limited

Unaudited Condensed Consolidated Interim Statement of Comprehensive Income
(In thousands of Rupees, except share data and as otherwise stated)

 

      Quarter ended
September 30
   Quarter
ended
September 30,
2018
   Half year ended
September 30
   Half year
ended
September 30,
2018
 
   Note  2018
   2017
   Convenience
translation
into US$
(In thousands)
   2018
   2017
   Convenience
translation

into US$
(In thousands)
 
                            
Profit for the period      252,654    202,632    3,483    453,713    376,770    6,254 
                                  
Other comprehensive income/(loss)                                 
Items that will not be reclassified to profit or loss                                 
Remeasurement of defined benefit plans  9   3,140    5,403    43    10,208    3,716    141 
Items that will be reclassified to profit or loss                                 
Foreign currency translation differences of foreign operations      18,302    2,533    252    34,484    2,130    475 
Other comprehensive income/(loss) for the period      21,442    7,936    295    44,692    5,846    616 
                                  
Total comprehensive income for the period      274,096    210,568    3,778    498,405    382,616    6,870 

 

The accompanying notes form an integral part of these unaudited condensed consolidated interim financial statements

 

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Sify Technologies Limited

Unaudited Condensed Consolidated Interim Statement of Changes in Equity

(In thousands of Rupees, except share data and as otherwise stated)

For the half year ended September 30, 2018

 

Particulars  Share
capital
   Share
 premium
   Share
based
payment
reserve
   Other
components
of equity
   Retained
Earnings/
(accumulated
deficit)
   Total   Non-
controlling
interest
   Total
Equity
 
Balance at April 1, 2018   1,518,413    18,694,030    309,695    33,635    (11,550,820)   9,004,953    -    9,004,953 
                                         
Change in accounting policy on adoption of IFRS 15   -    -    -    -    (38,215)   (38,215)   -    (38,215)
Total comprehensive income/ (loss) for the period   -    -    -    44,692    453,713    498,405    -    498,405 
                                         
Transactions with owners, recorded directly in equity                                        
                                         
Shares issued on exercise of ESOP   2,458    16,731                   19,189    -    19,189 
                                         
Dividends paid (including corporate dividend tax) (₹ 1.2 per share)   -    -    -    -    (217,875)   (217,875)   -    (217,875)
Transferred from share based payment reserve   -    4,857    (4,857)   -    -    -    -    - 
Share-based payment transactions   -         2,284    -    -    2,284         2,284 
                                         
Balance as at September 30, 2018   1,520,871    18,715,618    307,122    78,327    (11,353,197)   9,268,741    -    9,268,741 

 

For the half year ended September 30, 2017

 

Particulars  Share
capital
   Share
premium
   Share
based
payment
reserve
   Other
components
of equity
   Accumulated
deficit
   Total   Non-
controlling
interest
   Total
Equity
 
Balance at April 1, 2017   1,516,875    18,680,731    305,539    26,798    (12,265,524)   8,264,419    -    8,264,419 
                                         
Total comprehensive income/ (loss) for the period   -    -    -    5,846    376,770    382,616    -    382,616 
                                         
Share based payments            5,829    -    -    5,829    -    5,829 
                                         
Transactions with owners, recorded directly in equity                                        
Dividends paid (including corporate dividend tax) (₹ 1.2 per share)   -    -    -    -    (208,697)   (208,697)   -    (208,697)
                                         
Balance as at September 30, 2017   1,516,875    18,680,731    311,368    32,644    (12,097,451)   8,444,167    -    8,444,167 

 

The accompanying notes form an integral part of these unaudited condensed consolidated interim financial statements.

 

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Sify Technologies Limited

Unaudited Condensed Consolidated Interim Statement of Cash Flows

(In thousands of Rupees, except share data and as otherwise stated)

 

   Half year ended September 30   September 30,
2018
 
   2018
   2017
   Convenience
translation
into US$
(In thousands)
 
Cash flows from / (used in) operating activities               
Profit for the period   453,713    376,770    6,254 
Adjustments for:               
Depreciation and amortization   770,588    985,136    10,622 
Gain on sale of property, plant and equipment   (2,070)   (941)   (29)
Provision for doubtful receivables and advances   280,000    100,000    3,860 
Stock compensation expense   2,283    5,829    31 
Net finance expense / (income)   309,164    166,131    4,262 
Unrealized (gain)/ loss on account of exchange differences   86,600    3,966    1,194 
Amortisation of leasehold prepayments   11,062    10,208    152 
Income tax expense   (4)   90    - 
    1,911,336    1,647,189    26,346 
                
Change in trade and other receivables   (1,539,448)   (131,373)   (21,219)
Change in inventories   (959,537)   70,910    (13,226)
Change in contract assets   (174,818)   -    (2,410)
Change in contract costs   (14,593)   -    (201)
Change in contract liabilities   507,212    -    6,991 
Change in other assets   (267,478)   (283,548)   (3,687)
Change in trade and other payables   1,461,495    (52,135)   20,145 
Change in employee benefits   13,734    23,460    189 
Change in deferred revenue   -    (61,514)   - 
    937,903    1,212,989    12,928 
Income taxes (paid)/refund received   (374,646)   (215,851)   (5,164)
Net cash from operating activities   563,257    997,138    7,764 
                
Cash flows from / (used in) investing activities               
Acquisition of property, plant and equipment   (1,482,133)   (965,191)   (20,430)
Expenditure on intangible assets   (116,959)   (60,161)   (1,613)
Proceeds from sale of property, plant and equipment   2,370    1,041    33 
Investments in corporate debt securities   -    (25,090)   - 
Finance income received   16,149    59,118    223 
Net cash used in investing activities   (1,580,573)   (990,283)   (21,787)

 

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Sify Technologies Limited

Unaudited Condensed Consolidated Interim Statement of Cash Flows

(In thousands of Rupees, except share data and as otherwise stated)

 

   Half year ended September 30   September
30, 2018
 
   2018
   2017
   Convenience
translation
into US$
(In thousands)
 
Cash flows from / (used in) financing activities               
Proceeds from issue of shares (including share premium)   19,189    -    265 
Proceeds from / (repayment of) borrowings, net   549,340    82,176    7,572 
Finance expenses paid   (329,644)   (231,449)   (4,544)
Repayment of finance lease liabilities   (43,413)   (229,038)   (598)
Payment of dividends (including corporate dividend tax)   (217,875)   (208,697)   (3,003)
Net cash used in financing activities   (22,403)   (587,008)   (308)
                
Net Increase in cash and cash equivalents   (1,039,719)   (580,153)   (14,331)
Cash and cash equivalents at April 1   166,584    893,104    2,296 
Effect of exchange fluctuations on cash held   7,700    (1,109)   106 
Cash and cash equivalents at period end   (865,435)   311,842    (11,929)
Supplementary information               
Additions to property plant and equipment represented by finance lease obligations   -    4,426      

 

The accompanying notes form an integral part of these unaudited condensed consolidated interim financial statements

 

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SIFY TECHNOLOGIES LIMITED

UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(In thousands of Rupees, except share, per share data and as stated otherwise)

 

1.Reporting entity

 

Sify Technologies Limited, (‘Sify’ or ‘the Company’) formerly known as Sify Limited, is a leading ICT solutions and services provider headquartered in Chennai, India. These Unaudited Condensed Consolidated Interim Financial Statements as at and for the quarter and half year ended September 30, 2018 comprise the Company and its subsidiaries (Sify Technologies (Singapore) Pte Limited, Sify Technologies North America Corporation, Sify Data and Managed Services Limited and Sify Infinit Spaces Limited (together referred to as the ‘Group’ and individually as ‘Group entities’). The Group offers converged ICT solutions comprising telecom-centric services, Data Center-centric IT services which includes Data Center services, cloud and managed services, applications integration services and technology integration services. Sify is listed on the NASDAQ Capital Market in the United States.

 

2.Basis of preparation

 

a.Statement of compliance

 

The Unaudited Condensed Consolidated Interim Financial Statements of the Group have been prepared in accordance with International Financial Reporting Standard (IFRS), IAS 34 Interim Financial Reporting. They do not include all of the information required for full annual financial statements, and should be read in conjunction with the consolidated financial statements of the Group as at and for the year ended March 31, 2018.

 

These Unaudited Condensed Consolidated Interim Financial Statements have been approved for issue by the Board of Directors on October 22, 2018.

 

b.Functional and presentation currency

 

Items included in the financial statements of each Group entity are measured using the currency of the primary economic environment in which the entity operates (“the functional currency”). Indian rupee is the functional currency of Sify and its Indian Subsidiary. US dollar is the functional currency of Sify’s foreign subsidiaries located in the US and Singapore.

 

The Unaudited Condensed Consolidated Interim Financial Statements are presented in Indian Rupees which is the Group’s presentation currency. All financial information presented in Indian Rupees has been rounded up to the nearest thousand except where otherwise indicated.

 

Convenience translation: Solely for the convenience of the reader, the financial statements as of and for the quarter and half year ended September 30, 2018 have been translated into United States dollars (neither the presentation currency nor the functional currency of the Group) based on the reference rate in the City of Mumbai on September 30, 2018, for cable transfers in Indian rupees as published by the Reserve Bank of India which was ₹ 72.55 per $1.00. No representation is made that the Indian rupee amounts have been, could have been or could be converted into United States dollar at such a rate or at any other rate on September 30, 2018 or at any other date.

 

c.Use of estimates

 

The preparation of these Unaudited Condensed Consolidated Interim Financial Statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses during the period. Accounting estimates could change from period to period. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period of change and future periods, if the change affects both and, if material, their effects are disclosed in the notes to the financial statements.

 

In preparing the Unaudited Condensed Consolidated Interim Financial Statements, the significant judgements made by management in applying the Group’s accounting policies and key sources of estimating uncertainties were the same as that were applied to the consolidated financial statements as at and for the year ended March 31, 2018 except for the below mentioned additional estimates made by the management on adoption of IFRS 15 Revenue from contracts with customers.

 

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Significant judgments on applying IFRS 15

 

The group contracts with customer include promises or arrangements to transfer multiple goods or services to a customer. The group assess whether such arrangements in the contract has distinct goods or services (performance obligation). Identification of distinct performance obligation involves judgment to determine ability of customer to benefit independently from other promises in the contract.

 

The judgment is required to measure the transaction price for the contract. The transaction price is the amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer. The consideration could be fixed amount or variable amount or could be both. Transaction price could also be adjusted for time value of money if contract includes a significant financing component.

 

In the case of multiple arrangements in a contract, the group allocate transaction price to each performance obligation based on standalone transaction price. The determination of standalone transaction price involves judgment.

 

The group uses judgment in determining timing of satisfaction of performance obligation. The group considers how customer benefits from goods or services as the services are rendered, who controls as the assets is created or enhanced, whether asset has an alternate use and the entity has an enforceable right to payment for performance completed to date, transfer of significant risk and reward to the customer, acceptance or sign off from the customer etc.,

 

The group uses judgement when capitalising the contract cost as to whether it generates or enhances resources of the entity that will be used in satisfying performance obligation in the future.

 

3.Significant accounting policies

 

The accounting policies applied by the Group in these Unaudited Condensed Consolidated Interim Financial Statements are the same as those applied by the Group in its consolidated financial statements as at and for the year ended March 31, 2018 except for the below change in accounting policy on adoption of IFRS 15 Revenue from Contracts with Customers.

 

Changes in accounting policies

 

Revenue Recognition

 

The Group derives revenue from converged ICT solutions comprising telecom-centric services, Data Center-centric IT services which includes Data Center services, cloud and managed services, applications integration services and technology integration services.

 

The Group has adopted IFRS 15 Revenue from Contracts with Customers effective April 1, 2018 by using the cumulative effect transition method and accordingly comparatives have not been retrospectively adjusted. The effect on adoption of IFRS 15 on initial application of Rs. 38,215 has been adjusted in the opening retained earnings.

 

The Group recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services excluding the amount collected on behalf of third parties.

 

Telecom Services

 

Revenue from telecom services include data network services and voice services. Telecom services primarily include revenue from connectivity services, NLD/ILD services and to a lesser extent, revenues from the setup and installation of connectivity links. The Group provides connectivity for a fixed period of time at a fixed rate regardless of usage. Revenue from telecom services are series of distinct services. The performance obligations are satisfied over time.

 

Service revenue is recognized when services are provided, based upon period of time. The setup and installation of connectivity links are deferred and recognized over the associated contract period.

 

Sale of equipments are accounted as separate performance obligations if they are distinct and its related revenues are recognised at a point in time when the control is passed on to the customer.

 

The Group provides NLD (National Long Distance) and ILD (International Long Distance) services through the Company’s network. The Group carries voice traffic, both national and international, using the network back-bone and delivers voice traffic to Inter-connect Operators. Revenue is recognised when the services are provided based upon the usage (eg: metered call units of voice traffic terminated on the Company’s network).

 

Data Center (“DC”) Services

 

Revenue from DC services consists co-location of racks and power charges. The contracts are mainly for a fixed rate for a period of time. Revenue from co-location of racks, power charges and cross connect charges are series of distinct services. The performance obligations are satisfied over time. Service revenue is recognized as the related services are performed. Sale of equipments such as servers, switches, networking equipments, cable infrastructure and racks etc are accounted as separate performance obligations if they are distinct and its related revenues are recognised at a point in time when the control is passed on to the customer.

 

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Cloud and Managed Services

 

Revenue from Cloud and managed services include revenue from Cloud and storage solutions, managed services, value added services, domestic and International managed services.

 

Revenues from Cloud and on demand compute and storage, are primarily fixed for a period of time. Revenue from Cloud and managed services are series of distinct services. The performance obligations are satisfied over time. The Group recognize service revenue as the related services are performed.

 

Revenues from domestic and international managed services, comprise of value added services, operations and maintenance of projects and from remote infrastructure management. Contracts from this segment are fixed and could also be based on time and material contracts.

 

In the case of time and material contracts, The Group recognizes service revenue as the related services are performed.

 

In the case of fixed price contract, the Group recognises revenue over a period of time based on progress towards completion of performance obligation using efforts or cost to cost measure of progress (percentage completion method of accounting).

 

The stage of completion is measured by efforts spent to estimated total efforts over the term of the contract.

 

Technology Integration Services

 

Revenue from technology integration services include system integration services, revenue from construction of Data Centers, network services, security solutions and to a lesser extent, revenue from sale of hardware and software.

 

Revenue from construction contract includes revenue from construction of Data Centers to the specific needs and design of the customer. The Group recognize revenue at point in time, when the customer does not take control of work-in-progress or over a period of time when the customer controls the work-in-progress.

 

In the case where revenue is recognised over a period of time and progress is measured based on the costs incurred to date as a percentage of the total estimated costs to fulfill the contract.

 

If the Group does not have a sufficient basis to measure the progress of completion or to estimate the total contract revenues and costs, revenue is recognized only to the extent of contract cost incurred for which recoverability is probable.

 

When total cost estimates exceed revenues in an arrangement, the estimated losses are recognized in the statement of Income in the period in which such losses become probable based on the current contract estimates.

 

Applications Integration Services

 

Revenue from applications integration services include online assessment, document management services, web development, mailing solutions, digital certificate based authentication services, supply chain software and eLearning software development services. eLearning software development services consist of structuring of content, developing modules, delivery and training users in the modules developed.

 

Revenue from applications integration services is recognised over a period of time. The progress is measured based on the amount of time/effort spent on a project. Revenue in relation to ‘time’ is measured as the agreed rate per unit of time multiplied by the units of time expended. The element of revenue related to materials is measured in accordance with the terms of the contract.

 

The Group enters into contracts with customers to serve advertisements in the portal and the Group is paid on the basis of impressions, click-throughs or leads and in each case the revenue is recognised rateably over the period of the contract based upon the usage (i.e on actual impressions/click throughs / leads delivered.)

 

Revenue from commissions earned on electronic commerce transactions are recognised when the transactions are completed.

 

Digital certification revenues include income received on account of web certification. Generally the Company does not hold after sale service commitments after the activation of the digital certificates sold and accordingly, revenue is recognised fully on the date of activation of the respective certificate.

 

Multiple deliverable arrangements

 

In certain cases, some elements belonging to the services mentioned above are sold as a package consisting of all or some of the elements.

 

The Group accounts for goods or services of the package separately if they are distinct. i.e., if a good or service is separately identifiable from other promises in the contract and if the customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer.

 

The Group allocates the transaction price to each performance obligation identified in the contract on a relative stand-alone selling price basis. Standalone selling price is the price at which the Group would sell a promised good or service separately to the customer.

 

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If the relative stand-alone selling prices are not available, the Group estimates the same. In doing so, the Group maximises the use of observable inputs and apply estimation methods consistently in similar circumstances.

 

Contract Cost

 

Costs to fulfil customer contracts, i.e., the costs related directly to a contract or to an anticipated contract that the Group can specifically identify or the costs that generate/ enhance resources of the Group that will be used in satisfying (or in continuing to satisfy) performance obligations in the future or the costs that are expected to be recovered, are recognised as assets and amortized over the contract period.

 

Incremental costs of obtaining a contract are recognised as assets and amortized over the contract period if the entity expects to recover those costs. The Group recognises incremental cost of obtaining a contract as an expense when incurred if the amortisation period of the asset that the entity otherwise would have recognised is one year or less.

 

Costs to obtain a contract that is incurred regardless of whether the contract is obtained are recognised as an expense when incurred, unless those costs are explicitly chargeable to the customer regardless of whether the contract is obtained.

 

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Impact on the financial statements

The below table summarises the impact of adoption of IFRS 15 on the Group’s consolidated financial statements for the period ended September 30, 2018

 

Unaudited Condensed Consolidated Interim Statement of Financial Position

(In thousands of Rupees, except share data and as otherwise stated)

 

   As at September 30, 2018 
   (As Reported)
   Adjustments
under IFRS 15
   (without
adoption of
IFRS 15)
 
             
ASSETS               
Property, plant and equipment   7,244,897    -    7,244,897 
Intangible assets   610,550    -    610,550 
Lease prepayments   1,333,784    -    1,333,784 
Other assets   1,348,549    -    1,348,549 
Deferred contract costs   30,320    (30,320)   - 
Other investments   162,330    -    162,330 
Deferred tax assets   146,132    -    146,132 
Total non-current assets   10,876,562    (30,320)   10,846,242 
                
Inventories   1,605,384    -    1,605,384 
Trade and other receivables, net   12,365,530    232,368    12,597,898 
Contract assets   232,368    (232,368)   - 
Deferred contract costs   92,993    (92,993)   - 
Prepayments for current assets   674,698    -    674,698 
Restricted cash   269,062    -    269,062 
Cash and cash equivalents   1,196,687    -    1,196,687 
Total current assets   16,436,722    (92,993)   16,343,730 
Total assets   27,313,284    (123,312)   27,189,972 
                
EQUITY AND LIABILITIES               
Equity               
Share capital   1,520,871    -    1,520,871 
Share premium   18,715,618    -    18,715,618 
Share based payment reserve   307,122    -    307,122 
Other components of equity   78,327    -    78,327 
Accumulated deficit   (11,353,197)   45,456    (11,307,741)
Equity attributable to equity holders of the Company   9,268,741    45,456    9,314,197 

 

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Sify Technologies Limited

Unaudited Condensed Consolidated Interim Statement of Financial Position

(In thousands of Rupees, except share data and as otherwise stated)

 

   As at September 30, 2018 
    (As Reported)
   Adjustments
under IFRS 15
   (without
adoption of
IFRS 15)
 
             
Liabilities               
Finance lease obligations, other than current instalments   52,996    -    52,996 
Borrowings   2,250,137    -    2,250,137 
Contract liabilities   974,501    (974,501)   - 
Employee benefits   150,576    -    150,576 
Other liabilities   210,838    974,501    1,185,339 
Total non-current liabilities   3,639,048    -    3,639,048 
                
Finance lease obligations current instalments   89,556    -    89,556 
Borrowings   1,884,066    -    1,884,066 
Bank overdraft   2,331,184    -    2,331,184 
Trade and other payables   8,326,753    -    8,326,753 
Contract liabilities   1,627,804    (1,627,804)   - 
Deferred income   -    1,459,036    1,459,036 
Current tax liabilities   146,132    -    146,132 
Total current liabilities   14,405,495    (168,768)   14,236,727 
                
Total liabilities   18,044,543    (168,768)   17,875,775 
                
Total equity and liabilities   27,313,284    (123,312)   27,189,972 

 

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Sify Technologies Limited

Unaudited Condensed Consolidated Interim Statement of Income

(In thousands of Rupees, except share data and as otherwise stated)

 

   Quarter ended September 30, 2018   Half year ended September 30, 2018 
   As
Reported
   Adjustments
   Without
adoption of
IFRS 15
   As
Reported
   Adjustments
   without
adoption of
IFRS 15
 
Revenue   5,509,350    13,740    5,523,090    10,192,148    21,843    10,213,991 
Cost of goods sold and services rendered   (3,464,544)   (10,149)   (3,474,693)   (6,281,670)   (14,602)   (6,296,272)
Other income   66,514    -    66,514    100,237    -    100,237 
Selling, general and administrative expense   (1,299,372)   -    (1,299,372)   (2,477,254)   -    (2,477,254)
Depreciation and amortization   (383,679)   -    (383,679)   (770,588)   -    (770,588)
Profit from operating activities   428,269    3,591    431,860    762,873    7,241    770,114 
Finance income   9,106    -    9,106    22,947    -    22,947 
Finance expenses   (184,725)   -    (184,725)   (332,111)   -    (332,111)
Net finance expense   (175,619)   -    (175,619)   (309,164)   -    (309,164)
                               
Profit before tax   252,650    3,591    256,241    453,709    7,241    460,950 
Income tax (expense)/ benefit   4    -    4    4    -    4 
Profit for the period   252,654    3,591    256,245    453,713    7,241    460,954 
Basic earnings per share   1.68         1.70    3.01         3.06 
Diluted earnings per share   1.66         1.68    2.97         3.02 

 

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Sify Technologies Limited

Unaudited Condensed Consolidated Interim Statement of Comprehensive Income

(In thousands of Rupees, except share data and as otherwise stated)

 

       Quarter ended September 30, 2018   Half year ended September 30, 2018 
   Note   As Reported
   Adjustments
   Without
adoption of
IFRS 15
   As
Reported
  

Adjustments

   Without
adoption of
 IFRS 15
 
                             
Profit for the period        252,654    3,591    256,244    453,713    7,241    460,954 
                                    
Other comprehensive income/(loss)                                   
Items that will not be reclassified to profit or loss                                   
Remeasurement of defined benefit plans   9    3,140    -    3,140    10,208    -    10,208 
Items that will be reclassified to profit or loss                                   
Foreign currency translation differences of foreign operations        18,302    -    18,302    34,484    -    34,484 
Other comprehensive income/(loss) for the period        21,442    -    21,442    44,692    -    44,692 
                                    
Total comprehensive income for the period        274,096    3,591    277,686    498,405    7,241    505,646 

 

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Sify Technologies Limited

Unaudited Condensed Consolidated Interim Statement of Cash Flows

(In thousands of Rupees, except share data and as otherwise stated)

 

   Half year ended September 30, 2018 
   (As Reported)
   Adjustments
under IFRS
   (without adoption
of IFRS 15)
 
Cash flows from / (used in) operating activities               
Profit for the period   453,713    7,241    460,954 
Adjustments for:               
Depreciation and amortization   770,588    -    770,588 
Gain on sale of property, plant and equipment   (2,070)   -    (2,070)
Provision for doubtful receivables and advances   280,000    -    280,000 
Stock compensation expense   2,283    -    2,283 
Net finance expense / (income)   309,164    -    309,164 
Unrealized (gain)/ loss on account of exchange differences   86,600    -    86,600 
Amortisation of leasehold prepayments   11,062    -    11,062 
Income tax expense   (4)   -    (4)
    1,911,336    7,241    1,918,576 
                
Change in trade and other receivables   (1,539,448)   (174,818)   (1,714,266)
Change in inventories   (959,537)   -    (959,537)
Change in contract assets   (174,818)   174,818    - 
Change in contract costs   (14,593)   14,593    - 
Change in contract liabilities   507,212    (507,212)   - 
Change in other assets   (267,478)   -    (267,478)
Change in trade and other payables   1,461,495    -    1,461,495 
Change in employee benefits   13,734    -    13,734 
Change in deferred revenue   -    485,378    485,378 
    937,903    -    937,903 
Income taxes (paid)/refund received   (374,646)   -    (374,646)
Net cash from operating activities   563,257    -    563,257 
                
Cash flows from / (used in) investing activities               
Acquisition of property, plant and equipment   (1,482,133)   -    (1,482,133)
Expenditure on intangible assets   (116,959)   -    (116,959)
Proceeds from sale of property, plant and equipment   2,370    -    2,370 
Investments in corporate debt securities   -    -    - 
Finance income received   16,149    -    16,149 
Net cash used in investing activities   (1,580,573)   -    (1,580,573)

 

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Sify Technologies Limited

Unaudited Condensed Consolidated Interim Statement of Cash Flows

(In thousands of Rupees, except share data and as otherwise stated)

 

   Half year ended September 30, 2018 
   (As Reported)
   Adjustments
under IFRS
   (without
adoption of
IFRS 15)
 
Cash flows from / (used in) financing activities               
Proceeds from issue of shares (including share premium)   19,189    -    19,189 
Proceeds from / (repayment of) borrowings, net   549,340    -    549,340 
Finance expenses paid   (329,644)   -    (329,644)
Repayment of finance lease liabilities   (43,413)   -    (43,413)
Payment of dividends (including corporate dividend tax)   (217,875)   -    (217,875)
Net cash used in financing activities   (22,403)   -    (22,403)
                
Net Increase in cash and cash equivalents   (1,039,719)   -    (1,039,719)
Cash and cash equivalents at April 1   166,584    -    166,584 
Effect of exchange fluctuations on cash held   7,700    -    7,700 
Cash and cash equivalents at period end   (865,435)   -    (865,435)

 

Basis of consolidation

 

The financial statements of the Group companies are consolidated on a line-by-line basis. Intra-Group balances and transactions, and any unrealized income and expenses arising from intra-Group transactions, are eliminated. These financial statements are prepared by applying uniform accounting policies in use at the Group.

 

Subsidiaries are consolidated from the date control commences until the date control ceases. Control exists when the parent has power over the entity, is exposed, or has rights to variable returns from its involvement with the entity and has the ability to affect those returns by using its power over the entity. Power is demonstrated through existing rights that give the ability to direct relevant activities, those which significantly affect the entity's returns.

 

a.Recent accounting pronouncements

 

 

(i)Standards and interpretations issued but not yet effective

 

IFRS 16 Leases: IFRS 16 on lease was issued on January 13, 2016 and is effective from the year January 1, 2019, though early adoption is permitted for companies applying IFRS 15 Revenue from Contracts with Customers. The standard replaces all existing lease accounting requirements and represents a significant change in accounting and reporting of leases, with more assets and liabilities to be reported on the Statement of Financial Position and a different recognition of lease costs.

 

The Group is currently evaluating the impact of the standard on the consolidated financial statements.

 

IFRIC 23 Uncertainty over income tax treatments: IFRIC 23 was issued on June 7, 2017 to clarify the accounting for uncertainties in income taxes. The effective date for adoption of IFRIC 23 is annual reporting periods beginning on or after January 1, 2019, though early adoption is permitted. The Group is currently evaluating the impact of the same on the consolidated financial statements.

 

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Amendment to IAS 12 – Income taxes: In December 2017, the IASB issued amendments to clarify that an entity shall recognise the income tax consequences of dividends in profit or loss, other comprehensive income or equity according to where the entity originally recognised those past transactions or events that generated distributable profits were recognised.

 

The effective date for application of this amendment is annual period beginning on or after 1 January 2019, although early application is permitted. The Group is currently evaluating the effect of this amendment on the consolidated financial statements.

 

Ammendments in IAS 19 – Employee Benefits: In February 2018, the IASB issued amendments to IAS 19 – “Employee Benefits” regarding plan amendments, curtailments and settlements. The amendments in Plan Amendment, Curtailment or Settlement are as follows:

 

a) If a plan amendment, curtailment or settlement occurs, it is now mandatory that the current service cost and the net interest for the period after the remeasurement are determined using the assumptions used for the remeasurement;

 

b) In addition, amendments have been included to clarify the effect of a plan amendment, curtailment or settlement on the requirements regarding asset ceiling.

 

The above amendments are effective for annual periods beginning on or after January 1, 2019. Earlier application is permitted but must be disclosed. The Group is currently evaluating the impact of these amendments on its consolidated financial statements.

 

4.Property, plant and equipment

 

The following table presents the changes in property, plant and equipment during the half year ended September 30, 2018

 

(Rupees in Thousands)

   Cost   Accumulated depreciation     
Particulars  As at
April 01,
2018
   Additions   Disposals   As at
September
30, 2018
   As at
April 1,
2018
   Depreciation
for the
period
   Deletions
/Adjustments
   As at
September
30, 2018
   Carrying
amount as
at
September
30, 2018
 
Building   2,301,987    -    -    2,301,987    639,622    41,091    -    680,713    1,621,274 
Plant and machinery   12,293,776    1,006,007    40,895    13,258,888    9,017,370    444,659    40,734    9,421,295    3,837,593 
Computer equipments   1,407,816    66,163    5,790    1,468,189    1,006,370    92,808    5,658    1,093,520    374,669 
Office equipment   601,793    74,096    100    675,789    346,024    38,848    46    384,826    290,963 
Furniture and fittings   1,250,834    84,642    365    1,335,111    864,935    63,061    (302)   928,298    406,813 
Vehicles   9,656    -    -    9,656    6,056    1,200    -    7,256    2,400 
Total   17,865,862    1,230,908    47,150    19,049,620    11,880,377    681,667    46,136    12,515,908    6,533,712 
Add: Construction in progress                                           711,185 
Total   17,865,862    1,230,908    47,150    19,049,620    11,880,377    681,667    46,136    12,515,908    7,244,897 

 

The following table presents the changes in property, plant and equipment during the year ended March 31, 2018 

 

(Rupees in Thousands)

   Cost   Accumulated depreciation     
Particulars  As at
April 01,
2017
   Additions   Disposals   As at
March 31,
2018
   As at
April 1,
2017
   Depreciation
for the year
   Deletions   As at
March 31,
2018
   Carrying
amount as
 at March
31, 2018
 
Building   2,301,987    -    -    2,301,987    557,439    82,183    -    639,622    1,662,365 
Plant and machinery   11,585,120    795,351    86,695    12,293,776    7,864,346    1,174,083    21,059    9,017,370    3,276,406 
Computer equipments   1,162,259    251,022    5,465    1,407,816    834,398    177,345    5,373    1,006,370    401,446 
Office equipment   496,015    106,953    1,175    601,793    281,432    65,808    1,216    346,024    255,769 
Furniture and fittings   1,093,544    157,940    650    1,250,834    753,209    112,623    897    864,935    385,899 
Vehicles   9,656    -    -    9,656    3,656    2,400    -    6,056    3,600 
Total   16,648,581    1,311,266    93,985    17,865,862    10,294,480    1,614,442    28,545    11,880,377    5,985,485 
Add: Construction in progress                                           1,227,936 
Total   16,648,581    1,311,266    93,985    17,865,862    10,294,480    1,614,442    28,545    11,880,377    7,213,421 

 

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Leased assets

The Group’s leased assets include certain buildings, plant and machinery acquired under finance leases. As at September 30, 2018 the net carrying amount of buildings and plant and machinery acquired under finance leases is ₹ 167,545 (March 31, 2018: ₹ 172,704) and 334,650 (March 31, 2018: ₹ 375,884) respectively. During the half year ended September 30, 2018, the Group acquired leased assets of ₹ Nil (March 31, 2018 : ₹ 69,700).

 

In case prepayments are made towards buildings accounted for as finance leases, such prepayments are capitalized as ‘Leasehold Buildings’ (included in buildings) on the commencement of the lease term under the head ‘Property, plant and equipment’ and depreciated in accordance with the depreciation policy for similar owned assets.

 

Construction in progress

Amounts paid towards acquisition of property, plant and equipment outstanding at each balance sheet date and the cost of property, plant and equipment that are not ready to be put into use are disclosed under construction-in-progress.

 

5.Intangible assets

 

Intangible assets comprise the following:

 

   September 30, 2018   March 31, 2018 
Goodwill   14,595    14,595 
Other intangible assets   595,955    567,917 
    610,550    582,512 

 

(i)Goodwill

 

The following table presents the changes in goodwill during the half year/year ended

 

   September 30, 2018   March 31, 2018 
Balance at the beginning of the period   14,595    14,595 
Net carrying amount of goodwill   14,595    14,595 

 

The amount of goodwill as at September 30, 2018 and March 31, 2018 has been allocated to the Applications Integration Services segment.

 

(ii)Other intangibles

 

The following table presents the changes in intangible assets during the half year ended September 30, 2018 and year ended March 31, 2018.

 

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   Bandwidth
Capacity
   Software   License fees   Total 
(A) Cost                    
Balance as at April 1, 2017   6,42,391    691,898    73,000    1,407,289 
Acquisitions during the year   -    163,505    -    163,505 
Disposals during the year   -    -    -    - 
Balance as at March 31, 2018   642,391    855,403    73,000    1,570,794 
Acquisitions during the period   41,943    75,015    -    116,958 
Disposals during the period   -    -    -    - 
Balance as at September 30, 2018   684,334    930,418    73,000    1,687,752 
                     
(B) Amortization                    
Balance as at April 1, 2017   247,394    587,032    28,356    862,782 
Amortization for the year   56,895    80,550    2,650    140,095 
Impairment loss on intangibles   -    -    -    - 
Balance as at March 31, 2018   304,289    667,582    31,006    1,002,877 
Amortization for the period   31,819    55,776    1,325    88,920 
Impairment loss on intangibles   -    -    -    - 
Balance as at September 30, 2018   336,108    723,358    32,331    1,091,797 
                     
(C) Carrying amounts                    
As at March 31, 2018   338,102    187,821    41,994    567,917 
As at September 30, 2018   348,226    207,060    40,669    595,955 

 

Intangible assets that were fully impaired/amortised were removed from the block.

 

6.Cash and cash equivalents

 

Cash and cash equivalents as at September 30, 2018 amounted to ₹ 1,196,687 (March 31, 2018: ₹ 1,991,846). This excludes cash-restricted of ₹ 269,062 (March 31, 2018: ₹ 296,275), representing deposits held under lien against working capital facilities availed and bank guarantees given by the Group towards future performance obligations.

 

(a)Restricted cash

 

Non current  September
30, 2018
   March 31, 2018   September 30,
2017
   March 31,
2017
 
Against future performance obligation   -    -    -    - 
Current                    
Bank deposits held under lien against borrowings / guarantees from banks / Government authorities   269,062    296,275    291,591    262,907 
Total restricted cash   269,062    296,275    291,591    262,907 
(b) Non restricted cash                    
Current                    
Cash and bank balances   1,196,687    1,991,846    2,097,895    1,621,358 
                     
Total cash (a+b)   1,465,749    2,288,121    2,389,486    1,884,265 
Bank overdraft used for cash management purposes   (2,331,184)   (2,121,537)   (2,077,644)   (991,161)
Less: Non current restricted cash   -    -    -    - 
Cash and cash equivalents for the statement of cash flows   (865,435)   166,584    311,842    893,104 

 

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7.Lease prepayments

 

   September 30, 2018   March 31, 2018 
Towards land and buildings*   1,333,784    1,344,845 
    1,333,784    1,344,845 

 

* Includes 1,312,691 (March 31, 2018: 1,321,247) paid for acquiring leasehold rights of land for construction of Data Centers. The prepayment towards land is amortized over the period of the lease on a straight line basis. In respect of buildings under operating lease, prepayments are amortized over the lease term on a straight line basis.

 

8A.Trade and other receivables

 

Trade and other receivables comprise:

 

   September 30, 2018   March 31, 2018 
(i) Trade receivables, net   9,992,159    8,820,579 
(ii) Other receivables including deposits   2,373,371    1,890,372 
(iii) Construction contract related accruals   -    2,935 
    12,365,530    10,713,886 

 

Trade receivables consist of:

 

   September 30, 2018   March 31, 2018 
Other trade receivables   10,443,563    9,029,796 
    10,443,563    9,029,796 
Less: Allowance for doubtful receivables   (451,404)   (209,217)
Balance at the end of half year/year   9,992,159    8,820,579 

 

The activity in the allowance for doubtful accounts receivable is given below:

 

   September 30, 2018   March 31, 2018 
Balance at the beginning of the period   209,217    234,190 
Add : Additional provision, net   280,000    370,000 
Less : Bad debts written off   (37,813)   (394,973)
Balance at the end of half year/year   451,404    209,217 
           
Financial assets included in other receivables   84,556    48,141 

 

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8B.Contract Balances

 

The following table provides information about receivables, contract assets and contract liabilities from the contracts with the customers

 

Particulars  September 2018   1st April 2018 
Trade Receivables      9,992,159      8,820,579 
Contract Assets – Unbilled Revenue        232,368         57,550 
Contract liabilities – Deferred Income                    
Current contract liabilities   1,627,804         1,172,061      
Non current contract liabilities   974,501         923,032      
Total Contract liabilities – Deferred Income        2,602,305         2,095,093 

 

The following table provides the movement in contract assets (unbilled revenue) for the period ended September 30, 2018

 

Particulars  Rs. 
Balance as of April 1, 2018   57,550 
Add: Revenue recognized during the period   285,609 
Less: Invoiced during the period   (117,212)
Add: Translation gain or (loss)   6,421 
Balance as of September 30, 2018   232,368 

 

The following table provides the movement in contract liabilities (Deferred Income) for the period ended September 30, 2018

 

Particulars  Rs. 
Balance as of April 1, 2018   2,095,093 
Less: Revenue recognized during the period   (6,247,272)
Add: Invoiced during the period but revenue not recognised   6,750,173 
Add: Translation gain or (loss)   4,311 
Balance as of September 30, 2018   2,602,305 

 

8C.Contract Cost and Amortisation

 

Costs to fulfil customer contracts are deferred and amortized over the contract period. For the period ended September 30, 2018 the Group has capitalised Rs. 92,641 and amortised Rs. 78,039 There was no impairment loss in relation to the capitalised cost.

 

Incremental costs of obtaining a contract are recognised as assets and amortized over the contract period. The Group recognises incremental cost of obtaining a contract as an expense when incurred if the amortisation period of the asset that the entity otherwise would have recognised is one year or less.

 

9.Employee benefits

 

   September 30, 2018   March 31, 2018 
Gratuity payable   103,842    99,120 
Compensated absences   46,734    48,360 
    150,576    147,480 

 

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Gratuity cost

 

The components of gratuity cost recognized in the income statement for the quarter and half year ended September 30, 2018 and 2017 consists of the following:

 

   Quarter ended
September 30, 2018
   Quarter ended
September 30, 2017
   Half year ended
September 30, 2018
   Half year ended
September 30, 2017
 
                 
Service cost   5264    5,187    11,370    10,420 
Interest cost   2400    1,879    4,732    3,707 
Interest income   (595)   (354)   (1,173)   (699)
Net gratuity costs recognized in statement of income   7,069    6,712    14,929    13,428 

 

Details of employee benefit obligation and plan asset are as follows:

 

   September 30, 2018   March 31, 2018 
Present value of projected benefit obligation at the end of half year/ year   129,982    131,687 
Funded status of the plans   (26,140)   (32,567)
Recognized (asset) / liability   103,842    99,120 

 

The following table set out the status of the gratuity plan:

 

Change in defined benefit obligation  September 30, 2018   March 31, 2018 
Projected benefit obligation at the beginning of half year/ year   131,687    109,826 
Service cost   11,370    29,577 
Interest cost   4,732    7,518 
Remeasurements - Actuarial (gain) / loss   (11,172)   (6,872)
Benefits paid   (6,636)   (8,362)
Projected benefit obligation at the end of half year/ year   129,981    131,687 

 

Change in plan assets  September 30, 2018   March 31, 2018 
Fair value of plan assets at the beginning of the period   32,567    20,712 
Interest income   1,173    1,418 
Remeasurements – return on plan assets excluding amounts included in interest income   (964)   (1,493)
Employer contributions   -    20,292 
Benefits paid   (6,636)   (8,362)
Fair value of plan assets at the end of the period   26,140    32,567 

 

Actuarial Assumptions at reporting date:

 

   As at
September 30, 2018
  As at
March 31, 2018
Discount rate  8.10% P.a  7.30% P.a
Long-term rate of compensation increase  7.00% P.a  7.00% P.a
Expected long term rate of return on plan assets  7.00% P.a  7.00% P.a
Average future working life time  4.38 years  4.38 years

 

The Group assesses these assumptions with the projected long-term plans of growth and prevalent industry standards.

 

Remeasurement of defined benefit plans recognised in other comprehensive income

 

The amount gains and losses on remeasurement of defined benefit plans recognized directly in other comprehensive income for the half year ended September 30, 2018 and 2017 are as follows:

 

   Half year ended
September 30, 2018
   Half year ended
September 30, 2017
 
Gain or (loss) on remeasurement of defined benefit plans   10,208    3,716 
    10,208    3,716 

 

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Historical information

 

   Half year ended
September 30, 2018
   Half year ended
September 30, 2017
 
Experience adjustment on plan liabilities - (loss)/gain   4,840    (1,098)
Impact of change in assumptions on plan liabilities - (loss)/gain   6,332    5,544 
Experience adjustment on plan assets - (loss)/gain   (964)   (730)
    10,208    3,716 

 

10.Revenue

 

   Quarter ended   Half year ended 
   September 30,
2018
   September 30,
2017
   September 30,
2018
   September 30,
2017
 
Rendering of services                    
Service revenue   3,926,466    3,488,563    7,869,155    6,808,495 
Installation service revenue   793,905    1,212,772    1,299,915    2,008,855 
    4,720,371    4,701,335    9,169,070    8,817,350 
Sale of products   788,979    138,570    1,023,078    578,038 
Total   5,509,350    4,839,905    10,192,148    9,395,388 

 

Note :1. Revenue disaggregation as per business segment and geography has been included in segment information (See Note 15).

 

Note :2 Performance obligations and remaining performance obligations

 

The Group has applied the practical expedient provided in the standard and accordingly not disclosed the remaining performance obligation relating to the contract where the performance obligation is part of a contract that has an original expected duration of one year or less and has also not disclosed the remaining performance obligation related disclosures for contracts where the revenue recognized corresponds directly with the value to the customer of the entity's performance completed to date.

 

The following table provides revenue expected to be recognised in the future related to performance obligation that are unsatisfied (or partially satisfied) at the reporting date.

 

To be recognised  Rs. 
Within one year   1,302,200 
One to three years   540,473 
Three years or more   101,942 

 

11.Cost of goods sold and services rendered

 

Cost of goods sold and services rendered information is presented before any depreciation or amortization that is direct and attributable to revenue sources. The Group’s asset base deployed in the business is not easily split into a component that is directly attributable to a business and a component that is common / indirect to all the businesses. Since a gross profit number without depreciation and amortization does not necessarily meet the objective of such a disclosure, the Group has not disclosed gross profit numbers but disclosed all expenses, direct and indirect, in a homogenous group leading directly from revenue to operating income.

 

12.Personnel expenses

 

   Quarter ended   Half year ended 
   September 30,
2018
   September 30,
2017
   September 30,
2018
   September 30,
2017
 
Salaries and wages   679,988    638,704    1,313,388    1,192,689 
Contribution to provident fund and other funds   39,400    34,233    75,165    67,334 
Staff welfare expenses   5,153    5,160    13,995    11,653 
Employee Stock compensation expense   634    3,481    2,283    5,829 
    725,175    681,578    1,404,831    1,277,505 
                     
Attributable to Cost of goods sold and services rendered   346,500    281,939    643,340    529,480 
Attributable to selling, general and administrative expenses   378,675    399,639    761,491    748,025 

 

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13.Financial income and expense

 

   Quarter ended   Half year ended 
   September 30,
2018
   September 30,
2017
   September 30,
2018
   September 30,
2017
 
Interest income on bank deposits   6,510    6,266    9,157    12,065 
Others   2,596    37,070    13,790    51,689 
Finance income   9,106    43,336    22,947    63,754 
Interest expense on financial lease liabilities   4,805    8,158    8,577    21,449 
Bank charges   26,164    19,185    52,548    39,247 
Other interest   1,53,756    89,767    270,986    169,189 
Finance expense   184,725    117,110    332,111    229,885 
Net finance expense recognised in profit or loss   (175,619)   (73,774)   (309,164)   (166,131)

 

14.Earnings per share

 

The calculation of basic earnings per share for the quarter and half year ended September 30, 2018 is based on the earnings attributable to ordinary shareholders:

 

   Quarter ended   Half year ended 
   September 30,
2018
   September 30,
2017
   September 30,
2018
   September 30,
2017
 
Net profit – as reported   252,654    202,632    453,713    376,770 
                     
Weighted average number of shares – Basic   150,561,839    150,405,787    150,561,839    150,405,787 
Basic earnings per share   1.68    1.35    3.01    2.51 
                     
Weighted average number of shares – Diluted   152,582,469    150,416,502    152,582,469    150,405,787 
Diluted earnings per share   1.66    1.35    2.97    2.51 

 

Note 1:During the year ended March 31, 2011, 125,000,000 ordinary shares were issued to the existing promoter group on a private placement basis. As at September 30, 2018, these shares were partly paid up to the extent of ₹ 7.75 (March 31, 2018 : ₹ 7.75) per share.

 

15.Segment reporting

 

The operating segments of the Company are as follows:

 

Telecom centric services: Domestic data, international data, wholesale voice, Hubbing and network managed services;

 

Data Center centric IT services

 

Data Center services:  Co-location services ;

 

Cloud and managed services: IT infra services, IT transformation services, remote and onsite infrastructure management services and delivery platforms;

 

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Technology integration services: Data Center build, network integration, information security, end user computing and collaborative tools and solutions;

 

Applications integration services: Application development and maintenance, application testing, mobility solutions, eLearning, portals, tools, process and automation.

 

The Chief Operating Decision Maker (“CODM”), i.e., the Board of Directors and the senior management, evaluate the Group’s performance and allocate resources to various strategic business units that are identified based on the products and services that they offer and on the basis of the market served. The measure of profit / loss reviewed by the CODM is “Earnings/loss before interest, taxes, depreciation and amortization” also referred to as “segment operating income / loss”. Revenue in relation to segments is categorized based on items that are individually identifiable to that segment.

 

Bandwidth costs, which form a significant part of the total expenses, are allocated to Network Services. Manpower costs of Technology resources rendering services to support Infrastructure operations, Managed services and Application services, are allocated to specific operating segments. The Group believes that the resulting allocations are reasonable.

 

Certain expenses, such as depreciation, technology infrastructure and administrative overheads, which form a significant component of total expenses, are not allocable to specific segments as the underlying services are used interchangeably. Management believes that it is not practical to provide segment disclosure of these expenses and, accordingly, they are separately disclosed as “unallocated” and adjusted only against the total income of the Group.

 

A significant part of the fixed assets used in the Group’s business are not identifiable to any of the reportable segments and can be used interchangeably between segments. As a result, the measures of segment assets and liabilities are not regularly reviewed by the CODM and hence disclosures relating to segment assets and liabilities have not been provided.

 

The Group’s operating segment information for the quarter ended September 30, 2018 and 2017 and half year ended September 30, 2018 and 2017, are presented below:

 

Quarter ended September 30, 2018

 

       Data center-centric IT services     
   Telecom-
centric
Services
(A)
  

Data
center
Services

(i)

  

Cloud and
Managed
Services

(ii)

  

Technology
Integration
Services

(iii)

  

Applications
Integration
Services

(iv)

   Total
(B)=
(i)+(ii)+(iii)+(iv)
   Total
(C) =
(A) + (B)
 
                             
Segment revenue   2,695,159    785,501    351,342    1,112,376    564,972    2,814,191    5,509,350 
Allocated segment expenses   (2,174,797)   (485,223)   (291,826)   (994,157)   (497,219)   (2,268,425)   (4,443,222)
Segment operating income   520,362    300,278    59,516    118,219    67,753    545,766    1,066,128 
Unallocated expenses:                                   
Selling, general and administrative expenses                                 (320,694)
Depreciation and amortization                                 (383,679)
Other income                                 66,514 
Finance income                                 9,106 
Finance expenses                                 (184,725)
Profit before tax                                 252,650 
Income tax (expense)/benefit                                 4 
Profit for the period                                 252,654 

 

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Half year ended September 30, 2018

 

       Data center-centric IT services     
   Telecom-
centric
Services
(A)
  

Data
center
Services

(i)

  

Cloud and
Managed
Services

(ii)

  

Technology
Integration
Services

(iii)

  

Applications

Integration
Services

(iv)

   Total
(B)=
(i)+(ii)+(iii)+(iv)
   Total
(C) =
(A) + (B)
 
                             
Segment revenue   5,547,493    1,509,733    673,859    1,544,152    916,911    4,644,655    10,192,148 
Allocated segment expenses   (4,204,263)   (936,873)   (553,022)   (1,439,796)   (976,530)   (3,906,221)   (8,110,484)
Segment operating income   1,343,230    572,860    120,837    104,356    (59,619)   738,434    2,081,664 
Unallocated expenses:                                   
Selling, general and administrative expenses                                 (648,440)
Depreciation and amortization                                 (770,588)
Other income                                 100,237 
Finance income                                 22,947 
Finance expenses                                 (332,111)
Profit before tax                                 453,709 
Income tax (expense)/benefit                                 4 
Profit for the period                                 453,713 

 

Quarter ended September 30, 2017

 

       Data center-centric IT services     
   Telecom-
centric
Services
(A)
  

Data
center
Services

(i)

  

Cloud and
Managed
Services

(ii)

  

Technology
Integration
Services

(iii)

  

Applications

Integration
Services

(iv)

   Total
(B)=
(i)+(ii)+(iii)+(iv)
   Total
(C) =
(A) + (B)
 
                             
Segment revenue   2,580,468    576,675    198,182    735,297    749,283    2,259,437    4,839,905 
Allocated segment expenses   (1,906,360)   (400,236)   (250,826)   (596,331)   (686,643)   (1,934,036)   (3,840,396)
Segment operating income   674,108    176,439    (52,644)   138,966    62,640    325,401    999,509 
Unallocated expenses:                                   
Selling, general and administrative expenses                                 (283,079)
Depreciation and amortization                                 (524,524)
Other income                                 84,500 
Finance income                                 43,336 
Finance expenses                                 (117,110)
Profit before tax                                 202,632 
Income tax (expense)/benefit                                 - 
Profit for the period                                 202,632 

 

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Half year ended September 30, 2017

 

       Data center-centric IT services     
   Telecom-
centric
Services
(A)
  

Data
center
Services

(i)

  

Cloud and
Managed
Services

(ii)

  

Technology
Integration
Services

(iii)

  

Applications

Integration
Services

(iv)

   Total
(B)=
(i)+(ii)+(iii)+(iv)
   Total
(C) =
(A) + (B)
 
                             
Segment revenue   4,988,859    1,135,646    462,863    1,559,153    1,248,867    4,406,529    9,395,388 
Allocated segment expenses   (3,777,828)   (827,009)   (489,298)   (1,237,370)   (1,063,498)   (3,617,175)   (7,395,003)
Segment operating income   1,211,031    308,637    (26,435)   321,783    185,369    789,354    2,000,385 
Unallocated expenses:                                   
Selling, general and administrative expenses                                 (584,671)
Depreciation and amortization                                 (985,136)
Other income                                 112,413 
Finance income                                 63,754 
Finance expenses                                 (229,885)
Profit before tax                                 376,860 
Income tax (expense)/benefit                                 (90)
Profit for the period                                 376,770 

 

16.Capital commitments

 

Contracts pending to be executed on capital account as at September 30, 2018 amounting to ₹ 900,764 (March 31, 2018 :₹ 1,032,695).

 

Operating leases: The Group leases office buildings and other equipments under operating lease arrangements that are renewable on a periodic basis at the option of both the lessor and the lessee. The schedule of future minimum rental payments in respect of operating leases is set out below:

 

Non-cancellable operating lease obligations  Total   Less than 1
Year
   1-5 years   More than 5
years
 
As at September 30, 2018   934,681    112,358    480,937    341,386 
As at March 31, 2018   990,859    112,358    491,948    386,553 

 

17.Legal proceedings

 

a)Proceedings before Department of Telecommunications

 

(i)License fees

 

·On October 12, 2009 [as later clarified by the Department of Telecommunications (‘DOT’)], DOT raised a demand on Sify Technologies for 14,000 after correcting the arithmetical error in the assessment letter.

 

  · On February 26, 2010 DOT raised a demand on Sify Communications Ltd (erstwhile subsidiary merged with Sify Technologies Limited) for 26,000.

 

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The above demands were made by the DoT on the premise that all amounts of income (whether direct or indirect) including certain items like other income, interest on deposits, gain on foreign exchange fluctuation, profit on sale of assets & provision written back, that have got nothing to do with telecom operations of the Company or arise in connection with the Telecom business of the Company, are to be considered as income for the purpose of calculation of the license fee. The Company has replied suitably on the above demand notice.

 

On a related matter, the service providers had approached TDSAT (the ‘Tribunal’) on what items of income are liable for calculation of license fee and what all items of income on which license fees are not liable to be paid. The Tribunal by its order dated April 23, 2015 held that revenue from sale of scrap, treasury income etc. are to be included as part of AGR. The Tribunal has also passed an order asking DOT to levy at most nominal amount as token penalty with interest if permissible at the lower rates. The Company had approached Honourable High Court of Madras (Court) in 2013 by filing a writ petition prohibiting Department of Telecommunications (DOT) from levying license fee on non-licensed activities. An interim order was passed by the Court restraining DOT from recovering license fee in respect of non- telecom activities for the writ petition filed in 2013. Also, the Group has received notices for earlier years from DoT claiming Licence fee on the total Income (including income from Non Licensed activities). The Group has replied to these notices stating that licence fees are not payable on income from non-licensed activities. The Group believes that it has adequate legal defences against these notices and that the ultimate outcome of these actions may not have a material adverse effect on the Group's financial position and result of operations.

 

(ii)The present licence for ISP under unified license issued by DOT on June 2, 2014 provides for payment of Licence fee on pure Internet services. However, the company through Internet Service Providers Association of India (ISPAI) challenged the said clause before TDSAT. TDSAT passed a stay order on DOT from charging the licence fee on pure Internet services. The Group has appropriately accounted for any adverse effect that may arise in this regard in the books of account.

 

(b)The Company is party to additional legal actions arising in the ordinary course of business. Based on the available information as at September 30, 2018, the Company believes that it has adequate legal defences for these actions and that the ultimate outcome of these actions will not have a material adverse effect. However in the event of adverse judgment in all these cases, the maximum financial exposure would be ₹ 91,129 (March 31, 2018: ₹ 91,129).

 

18.Related parties

 

The following is a summary of significant transactions with related parties during the half year ended September 30, 2018 and September 30, 2017:

 

Transactions  Half year ended
September 30, 2018
   Half year ended
September 30, 2017
 
Consultancy services received   150    120 
Lease rentals paid (See  notes below)   2,268    2,880 
Dividend paid   151,114    143,280 
Amount of outstanding balances          
Advance lease rentals and refundable deposits made (See note below)   2,558    2,558 
Outstanding balances [(Payables)/receivables]   3,163    (125)

 

Notes:

 

·During the year 2011 -12, the Company had entered into a lease agreement with M/s Raju Vegesna Infotech and Industries Private Limited, the holding Company, to lease the premises owned by it for a period of three years effective February 1, 2012 on a rent of ₹ 75 (Rupees Seventy Five Thousand Only) per month. Subsequently, the Company entered into an amendment agreement with effect from April 1, 2013, providing for automatic renewal for a further period of two blocks of 3 years with an escalation of 15% on the last paid rent after the end of every three years.

 

·During the year 2011 - 12, the Company had also entered into a lease agreement with M/s Raju Vegesna Developers Private Limited, a Company in which Mr Ananda Raju Vegesna, Executive Director of the Company and Mr Raju Vegesna, Chairman and Managing director of the Company exercise significant influence, to lease the premises owned by it for a period of three years effective February 1, 2012 on a rent of ₹ 30 (Rupees Thirty Thousand Only) per month. The agreement provides for the automatic renewal for further period of two blocks of 3 years with an escalation of 15% on the last paid rent after the end of every three years.

 

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·During the year 2010-11, the Company had entered into a lease agreement with Ms Radhika Vegesna, daughter of Mr Ananda Raju Vegesna, Executive Director of the company, to lease the premises owned by her for a period of three years effective June 1, 2010 on a rent of ₹294 (Rupees Two Ninety Four Thousand Only) per month and payment of refundable security deposit of ₹2,558. This arrangement will automatically be renewed for a further period of two blocks of three years with all the terms remaining unchanged.

 

19.Financial Instruments

 

Financial instruments by category:

 

The carrying value and fair value of financial instruments by each category as at September 30, 2018 were as follows:

 

Particulars  Note   Financial
assets/
liabilities
at
amortised
costs
   Financial
assets /
liabilities at
FVTPL
   Financial
assets /
liabilities
at
FVTOCI
   Total
carrying
value
   Total fair
value
 
Assets                              
Cash and cash equivalents   6    1,465,749    -    -    1,465,749    1,465,749 
Other assets        339,531    -    -    339,531    339,531 
Trade receivables   8    9,992,159    -    -    9,992,159    9,992,159 
Other receivables        84,556    -    -    84,556    84,556 
Other investments        160,620    -    1,710    162,330    162,330 
Liabilities                              
Bank overdraft   6    2,331,184    -    -    2,331,184    2,331,184 
Finance lease liabilities        142,552    -    -    142,552    142,552 
Other liabilities        210,838    -    -    210,838    210,838 
Borrowings from banks        2,280,263    -    -    2,280,263    2,280,263 
Borrowings from others        1,853,941    -    -    1,853,941    1,853,941 
Trade and other payables        7,606,718    -    -    7,606,718    7,606,718 
Derivative financial liabilities        -    12,019    -    12,019    12,019 

 

The carrying value and fair value of financial instruments by each category as at March 31, 2018 were as follows:

 

Particulars  Note   Financial
assets/
liabilities
at
amortised
costs
   Financial
assets /
liabilities at
FVTPL
   Financial
assets /
liabilities
at
FVTOCI
   Total
carrying
value
   Total fair
value
 
Assets                              
Cash and cash equivalents   6    2,288,121    -    -    2,288,121    2,288,121 
Other assets        360,378    -    -    360,378    360,378 
Trade receivables   8    8,820,579    -    -    8,820,579    8,820,579 
Other receivables        48,141    -    -    48,141    48,141 
Other investments        144,008    -    1,710    145,718    145,718 
Liabilities                              
Bank overdraft   6    2,121,537    -    -    2,121,537    2,121,537 
Finance lease liabilities        185,965    -    -    185,965    185,965 
Other liabilities        207,046    -    -    207,046    207,046 
Borrowings from banks        2,021,228    -    -    2,021,228    2,021,228 
Borrowings from others        1,464,637    -    -    1,464,637    1,464,637 
Trade and other payables        6,779,018    -    -    6,779,018    6,779,018 
Derivative financial liabilities        -    1,729    -    1,729    1,729 

 

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Fair value measurements:

 

The details of assets and liabilities that are measured on fair value on recurring basis are given below:

 

   Fair value as at September 30, 2018   Fair value as at March 31, 2018 
   Level 1   Level 2   Level 3   Level 1   Level 2   Level 3 
Assets                        
Derivative financial assets   -    -    -    -    -    - 
Liabilities                              
Derivative financial liabilities – loss on outstanding forward/options contracts   -    -    -    -    -    - 
Derivative financial liabilities - loss on outstanding cross currency swaps   -    -    -    -    -    - 
Derivative financial liabilities - loss on outstanding interest rate swaps   -    -    12,019    -    -    1,729 

 

·Level 1 – unadjusted quoted prices in active markets for identical assets and liabilities.
·Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices).
·Level 3 – unobservable inputs for the asset or liability
oLoss on cross currency swaps are valued using present value of cash flows from the swap contract estimated using swap rates calculated from respective countries’ yield curves.

 

20.Financial Risk Management

 

The Group has exposure to the following risks from its use of financial instruments:

·Credit risk
·Liquidity risk
·Market risk

 

The Board of Directors has overall responsibility for the establishment and oversight of the Group’s risk management framework. The Board of Directors have established a risk management policy to identify and analyze the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management systems are reviewed periodically to reflect changes in market conditions and the Group’s activities. The Group Audit Committee oversees how management monitors compliance with the Group’s risk management policies and procedures, and reviews the risk management framework. The Group Audit Committee is assisted in its oversight role by Internal Audit. Internal Audit undertakes reviews of risk management controls and procedures, the results of which are reported to the Audit Committee.

 

Credit risk: Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations and arises principally from the Group’s trade receivables, treasury operations and other activities that are in the nature of leases.

 

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Trade and other receivables

The Group’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. Management considers that the demographics of the Group’s customer base, including the default risk of the industry and country in which customers operate, has less of an influence on credit risk. The Group is not exposed to concentration of credit risk to any one single customer since the services are provided to and products are sold to customers who are spread over a vast spectrum. Credit risk is managed through credit approvals, establishing credit limits and continuously monitoring the credit worthiness of the customers to which the Company grants credit terms in the normal course of the business.

 

Cash and cash equivalents and other investments

In the area of treasury operations, the Group is presently exposed to counter-party risks relating to short term and medium term deposits placed with public-sector banks, and also to investments made in mutual funds.

 

Guarantees

The Group’s policy is to provide financial guarantees only to subsidiaries.

 

The Chief Financial Officer is responsible for monitoring the counterparty credit risk, and has been vested with the authority to seek Board’s approval to hedge such risks in case of need.

 

Liquidity risks: Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Group’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation. Typically the Group ensures that it has sufficient cash on demand to meet expected operational expenses, servicing of financial obligations. In addition, the Group has concluded arrangements with well reputed Banks, and has unused lines of credit that could be drawn upon should there be a need. The Company is also in the process of negotiating additional facilities with Banks for funding its requirements.

 

Market risk: Market risk is the risk of loss of future earnings or fair values or future cash flows that may result from a change in the price of a financial instrument. The value of a financial instrument may change as a result of changes in the interest rates, foreign exchange rates and other market changes that affect market risk sensitive instruments. Market risk is attributable to all market risk sensitive financial instruments including foreign currency receivables and payables. The Group is exposed to market risk primarily related to foreign exchange rate risk (currency risk), interest rate risk and the market value of its investments. Thus the Group’s exposure to market risk is a function of investing and borrowing activities and revenue generating and operating activities in foreign currencies.

 

Currency risk: The Group’s exposure in USD, Euro and other foreign currency denominated transactions gives rise to Exchange Rate fluctuation risk. Group’s policy in this regard incorporates:

 

·Forecasting inflows and outflows denominated in US$ for a twelve-month period
·Estimating the net-exposure in foreign currency, in terms of timing and amount
·Determining the extent to which exposure should be protected through one or more risk-mitigating instruments to maintain the permissible limits of uncovered exposures.
·Carrying out a variance analysis between estimate and actual on an ongoing basis, and taking stop-loss action when the adverse movements breaches the 5% barrier of deviation, subject to review by Audit Committee.

 

21.Issue of shares on a private placement basis to the existing promoter group

 

On August 4, 2010, the Board of Directors of the company approved the issuance, in a private placement, of upto an aggregate of 125,000,000 of the company’s equity shares, par value Rs.10 per share (“Equity shares”) at a discount compared to market value of, for an aggregate purchase price of ₹ 4,000,000, to a group of investors affiliated with the company’s promoter group, including entities affiliated with Mr Raju Vegesna, the company’s Chief Executive Officer and Managing Director and Mr Ananda Raju Vegesna, Executive Director and brother of Mr Raju Vegesna (the “Offering”). The company’s shareholders approved the terms of the Offering at the Company’s Annual General Meeting held on September 27, 2010.

 

On October 22 2010, the company entered into a Subscription Agreement with Mr Ananda Raju Vegesna, acting as representative (the “Representative”) of the purchasers in connection with the Offering. In pursuance of the Agreement, the company issued and allotted 125,000,000 equity shares to M/s Raju Vegesna Infotech and Industries Private Limited (“RVIIPL”), a promoter group company. In accordance with Indian law, the purchase price is to be paid at such time as determined by Board of Directors of the company.

 

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On August 14, 2011, the company received a letter from RVIIPL expressing its intention to transfer the above partly paid shares to its wholly owned subsidiary M/s Ramanand Core Investment Company Private limited (“RCICPL”). The company, on August 26, 2011, registered such transfer of partly paid shares in the name of RCICPL.

 

On September 7, 2011, the parties entered into an amendment to the Subscription Agreement (the “Amendment”) extending the validity of the agreement period to September 26, 2013. This Amendment provides the Board of Directors of the Company with additional time to call upon the purchasers to pay the balance money, in accordance with the terms of the Subscription Agreement.

 

As at September 30, 2018, these shares were partly paid to the extent of ₹ 7.75 per share. Until the full purchase price is paid by the purchasers, the company retains a lien on the equity shares purchased in connection with the Offering. As at September 30, 2018, entities affiliated with our CEO, Chairman and Managing Director, Raju Vegesna, beneficially owned approximately 86.10% of our outstanding equity shares, which includes the 125,000,000 shares (partly paid with proportionate voting rights) issued in connection with the above Offering.

 

22.Subsequent events

 

Call money on shares issued to the existing promoter group

 

Out of the uncalled share capital of ₹ 900,000, the Board of Directors has made a call amounting to ₹ 300,000 at their meeting held on October 22, 2018 and the said amount will be received by the Company by November 2018. The balance of the proceeds from the allotment of the equity shares to our existing promoter group, of ₹ 600,000, will take place in tranches as per the amended subscription agreement.

 

23.Group entities

 

The following are the entities that comprise the Group as at September 30, 2018 and March 31, 2018:

 

Particulars 

Country

of incorporation

  % of Ownership interest 
Significant subsidiaries     September 30, 2018   March 31, 2018 
Sify Technologies (Singapore) Pte. Ltd  Singapore   100    100 
Sify Technologies North America Corporation  USA   100    100 
Sify Data and Managed Services Limited  India   100    100 
Sify Infinit Spaces Limited  India   100    100 

 

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Item 2. Information on the Company

 

Sify Business Model

 

Drawing from the Company’s vision statement, we endeavour to provide the entire eco-system of ICT services. In doing so, we have to accede to the demands of both the traditional Telecom and IT services markets.

 

The first few years of growth of the IT and Telecom industries were driven primarily in garnering maximum market share and an enviable roster of blue chip clients. With changing dynamics and demands of the market, the two industries have to find a middle ground to retain and expand the market. It was the time of convergence and the perfect fertile ground for our services.

 

Until 2012, our primary strategy was to invest in infrastructure and being ready before the market cycle demanded our services. Once we attained critical mass, we shifted focus to packaging our products and practices as tangible offerings to the market.

 

In Sify 3.0, we have restructured our business segments into 5 distinct lines of business namely:

 

a)Telecom services

 

Having invested heavily in building among India’s best last mile network services, it was time to scale the utilization through cross alignment with traditional telecom players who were looking to expand our markets to Tier II and Tier III cities and towns and also to IT players who wished to leverage the cost benefits of relocating to Tier II towns.

 

We do this by leveraging our state-of-the art last mile wireless connectivity and the dense spread of network. Enterprise customers who seek to utilise the network have the choice of being connected to the Data Center, of their choice or any one of our Data Centers. Today, this multi-mode, multi-mesh network connects 45 of India’s Data Centers; a fact that endorses the quality of our offering and our network presence

 

Our network, reaches over 1,600 cities and towns with more than 3000 Points of Presence and 100,000 links, thus making us the largest MPLS network in India.

 

b)Data Center services

 

Right from our first Data Center at Vashi, Mumbai in 2000, we have invested in the top of the line technologies across all our networks with every new data center taking the game forward. The Sify SDA (Sify Data Center Architecture) 4.0 is an IP that has found acceptance in the several Data Centers that we have built for our customers.

 

These DCs also offer a multitude of Value Added services over the traditional notion of basic collocation and Opex driven storage solutions. With approximately 0.2 million square feet coverage today including the new Data Centers, we are among the largest to offer Data Center space in the market

 

c)Cloud and Managed services

 

The last few years saw the emergence of Cloud or virtual storage as a tangible product offering. Several emerging enterprises saw the benefits of buying-space-as-you-go as against investing in Capex loaded infrastructure. The advent of this business was the quality of high class networks and promise to remotely store your data immaterial of where it was connected from and plugging into it when the enterprises chose to. This eliminated the need for cumbersome server monitoring and the associated cost of ownership.

 

In order to offer the best-of-breed services, we chose to tie up with the leaders in the business like Hp and VMware. Our hosting services are also SAP Gold certified giving the much needed SLAs (Service Level Agreements) to our customers about the level of our offerings.

 

d)Technology Integration services

 

The nearly two decades spent maturing into India’s premier ICT player has led to building an enviable knowledge bank of integrating, monitoring, maintaining and upgrading every facet of service as demanded by a quickly converging market.

 

Sify offers turnkey solutions to clients who are new to both technology and technology refreshes. We do this by leveraging our homegrown expertise in design, implementation and maintenance to deliver end-to-end managed IT services across datacenter, network and security.

 

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As described, this business takes the knowledge developed from building Network architecture, Unified Communication and Unified Access, Collaborative tools, Data Center build, Virtualization, LAN and WAN Architecture and End Point Security and offers them as a complete solution package to customers.

 

This business is also responsible for Sify bringing in some of the biggest deals of the year, for grounds-up technology refresh for some of India’s biggest private and Government clients.

 

e) Applications Integration services

 

As with every industry major who chose to offer IT and Managed services, Applications were also demanded by several of our clients. While we chose not to be a core Software player, we do enable the integration of multiple technologies and platforms and the cross breeding of existing ones.

 

This way, the clients can slowly transition the maturity cycle with their existing application before switching over to newer ones. That said on our services, some of our home grown applications, like Forum and iTest have found favour with a large number of our clientele.

 

We are looking to strengthen our bouquet of offerings in the years to come.

 

Strategy

 

Our vision statement is explicit on our strategy.

 

We are building a world in which our converged ICT eco-system and our bring-it-on attitude will be the competitive advantage to our customers.

 

To build a converged ICT eco-system calls for a multidisciplinary approach. While maintaining the tempo of investment in infrastructure, we will, in parallel, strengthen our current offerings of services. The description below provides an explanation on this approach.

 

·         Cover more of the country with our network, increase the bandwidth support and drive more customer usage. Our network is based on Internet Protocol, or IP, and we are the first Indian service provider to have made our network Multi-Protocol Label Switching (MPLS) compliant. We are also the first IPv6 ready network having laid it down as early as 2000. In the fiscal year 2013-14, we implemented the proprietary CloudCover to connect Data Centers across India with a multi-mode, multi-mesh network. This builds redundancy at multiple levels across the network. This network connects 45 of India’s Data Centers including 6 of our own. To ensure undisrupted high quality service and to achieve cost efficiencies, we have invested in a under sea cable consortium. The capacity went live during the Q1 of 2012-13. We have also leased intercity links from multiple suppliers including BSNL, Bharti, TATA, Railtel and Power Grid Corporation, such that each one of our nodes is accessible from at least two other nodes, if not by two long distance operators. We believe that as the size and capacity of our network infrastructure grows, its structure and national coverage will create economies of scale. Being vendor neutral, we are able to procure bandwidth in a cost effective manner.

 

·         Increase penetration in our existing markets by expanding awareness of the “Sify” brand name to capitalize on our first mover advantage in India. Over time, Sify as a brand has expanded its offerings from the retail broadband segment to the enterprise buyer in India. But as with every brand’s birth, our first offerings gave us the identity as India’s most aggressive internet player. We built on those strengths and with time, have built a complete ecosystem of enterprise offerings.

 

•         Create pull with newer more efficient technology and hence draw more customers into the Sify fold. In order to transition to being an enterprise player, we began by expanding our bouquet of services in line with market demand. A nascent retail broadband gave rise to data storage and hence our first Data Center was born; at Vashi Mumbai in 2000. As a brand, we have consciously aligned with the best-of-breed technology and benchmarks. Hence, right from our first Data Center, all our subsequent ones were also concurrently maintainable. Our managed services bouquet has been a mix of home grown applications and offerings through tie ups with industry leaders like Hp, VMware, Akamai, SAP etc.

 

         Expand the bouquet of services and cater to an audience that does not mind paying a premium and hence realise better margins. As competition heats up in the IT and Telecom sector, there will be a squeeze on our margins for the traditional offerings. Hence it is imperative to create a segment of premium paying customers who see value in the differential on their services. We will also continuously expand our service offerings and expand into a broader geographical domain. We actively spread to Tier II and III cities much before we had customers there. This helped us to demonstrate a robust working model of our services in geographically challenged places as and when the demand arose.

 

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·         Expand our customer distribution channels through strategic alliances to take advantage of the sales and marketing capabilities of our strategic partners. Each of our business delivers a certain level of legitimacy when aligned with the industry leaders. Most MNCs see this as a comfort factor and a reassurance of global standards that they have enjoyed. So, whether it is Telecom business aligning with international carriers, our DC business being concurrently maintainable and assured by the best of the global standards, our Managed services having tied up with leaders like HP, VMware, SAP, Hitachi etc. or Applications Integration services or our content delivery assurance with Akamai under our technology integration services ambit, the assurance is the same; global standards, local deliverance. On the delivery front, this doubles our marketing strength while allowing for a cross selling of products and services to both the partner’s audiences.

 

·         Pursue selective strategic investments, alliances and acquisitions to expand our customer base, increase utilization of our network and add new technologies to our service mix. India's financial nerve center, Mumbai has long been a focus of our expansion plans given the concentration of enterprise players. That, along with a stable administration and power supply, well developed suburbs, and a native market was responsible for us launching our 6th DC at Rabale, near Navi Mumbai. All along, we have invested ahead of the demand curve across all our services. That said, the focus has also been to add value by partnering with the best of breed technology companies. Towards that, our hosting services are now SAP certified giving us the incentive/fillip to pitch it to discerning enterprise customers. Content delivery for enterprise customers was underlined with our partnership with the world leaders, Akamai. We will continue to pursue opportunities to grow both organically and inorganically, in our endeavor to spread into newer geographies.

 

·         Expand into international markets for providing managed network services. We are now at a crucial phase in our growth. Over the years, we have built a substantial knowledge house of services and they are ready to be delivered to clients beyond India’s borders. We are actively pursuing an agenda of tying up with international IT majors and taking these strengths to customer worldwide, starting with North America. Our in-house IP services like eLearning are already being offered to multiple geographies in the US and Europe.

 

Service Offerings

 

Telecom Service . These primarily consist of network service which addresses the domestic connectivity needs of Indian enterprises and international inward and outward connectivity needs of international enterprises. We do this by leveraging our national Tier 1 IPv6 network infrastructure. The services include a comprehensive range of Internet protocol based Virtual Private Network, offerings, including intranets, extranets and remote access applications to both small and large corporate customers. There is a strong focus on industry verticals such as IT/ITES (IT enabled services), banking and financial services industry (BFSI), Government, manufacturing, pharmaceutical and FMCG. We were one of the first service providers in India to provide MPLS-enabled IPVPN’s on our entire network. We have entered into a strategic partnership with leading Telcos for providing last mile connectivity to customers. Our entire network is MPLS enabled with built in redundancy with world class design and service standards. We have built a stack of managed services for our network customers, like managed WLAN, managed DDoS and security solutions. We have built a carrier neutral internet exchange in India in partnership with Amsterdam Internet Exchange.

 

Our cable landing station and our investment in a submarine cable consortium are our other assets that we extend to our International partners for their international inward and outward connectivity needs. Our cable landing station currently lands 2 major submarine cables; namely Gulf Bridge International (GBI) and the Middle Eastern and North African cable (MENA).

 

Our connectivity clients can pick from a range of services; namely the following.

 

  · SecureConnect  (TM)  is our comprehensive offering of secure, reliable and scalable IPVPN solutions that meet both mission- critical data networking and converged voice, video and data connectivity needs. It offers a variety of intranet and extranet configurations for connecting offices, remote sites, traveling employees and business partners, whether in India or abroad. Our platform of services includes:

 

  · SiteConnect  (TM)  which offers site-to-site managed MPLS-enabled IPVPN solutions for securely connecting regional and large branch offices within India to the corporate Intranet.

 

  · GlobalSite Connect (TM) , an international site-to-site managed MPLS-enabled IPVPN solution, is used for securely connecting international branch offices to the corporate offices. It provides connectivity anywhere in the world through Sify’s alliances and partnerships with global overseas service providers such as Level 3, KDDI, and PCCW Global to name a few.

 

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  · ExpressConnect (TM) , which offers a premium range of high-performance Internet bandwidth solutions for connecting regional offices, branch offices and remote locations to the corporate network. These solutions complement our SiteConnect range of MPLS enabled IPVPN solutions, provide high-speed bandwidth in those situations where basic connectivity and cost are the top concerns.

 

  · RoamConnect (TM)  is our national and international remote access VPN, which is used for securely connecting employees, while they are traveling, to the corporate intranet. Roam Connect features “single number access” to SifyNet from anywhere in the country and provides access from anywhere in the world through Sify’s alliances with overseas service providers.

 

  · PartnerConnect (TM)  is our remote access VPN offering, for providing secure and restricted dial-up access to business partners such as dealers, distributors and suppliers to the corporate extranet.

 

·CleanConnect(TM)  which provides managed and secured internet connectivity to customers.

 

  ·

Managed DDoS which offers protection from DDoS attack to corporate customers. 

     
  · Managed WLAN provides managed Wi-Fi solutions offering connect devices to the network of the customer and the internet at customer locations.

 

Data Center services . We operate 6 Data Centers of which three are located in Mumbai (Bombay), one each at Noida (Uttar Pradesh), Chennai (Madras) and Bengaluru, which are designed to act as reliable, secure and scalable facilities to host mission-critical applications. We offer co-location services which allow customers to bring in their own rack-mountable servers and house them in shared racks or hire complete racks, and even rent ‘secure cages’ at the hosting facility as per their application requirements. We also offer a wide variety of managed hosting services, such as storage, back-up and restoration, performance monitoring and reporting hardware and software procurement and configuration and network configuration.

 

Cloud and managed services.  Our on-demand hosting (cloud) services offers end-customers with the best in class solutions to enterprises. We have joined the global program of two world majors and offer their suite of on-demand cloud services giving them the option to “rent” software licenses on a monthly “pay as you go” basis. This model is aimed at helping Indian companies, both large and small, to safely tap computing capacity inside and outside their firewalls to help ensure quality of service for any application they want to run..

 

Our remote and onsite infrastructure Management services provides continuous proactive management and support of customer operating systems, applications and database layers through deploying specialized monitoring tools and infrastructure experts to ensure that our customers’ infrastructure is performing optimally.

 

Our innovative SLA driven utility-based On-Demand storage service manages the complete lifecycle of enterprise information, from its inception to its final disposal. The fully managed, utility based, On-Demand, scalable storage platform is powered by global major in Data Systems. Sify's On-Demand storage service reduces the complexities of deploying and managing multiple storage tiers, and lowers operational costs by automating management with flexible need based pricing.

 

Technology Integration services:   Our myriad mix of solutions gives us the scope to band and extend any or all of these services in multiple formats and scales for client who wish to rest their entire infrastructure with us. Clients get the benefit of our accumulated knowledge base and technical expertise across all points of the ICT spectrum. In terms of cost, these translate into better cost efficiencies. In terms of monitoring, the client interacts with a singular service provider saving them both implementation and documentation efforts.

 

Our suite of conferencing tools consist of audio and video solutions; most differentiating among being that the video solution in partnership with a world leader, does not require a room conferencing solution thereby arming the modern enterprise with real time data straight from the markets.

 

Applications Integration services: Our range of web-applications include sales force automation, supply chain management, intranet and extranets, workflow engine and knowledge management systems.

 

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Our Applications Integration services operates two of India’s biggest online portals, www.sify.com and www.samachar.com, that function as principal entry points and gateway for accessing the Internet by providing useful web-related services and links. We also offer related content sites specifically tailored to Indian interests worldwide.

 

Sify.com provides a gateway to the Internet by offering communication and search tools such as email, chat, travel, online portfolio management and channels for personal finance, astrology, lifestyle, shopping, movies, sports and news.

 

  ·

The finance channel of Sify  http://sify.com/finance/  covers the entire spectrum of equity markets, business news, insurance, mutual funds, loans, SME news and a host of paid and free financial services.

 

  · The sports channel  http://sify.com/sports/  covers the entire gamut of Indian and international sports with special focus on cricket.

 

  · The food channel  www.bawarchi.com focuses on Indian recipes and cooking and is especially popular among non-resident Indians (NRIs) audiences with over 90% of its content being user generated

 

  · Our NRI news portal,  www.samachar.com   focuses on Indian news and allows NRIs to stay connected to India by aggregating news from across all popular newspapers and other news portals. This portal provides a range of news in English and five Indian languages. Apart from Samachar we have another India targeted news channel  http://sify.com/news which offers national and international general, political and offbeat news.

 

  · Movies channel on Sify  http://sify.com/movies  is one of the key channels which offer updates from Bollywood/ Hollywood and all regional film industries. The content includes movie reviews, industry news, video galleries, photo galleries, downloads (photos) etc.

 

  · Games channel of Sify  http://games.sify.com offers multiple scoring and non scoring games. Games include cricketing games, racing games, football specific games.

 

We offer value-added services to organizations such as website design, development, content management, Online assessment tools, search engine optimization, including domain name management, secure socket layer (SSL) certificate for websites, digital certification services and server space in required operating system and database. We provide state of the art messaging and collaboration services and solutions such as e-mail servers, LAN mail solutions, anti-spam appliances, bulk mail services, instant messaging, and also offer solutions and services to enable data & access security over the Internet. We also provide infrastructure-based services on demand, including on-line testing engine and network management. On-line testing services include test management software, required servers and proctored examination facilities at Sify’s franchisee points. On-line exam engine offered allows a secure and flexible way of conducting examinations involving a wide range of question patterns.

 

Corporate Customers

 

Our base of corporate customers spread across information technology enabled services (ITES), banking financial services and Insurance (BFSI), publishing, retail, pharmaceuticals and manufacturing. The reorganisation of our business has helped us expand our customer base to over 8,500 customers to date. This is not inclusive of customers who have brought piece-meal services from us. A good number of these customers have matured from our initial set of offerings like Network and Data center services. With the launch of our cable landing station, we are able to cater to international carriers as well as domestic voice and data players. Our alliance with world leaders across our other services is giving us the opportunity to extend our services to customers of our alliance partners.

 

The Company does not currently anticipate that it will serve markets in, or have any contacts with, Sudan, Iran or Syria, or any other countries which are designated as state sponsors of terrorism by the U.S. Department of State. As of the date of this Report, the Company has not provided into Iran, Sudan, or Syria, or any other countries which are designated as state sponsors of terrorism by the U.S. Department of State directly or indirectly, any products, equipment, software, technology, information or support, and has no agreements, arrangements, or other contacts with the governments of those countries or entities they control.

 

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Customer Service and Technical Support

 

The implementation of the single UAN for all enterprise customers across India has centralised all customer enquiries to one point, thus enabling us to pour resources and efforts into a single minded endeavour. We support both telephonic and email interactions from our clients and support for enterprise services is 24x7.

 

Sales and Marketing

 

From a business standpoint, we have 5 different lines of business. But on the sales front, the entire team is trained to upsell and cross sell across the entire bandwidth of services. We believe this is essential and imperative given the space for bundling of our services. The 471 person sales team caters to the demand of enterprises and the growing SMB market.

 

Technology and Network Infrastructure

 

Geographic coverage: Our network today reaches more than 1,600 towns and cities and between them have more than 100,000 links. This network is completely owned giving us complete control on the technology, traffic and speed over them. These points of presence, or primary nodes, reside at the core of a larger Internet protocol network with a star and meshed topology architecture thereby building in redundancy at every point and translating into minimum or no downtime for customers.

Today we offer the following services to our enterprise and consumer customers using our network.

 

·Internet access services,
·IP/ MPLS virtual private networks,
·Internet based voice services

 

Each point of presence contains data communications equipment housed in a secure facility owned, leased or operated on an infrastructure co-location basis by our Company. The last mile connecting to the customer can be a leased line, ISDN or point-to-multipoint radio link which we have licensed from the Wireless Planning Commission. We also use certain frequency radios, which do not require an operating license, in some locations. Our larger corporate customers access the point of presence directly through leased lines or wireless links.

 

Network Architecture : We ensure network reliability through several methods and have invested in proven technologies. We use routers to route traffic between nodes interconnected using a high speed interface. Most of our applications and network verification servers are manufactured by IBM, Sun and Hewlett-Packard.

 

The primary nodes on the backbone network are connected by multiple high-speed fiber optic lines that we lease from long distance operators. The secondary nodes are connected by lower speed leased lines. A number of nodes are accessible from at least two other nodes, if not, by two long distance operators, allowing us to reroute traffic in the event of failure on one route. We reduce our exposure to failures on the local loop by usually locating our points of presence within range of service providers switching equipment and purchasing connectivity from multiple providers. To further maximize our network uptime, we are almost completely connected on fiber optic cables to the switching points of our service providers from our POPs.

 

In addition to a fundamental emphasis on reliability and security, our network design philosophy has focused on compatibility, interoperability, scalability and quality of service. We use Internet protocol with Multi Protocol Label Switching, or MPLS, to transmit data, thus ensuring that our network is completely interoperable with other networks and systems and that we may port any application onto our network. The modular design of our network is fully scalable, allowing us to expand without changing the network design or architecture.

 

Network Operations Center: We maintain a network operation center located in Chennai (Madras) and a backup facility in Mumbai (Bombay). The Chennai facility houses our central network servers as well as our network staff who monitors network traffic, service quality and equipment at all our points of presence to ensure a reliable Internet service. These operation centers are staffed 24-hours-a-day, seven-days-a-week. We have backup power generators and software and hardware systems designed to prevent network downtime in the event of system failures. In the future, we may add additional facilities to supplement or add redundancy to our current network monitoring capability.

 

Data Center Infrastructure. We operate six Internet Data Centers, three in Mumbai, one each at Chennai and Bangalore and the latest one at Noida near Delhi. We offer managed hosting, security and infrastructure management services from these facilities. These data centers are completely integrated with our IP / MPLS network which provides seamless connectivity for our customers from their premise to their applications hosted in the Data Centers. The Data Centers conform to the concurrently maintainable standards to cater to the security consideration of our customer servers. We intend to invest in additional Data Centers, and are currently building a world class data center at Hyderabad.

 

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Competition

 

Given our wide spread of services, our competition is also long and varied. As the markets in India for corporate network/data services, Internet access services and online content develop and expand, we will continue to see the entry of newer competitors and those with deeper pockets.

 

Individually, we will see competition intensify from established players like Reliance, TATA Communications and Bharti for telecom services, Ctrl S, Reliance and Net Magic for Data Centers, proprietary leaders like IBM and localized players like Ramco for Cloud services, traditional software majors like Infosys, HP, Wipro and TCS for Applications Integration services and large entities like Reliance and TCS for our Technology Integration services.

 

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Item 3. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

The following discussion of the financial condition and results of operations of our Company should be read in conjunction with the Unaudited Condensed Consolidated Interim Financial Statements and the related condensed notes included elsewhere in this report and the audited financial statements and the related notes contained in our Annual Report on Form 20-F for the fiscal year ended March 31, 2018. This discussion contains forward-looking statements that involve risks and uncertainties. For additional information regarding these risks and uncertainties, please see the section in our Annual report captioned “Risk Factors.”

 

Overview

 

Sify is among the largest integrated ICT solutions and services companies in India, offering end-to-end solutions with a comprehensive range of products delivered over a common data network infrastructure reaching more than 1600 cities and towns in India. This telecom network today connects 45 client Data Centers across India, including Sify’s own 6 Data Centers across the cities of Chennai, Mumbai, Delhi and Bengaluru.

 

Sify is ISO 9001:2008 certified for enterprise sales, provisioning, support and customer relationship management of ICT solutions and services including VPN, network, voice, Data Center hosting, integration services, security services and managed services. Sify has been certified in SSAE16 - SOC2 Type II for Cloud Infrastructure. Sify has licenses to operate NLD (National Long Distance) and ILD (International Long Distance) services and offers VoIP backhaul for international carriers. With the Sify cable landing station and partnerships with submarine cable companies globally, Sify is present in almost all the spheres of the ICT eco system.

 

The company has an expanding base of managed services customers, both in India and overseas, and is India’s first enterprise managed services provider to launch a Security Operations Center (SOC) to deliver managed security services. Sify develops applications and offers services to improve business efficiencies of its current and prospective client bases. Sify also offers services in the specialized domains of eLearning, both in India and globally. The business also operates two of the most popular Internet portals in India, Sify.com and Samachar.com.

 

a)Telecom services

 

These primarily consist of network service which addresses the domestic connectivity needs of Indian enterprises and international inward and outward connectivity needs of international enterprises. We do this by leveraging our national Tier 1 IPv6 network infrastructure. The services include a comprehensive range of Internet protocol based Virtual Private Network, offerings, including intranets, extranets and remote access applications to both small and large corporate customers. There is a strong focus on industry verticals such as IT/ITES (IT enabled services), banking and financial services industry (BFSI), Government, manufacturing, pharmaceutical and FMCG. We were one of the first service providers in India to provide MPLS-enabled IPVPN’s on our entire network. We have entered into a strategic partnership with leading Telcos for providing last mile connectivity to customers. Our entire network is MPLS enabled with built in redundancy with world class design and service standards. We have built a stack of managed services for our network customers, like managed WLAN, managed DDoS and security solutions. We have built a carrier neutral internet exchange in India in partnership with Amsterdam Internet Exchange.

 

Our cable landing station and our investment in submarine cable consortium are our other assets that we extend to our International partners for their international inward and outward connectivity needs. Our cable landing station currently lands 2 major submarine cables; namely Gulf Bridge International (GBI) and the Middle Eastern and North African cable (MENA).

 

b)Data Center services

 

We operate 6 Data Centers of which three are located in Mumbai (Bombay) and one each at Noida (UP), Chennai (Madras) and Bengaluru, which are designed to act as reliable, secure and scalable facilities to host mission-critical applications. We offer co-location services which allow customers to bring in their own rack-mountable servers and house them in shared racks or hire complete racks, and even rent ‘secure cages’ at the hosting facility as per their application requirements. We also offer a wide variety of managed hosting services, such as storage, back-up and restoration, performance monitoring and reporting hardware and software procurement and configuration and network configuration.

  

c)Cloud and managed services

 

Our on-demand hosting (cloud) services offers end-customers with the best in class solutions to enterprises. We have joined the global program of two world majors and offer their suite of on-demand cloud services giving them the option to “rent” software licenses on a monthly “pay as you go” basis. This model is aimed at helping Indian companies, both large and small, to safely tap computing capacity inside and outside their firewalls to help ensure quality of service for any application they want to run.

 

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Our remote and onsite infrastructure managed services provides continuous proactive management and support of customer operating systems, applications and database layers through deploying specialized monitoring tools and infrastructure experts to ensure that our customers’ infrastructure is performing optimally.

 

Our innovative SLA driven utility-based On-Demand storage service manages the complete lifecycle of enterprise information, from its inception to its final disposal. The fully managed, utility based, On-Demand, scalable storage platform is powered by global major in Data Systems. Sify's On-Demand storage service reduces the complexities of deploying and managing multiple storage tiers, and lowers operational costs by automating management with flexible need based pricing.

 

d)Technology Integration services

 

Our mix of solutions give us the scope to band and extend any or all of these services in multiple formats and scales for client who wish to rest their entire infrastructure with us. Clients get the benefit of our accumulated knowledge base and technical expertise across all points of the ICT spectrum. In terms of cost, these translate into better cost efficiencies. In terms of monitoring, the client need to interact with a singular service provider saving them both implementation and documentation efforts.

 

e)Applications Integration services

 

Our range of web-applications includes sales force automation, supply chain management, intranet and extranets, workflow engine and knowledge management systems and from practices of Industry standard applications like SAP, Oracle and Microsoft.

 

Our applications integration services operates two of India’s biggest online portals,  www.sify.com and www.samachar.com, that function as principal entry points and gateway for accessing the Internet by providing useful web-related services and links. We also offer related content sites specifically tailored to Indian interests worldwide and launched the services on mobile applications.

 

Sify.com provides a gateway to the Internet by offering communication and search tools such as email, chat, travel, online portfolio management and channels for personal finance, astrology, lifestyle, shopping, movies, sports and news.

 

We offer value-added services to organizations such as website design, development, content management, Online assessment tools, search engine optimization, including domain name management, secure socket layer (SSL) certificate for websites, and server space in required operating system and database. We provide state of the art messaging and collaboration services and solutions such as e-mail servers, LAN mail solutions, anti-spam appliances, bulk mail services, instant messaging, and also offer solutions and services to enable data and access security over the Internet. We also provide infrastructure-based services on demand, including on-line testing engine and network management, Digital certification services, On-line testing services include test management software, required servers and proctored examination facilities at Sify’s franchisee points. On-line exam engine offered allows a secure and flexible way of conducting examinations involving a wide range of question patterns.

 

Revenue

 

Telecom services  

 

These primarily include revenue from connectivity services, NLD/ILD services and to a lesser extent, revenues from the installation of the connectivity link. In certain cases, these elements are sold as a package consisting of all or some of the elements. We sell hardware and software purchased from third party vendors to our high value corporate clients. Our connectivity services include IPVPN services, Internet connectivity and last mile connectivity (predominantly through wireless). We provide these services for a fixed period of time at a fixed rate regardless of usage, with the rate for the services determined based on the type of service and capacity provided, scope of the engagement and the Service Level Agreement, or SLA. We provide NLD (National Long Distance) and ILD (International Long Distance) services and carry voice traffic for Inter-connect Operators. Revenue is recognized based upon metered call units of voice traffic terminated on our network. The Company offers retail voice services in partnership with Skype Communications, S.a.r.l. This service comprises sale of voice credits and subscriptions.

 

Data Center services

 

Revenue from Data Center services include revenue from co-location of space, racks, caged racks and on usage of power from large contracts. The contracts are mainly fixed rate for a period of time based on the space or the racks used and usage revenue is based on consumption of power on large contracts.

 

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Cloud and managed services

 

Revenue from Cloud and managed services are primarily from Cloud and on demand storage, domestic managed services and international managed services. Contracts from Cloud and on demand storage are primarily fixed and for a period of time. Revenues from domestic and international managed services are comprised of value added services, operations and maintenance of projects and from remote infrastructure management. Contracts from this segment are fixed and could also be based on Time and Material (T&M).

 

Technology integration services (TIS)

 

Revenue from TIS are comprised of DC build services, network integration and security services. Contracts under TIS are based on completion of projects and could also be based on T&M.

 

Applications integration services

 

Revenue from applications integration services are comprised of Online Assessment, Web development, supply chain solutions, content management, digital certification services and from practices on industry standard applications like SAP, Oracle and Mircrosoft. Contracts are primarily fixed in nature for a period of time and also could be based on T&M.

 

Expenses

 

Cost of goods sold and services rendered

 

Telecom services

 

Cost of goods sold and services rendered for the corporate network/data services division consists of telecommunications costs necessary to provide services and cost of goods in respect of communication hardware and security services sold, commission paid to franchisees and cable television operators, the cost of voice termination for voice and VoIP services and other direct costs. Telecommunications costs include the costs of international bandwidth procured from TELCOs and are required for access to the Internet, providing leased lines to our points of presence, the costs of using third-party networks pursuant to service agreements, leased line costs and costs towards spectrum fees payable to the Wireless Planning Commission or WPC for provision of spectrum to enable connectivity to be provided on the wireless mode for the last mile. Other costs include cost incurred towards our Annual Maintenance Contract (AMC) and the cost of installation in connectivity business. In addition, the Government of India levies an annual license fee of 8% of the adjusted gross revenue generated from IP-VPN services and voice services under the Unified license.

 

Data Center services

 

Cost of goods sold and services rendered for the Data Center services consists of cost of electrical power consumed, cost of rental servers offered to customers and cost of licences used to provide services.

 

Cloud and managed services

 

Cost of goods sold and services rendered for the Cloud and managed services consists of cost of licences in providing services, cost of billable resources in case of international managed services, third party professionals engaged in providing services, associate costs of the delivery teams and cost of operations of DC build BOT projects.

 

Technology integration services

 

Cost of goods sold and services rendered consists of cost of hardware and software supplied for DC build projects, cost of security hardware and software supplied and cost of hardware and software procured for System integration projects .

 

Applications integration services

 

Cost of goods sold and services rendered consists of professionals charges payable to domain specialists and subject matter experts, cost of billable associates of e-learning business, cost of digital certificates and platform usage, cost of operating in third party facility for online assessment including invigilator costs and cost of procuring and managing content for the websites and other direct costs for the revenue streams.

 

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Selling, general and administrative expenses

 

Selling, general and administrative expenses consists of salaries and commissions for sales and marketing personnel, salaries and related costs for executive, financial and administrative personnel, sales, marketing, advertising and other brand building costs, travel costs, and occupancy and overhead costs.

 

Depreciation and amortization

 

We depreciate our tangible assets on a straight-line basis over the useful life of assets, ranging from three to eight years and, in the case of buildings, 28 years. Undersea cable capacity is amortised over a period of 12 years and other intangible assets with finite lives are amortised over three to five years.

 

Impairment

 

The carrying amounts of the Group’s non-financial assets, other than inventories and deferred tax assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. For goodwill, the recoverable amount is estimated each year at December 31.

 

The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or group of assets (the “cash-generating unit”). The goodwill acquired in a business combination, for the purpose of impairment testing, is allocated to cash-generating units that are expected to benefit from the synergies of the combination. Corporate assets for the purpose of impairment testing are allocated to the cash generating units on a reasonable and consistent basis.

 

An impairment loss is recognized if the carrying amount of an asset or its cash-generating unit exceeds its estimated recoverable amount. Impairment losses are recognized in profit or loss. Impairment losses recognized in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the units and then to reduce the carrying amount of the other assets in the unit or group of units on a pro rata basis.

 

Inventories

 

Inventories comprising traded hardware and software are measured at the lower of cost (determined using first-in first-out principle) and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses.

 

Deferred tax

 

Deferred tax is recognized using the balance sheet method, providing for temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognized for the following temporary differences: the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss, and differences relating to investments in subsidiaries and associates to the extent that it is probable that they will not reverse in the foreseeable future. In addition, deferred tax is not recognized for taxable temporary differences arising on the initial recognition of goodwill, as the same is not deductible for tax purposes. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realized simultaneously. Deferred Tax assets in respect of deductible temporary differences are recognised only to the extent of deferred tax liabilities on taxable temporary differences. MAT credit entitlement has been recognised as a deferred Tax asset.

 

Deferred tax arising on investments in subsidiaries and associates is recognized except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred taxation arising on the temporary differences arising out of undistributed earnings of the equity method accounted investee is recorded based on the management's intention. If the intention is to realize the undistributed earnings through sale, deferred tax is measured at the capital gains tax rates that are expected to be applied to temporary differences when they reverse. However, when the intention is to realize the undistributed earnings through dividend, the Group’s share of the income and expenses of the equity method accounted investee is recorded in the statement of income, after considering any taxes on dividend payable by the equity method accounted investee and no deferred tax is set up in the Group's books as the tax liability is not with the group.

 

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Results of Operations

 

The following table sets forth certain financial information as a percentage of revenues:

 

   Quarter ended
September
   Half year ended
September
 
   2018   2017   2018   2017 
   %   %   %   % 
Revenues   100    100    100    100 
Cost of goods sold and services rendered   63    63    62    63 
Other income/(expense)   1    2    1    1 
Selling, general and administrative expenses   24    22    24    22 
Depreciation and amortization expenses   7    11    8    10 
Profit from operating activities   8    6    7    6 
Finance income   0    1    0    1 
Finance expenses   3    2    3    2 
Net finance income/(expense)   (3)   (1)   (3)   (2)
Net profit for the year   5    4    4    4 

 

Results of quarter ended September 30, 2018 compared to quarter ended September 30, 2017

 

The growth in our revenues in fiscal 2018 from fiscal 2017 is given below:

 

           (Rupees in million)
   Quarter ended
September 30,
2018
   Quarter ended
September 30,
2017
   Change   % Change 
Revenues   5,509    4,840    669    14%

 

We have achieved a revenue of ₹ 5,509 Million ($76 Million), an increase of ₹ 669 Million ($9 Million) over the same quarter previous year. The increase is primarily contributed by revenue from Data Center services, Cloud and managed services, supported by growth in technology integration services

 

The revenue by operating segments is as follows:

 

      (Rupees in million)     
   Revenue   Percentage of revenue     
   Quarter ended
September
2018
   Quarter ended
September
2017
   Quarter ended
September
2018
   Quarter ended
September
2017
   Growth 
Telecom Services   2,695    2,581    49%   53%   4%
Data Center Services   786    577    14%   12%   36%
Cloud and Managed Services   351    198    6%   4%   77%
Technology Integration
Services
   1,112    735    20%   15%   51%
Applications Integration Services   565    749    11%   16%   -25%
Total   5,509    4,840    100%   100%   14%

 

Revenue from telecom service increased by ₹114 million ($1.59 million) primarily due to increase in revenue of ₹185 million ($2.57 million) from connectivity services, contributed by a net increase in number of links with existing and new customer engagements. The increase is offset by a decrease in revenue of ₹71 million ($0.98 million) in voice services, which is attributable to decrease in revenue from ILD & hubbing business by ₹71 million ($0.98 million) due to volume decrease & lesser realisation.

 

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Revenue from Data Center services has increased by ₹ 209 Million ($2.87Million) on account of new contracts and higher capacity utilisation by existing customers.

 

Revenue from Cloud and managed services has increased by ₹152 Million ($2.10 Million) due to increase in revenue of ₹122 Million ($1.69 Million) from Cloud services, contributed by new customer engagements and infrastructure managed services by ₹36 Million ($0.49 Million) due to customer churn and decrease in revenue from domestic managed services by ₹6 Million ($0.08 Million).

 

Revenue from technology integration services has increased by ₹ 377 Million ($5.2 Million). This is on account of an increase in projects in systems integration and security services.

 

Revenue from applications integration services has decreased by ₹ 184 Million ($2.54 Million), represented by (i) an increase in revenue from web services by ₹ 15 Million ($0.20 Million), (ii) an increase in revenue from sale of licenses by ₹ 101 Million ($1.40 Million), (iii) an increase in revenue from Forum business by ₹ 7 Million ($0.10 Million), (iv) an increase in revenue from e Learninig services by ₹ 12 Million ($0.16 Million) and (v) an increase in revenue from digital certification services by ₹199 Million ($2.74 Million). These increases in revenue are offset by a decrease in revenue from application services by ₹518 Million ($7.14 Million) due to execution of a large online examination project last year.

 

Other income

 

The change in other income is as follows:

 

(Rupees in million)

   Quarter ended
September 30,
2018
   Quarter ended
September 30,
2017
   Change   % Change 
                     
Other Income   67    85    (18)   (21)%

 

Other income has decreased by ₹ 18 million ($0.25 Million), the decrease is primarily on account of Forex movement ₹ 6 million ($0.08 Million), miscellaneous income decreased by ₹ 18 million ($0.25 Million) primarily on account of reimbursements of investor related expenses to our ADS program received in the previous period which was not there in the current period. Expected to be received in the subsequent quarters. The decrease in other income was partially offset by increase in rental income by ₹ 5 million ($0.06 Million) and ₹ 1 million ($0.02 Million) on account of profit on sale of property, plant and equipment(Net).

 

Cost of goods sold and services rendered (COGS)

 

Our cost of goods sold and services rendered is set forth in the following table:

 

(Rupees in million)

   Quarter
ended
September
30, 2018
   Quarter
ended
September
30, 2017
   Change   % Change 
Telecom services   1,739    1,576    163    10%
Data Center Services   356    284    72    25%
Cloud and Managed Services   137    105    32    30%
Technology Integration Services   962    522    440    84%
Applications Integration Services   270    579    (309)   -53%
Total   3,464    3,066    398    13%

 

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The cost of goods sold increased by 13% on overall basis, the movement in COGS is explained in detail below:

 

(Rupees in million)

   Quarter
ended
September
30, 2018
   Quarter
ended
September
30, 2017
   Change   % Change 
                 
Network Costs   1,359    1,225    134    11%
Revenue share   159    149    10    7%
Cost of Hardware / Software   1,081    604    477    79%
Power costs   349    271    78    29%
Direct Resources costs   347    282    65    23%
Other direct costs   169    535    -366    -68%
Total   3,464    3,066    398    13%

 

Network cost comprises cost of bandwidth leased out from TELCOS, Inter connect charges and IP termination costs payable to carriers. Bandwidth cost increased by ₹215 Million ($2.96 Million) due to capacity increase and increase in links, and IP termination costs decreased by ₹81 Million ($1.12 Million) on account of reduction in minutes and rates.

 

Revenue share cost comprises of revenue share payable to DOT on ILD, NLD and other services. Increase in revenue share is on account of increase in revenue from licensed services.

 

The increase in cost of hardware and software expenses incurred is on account of higher number of system integration projects and related hardware / software projects executed during the quarter.

 

Power costs comprises of electricity cost incurred in our data center. Increase in the cost is on account of increase in power utilisation by customers.

 

Direct resources costs are comprised of (i) the cost of resources deployed on the network infrastructure delivery (iii) resources involved in delivery of application services (ii) cost of billable resources associated with the eLearning and infrastructure managed services. These resource costs have increased by ₹65 Million ($0.89 Million) on account of new recruitments.

 

Other direct costs are comprised of link implementation and maintenance charges for the telecom services, onetime costs for data center services for on boarding new customers, platform costs for Cloud storage, direct cost of application services, digital certificate platform costs, content costs, delivery costs of application services, subject matter experts for international business. The decrease in other direct costs are due to a decrease in ₹386 Million ($5.32 Million) on account of execution of a large online examination project last year in the same quarter and a decrease in other direct costs of the Data Center of ₹12 Million ($0.17 Million) on account of cost optimisation with an existing customer; the above decrease was partially offset by an increase in platform costs for Cloud storage by ₹32 Million ($0.45 Million).

 

We are continuously seeking cost efficiencies and process optimization to maximize the return.

 

Selling, General and Administrative expenses

 

Selling, general and administrative expenses of the Company are set forth as follows:

 

 

(Rupees in million)

   Quarter ended
September 30,
2018
   Quarter ended
September 30,
2017
   Change   Change (%) 
Operating Expenses   270    237    33    14%
Selling & Marketing Expenses   34    56    -22    -39%
Associate Expenses   494    507    -13    -3%
Other Indirect Expenses   265    197    68    35%
Provision for doubtful debts and advances   210    60    150    250%
Forex (gain) / loss   26    -    26      
Total   1,299    1,057    242    23%

 

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Operating costs includes rental, repairs and maintenance charges of our network operating centers, base stations and other co-location sites including the rent and maintenance for our Data Centers. Operating costs increased by ₹33 million primarily on account of increase in repairs and maintenance and network operating cost.

 

Selling and Marketing costs consist of, selling commission payable to sales partners, discounts payable to customers, incentive to salesmen and marketing and promotion costs. Selling & Marketing cost have decreased on account of reduction in advertisement costs and decrease in channel partner commission.

 

Associate expenses, consists of the annual cost of the employees who are part of the Sales and marketing function, Business development, General management and support services. Associate expenses remained flat during the quarter compared to previous quarter.

 

Other Indirect expense consist of cost of facilities, electricity charges incurred on facilities, travel cost, Legal charges, professional charges, communication and others.

 

Provision for Doubtful debts consists of the charge on account of the provisions created during the year against doubtful debtors. The increase in Provision for Doubtful debts are on account of prudent provisioning of debtors.

 

Forex(gain)/Loss incurred is ₹26 million, which is due to the forex rate fluctuation compared to the previous quarter.

 

Depreciation and amortization

 

Depreciation and amortization is set forth in the table below:

 

(Rupees in million)

   Quarter ended
Septiember 30,
2018
   Quarter ended
September 30,
2017
   Change   % Change 
Depreciation and amortization   384    524    (140)   -27%
As a percentage of carrying value   5%   7%          

 

There has been a reduction in Depreciation on account of completion of amortization of a significant capex investment for a major customer specific WAN project.

 

Profit from operating activities

 

(Rupees in million)
   Quarter ended
September 30,
2018
   Quarter ended
September 30,
2017
   Change   % Change 
Operating profit   428    276    152    55%
As a percentage of revenue   8%   6%          

 

Operating profit as a % has increased over the previous year same quarter due to higher utilisation of assets and mix of revenue.

 

Finance income/expense

 

(Rupees in million)
   Quarter ended
September 30,
2018
   Quarter ended
September 30,
2017
   Change   % Change 
Finance Income   9    43    (34)   -79%
Finance expense   (185)   (117)   (68)   58%
Net finance expense   (176)   (74)   (102)   138%

 

The decrease in finance income is majorly due to interest on income tax refund received during previous period 33 million ($ 0.60 million) whereas current period interest on income tax refund was Nil, Deacrease in Interest income from bank deposits is due to maturity of certain deposits and change in interest rates. The increase in finance expenses is on account of 27 million ($ 0.37 million) towards exchange differences considered as interest expense. Further, there has been increase in borrowings demanded by increase in business operations, resulting in increased finance expenses.

 

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Net Profit

(Rupees in million)
   Quarter ended
September 30,
2018
   Quarter ended
September 30,
2017
   Change   % Change 
Net Profit   253    203    50    25%
As a percentage of revenue   5%   4%          

 

Net profit as a % of revenue has increased over the previous year same quarter due to higher utilisation of assets and mix of revenue.

 

Results of half year ended September 30, 2018 compared to half year ended September 30, 2017

 

Revenues

 

The growth in our revenues in fiscal 2018 from fiscal 2017 is given below

 

(Rupees in million)

   Half year ended
September 30,
2018
   Half year ended
September 30,
2017
   Change   % Change 
Revenues   10,192    9,395    797    8%

 

We have achieved a revenue of ₹ 10,192 Million ($140.49 Million), an increase of ₹ 797 Million ($10.99 Million) over same period previous year. The increase is primarily contributed by Data Center services, Cloud and managed services, supported by growth in telecom services.

 

The revenue by operating segments is as follows:

 

(Rupees in million)

   Revenue   Percentage of revenue     
   Half year
ended September
30, 2018
   Half year
ended September
30, 2017
   Half year
ended September
30, 2018
   Half year
ended September
30, 2017
   Growth 
Telecom Services   5,547    4,989    54%   53%   11%
Data Center Services   1,510    1,136    15%   12%   33%
Cloud and Managed Services   674    463    7%   5%   45%
Technology Integration Services   1,544    1,559    15%   17%   -1%
Applications Integration Services   917    1,248    9%   13%   -27%
Total   10,192    9,395    100%   100%   8%

 

Revenue from telecom services has increased by ₹558 million ($7.71 million) primarily due to increase in revenue of ₹612 million ($8.48 million) from connectivity services, contributed to by a net increase in number of links with existing and new customer engagements; this increase was partially offset by the decrease in revenue of ₹54 million ($0.75 million) in voice services, which is attributable to the decrease in revenue from ILD & Hubbing business by ₹46 million ($0.64 million) due to volume decrease and lesser realisations, an increase in VOIP services by ₹3 million ($0.05 million) and a decrease in voice retail services by ₹11 million ($0.16 million).

 

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Revenue from Data Center services has increased by ₹ 374 Million ($5.15 Million) on account of new customer contracts and higher capacity utilisation by customers.

 

Revenue from Cloud and managed services has increased by ₹211 Million ($2.89 Million) due to increase in Cloud services ₹221 Million ($3.03 Million), contributed to by new customer engagements, increase in revenue from infrastructure managed services by ₹76 Million ($1.05 Million) due to customer churn;the above increase is partially offset by the decrease in revenue from domestic managed services by ₹86 Million ($1.19 Million).

 

Revenue from technology integration services has decreased by ₹ 15 Million ($0.20 Million). This is on account of reduction in projects in systems integration and security services.

 

Revenue from applications integration services has decreased by ₹ 331 Million ($4.56 Million). There has been (i) an increase in revenue from web services by ₹ 14 Million ($ 0.20 Million), (ii) an increase in revenue from the sale of licenses by ₹ 59 Million ($0.81 Million), (iii) an increase in revenue from Forum business by ₹ 14 Million ($0.20 Million), (iv) increase in revenue from E learninig services by ₹ 18 Million ($0.25 Million) and (v) an increase in revenue from digital certification services by ₹149 Million ($2.05 Million). These increases in revenue are offset by a decrease in revenue from application services by ₹585 Million ($8.07 Million) due to execution of a large online examination project last year.

 

Other income

 

The change in other income is as follows:

 

(Rupees in million)

   Half year
ended
September
30, 2018
   Half year
ended
September
30, 2017
   Change   % Change 
                     
Other Income   100    112    (12)   -11%

 

Other income has decreased by ₹ 12 million ($0.17 Million). The decrease is primarily on account of Forex movement of ₹ 8 million ($0.10 Million), and miscelleaneous income decreased by ₹ 17 million ($0.23 Million) on account of reimbursements of investor related expenses to our ADS program received in the previous period which was not there in the current period. The decrease in other income was partially offset by an increase in rental income of ₹ 11 million ($0.15 Million).

 

Cost of goods sold and services rendered (COGS)

 

Our cost of goods sold and services rendered is set forth in the following table:

 

(Rupees in million)

   Half year
ended
September
30, 2018
   Half year
ended
September
30, 2017
   Change   % Change 
Telecom services   3,384    3,124    260    8%
Data Center Services   695    581    114    20%
Cloud and Managed Services   248    231    17    7%
Technology Integration Services   1,312    1,088    224    21%
Applications Integration Services   642    849    (207)   -24%
Total   6,281    5,873    408    7%

 

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The cost of goods sold has increased by 7% on overall basis; the movement in COGS is explained in detail below:

 

(Rupees in million)

   Half year
ended
September
30, 2018
   Half year
ended
September
30, 2017
   Change   % Change 
                 
Network Costs   2,629    2,450    179    7%
Revenue share   315    279    36    13%
Cost of Hardware / Software   1,542    1,256    286    23%
Power costs   691    555    136    24%
Direct Resources costs  &