Economic Performance

Revenues

We are proud to announce our first year of operating profitably and the year where our revenue crossed the INR 1000 crore mark. It was a major achievement in terms of growth and this achievement has given us a positive financial standing in the market and the confidence to march forward with an unquenchable “Bring it on” attitude. The year 2013-14 also holds the privilege of being the first year of dividend declaration to equity share holders. A dividend at the rate of 10% was declared and distributed to the shareholders on 28th of July 2014.

We shifted our prime focus from retail consumers to enterprise consumers in the year 2005-06. In this year we achieved annual revenue of INR 4,600 million. With an incessant focus, we have reached revenues of INR10463 million in the year 2013-14, with an annual compounded growth rate of 11%.

The revenue trend of our company since 2004-05 till the year 2013-14 is represented as follows .

Our Clientele

As of March 31, 2014, we serve over 6000 clients; our services are dominated by the telecom services. We render services across all industry segments such as automotive,banking , finance ,governments , manufacturing,healthcare, retail consumer, and telecom. As part of the nation building process, we take part in all the opportunities offered by the government sector (both State and Central) and have successfully completed many projects.

Presently, we have also procured one of the largest contracts from the department of posts. We are required to connect more than 28000 post offices across the country. This is a prestigious contract and it shows the confidence the stakeholders have in the quality of our services. There has been a 13% increase in the number of clients added during the year; we are focusing on tapping the opportunities provided by the market.

Operating Performance

We have entered into the first year of achieving profits from operations, and we are committed to achieve the same year-on-year. The year has been a period of remarkable financial indicators, the highlight of which was the declaration of maiden dividend to share holders.

With the company operating under a five BU structure, telecom services play a major role in contributing to the revenues of the company.

Our Earnings Before Interest, Tax and Depreciation (EBITDA) also has shown improvement over the years from 642 million in the year 2006 - 07 to 1,620 millions in the year 2013-14. The improvement in operating performance over the years is primarily attributed to the increase in revenues and to some extent, the optimization of costs. We invest in increasing the economy scale, by utilizing our existing infrastructure to serve new customers. This strategy helps reduce the cost per customer and also enables us to provide specific services to the customers at competitive rates without compromising on quality.

The EBITDA for the last three years is presented below :

Direct Economic Value Generated and Distributed:

We believe that we are indebted to return the value to stakeholders for the value derived and in turn create a value proposition which is again distributed to the stake holders of the organization. Each and every stakeholder has played a significant role in contributing to the growth of our organization and we are committed to give back the best of responses to them, in recognition of the importance they hold in our journey. Right from selection of vendors to distribution of profits to investors, we have consciously taken efforts to ensure that the benefits are distributed equally. The geographical reach of our business has helped us in achieving this distribution in its real sense.

During the financial year 2013-14, based on the financial statements prepared under the International Financial Reporting Standards (IFRS), Sify has made revenue of INR 10460 million and has incurred expenses of INR 10,142 million, as per the IFRS financials. The net profit of the year was INR 318 million.

The direct economic value generated and distributed is represented as follows :

Out of the total economic value generated by us during the year 2013-14, about 88% is distributed to the stakeholders, excluding dividend.

6% of the value generated has been made to the stakeholders outside India, and the balance towards the economic development of our stakeholders within India; more specifically to our stakeholders in significant locations of operations. The detailed break-up of the contribution made in our significant locations of operations is given in the section on suppliers’ contribution.

The entire finance costs correspond to the payments made to Indian banks, and we have not engaged any foreign banks until 2013-14, for contributing to our capital.

Risks and Opportunities Caused by Climate Change

Change in weather conditions and other natural phenomena like cyclones, floods and earthquake have a significant role in the continuity of our business operations. During the year 2014-15, due to heavy floods in Uttarkhand, over 25 towers were 6.5.Risks and Opportunities Caused by Climate Change 22 disconnected from power supply, thereby resulting in disruption of our connectivity services. Our connectivity services were also disrupted during a cyclone that occurred during the year 2012-13. The cables were damaged and this led to a down time of more than 12 hrs.

Huge costs were incurred to bring the operations back to normal. These times have provided us a major learning experience. We, from then on, ensured that all infrastructures installed are resistant to such natural calamities.

Data centre revenues are the second major source of revenues of our organization and the back bone of hosting services is the availability of electricity. During times when there is an acute shortage of electricity supply, data centres are backed up by generators. These generators are run using diesel, a non-renewable and non bio-degradable source of energy. Climatic changes do not create a serious impact on our day-to-day business operations. However, during summer, there is more demand for electricity and the government authorities regulate the consumption across the country. Therefore, there may be several power cuts and this will force us to use the diesel generators.

Financial Assistance Received from the Government

The Export Promotion Capital Goods (EPCG) scheme was one of the several export-promotion initiatives launched by the government, in the early '90s. The basic purpose of the scheme was to allow exporters to import machinery and equipment at affordable prices so that they can produce quality products for the export market. Our company imports radios, chillers and other networking equipments to render services to customers.

According to the terms of the EPCG plan, we are exempt from paying the import duty forthe import of these equipment. This has a corresponding export obligation of six times the amount of duty saved to be fulfilled with in period of 6 years . For further details please refer to the Annual report on EPCG licenses held and the amount of export obligation as of March 31, 2014.

Infrastructure Investments and Services

Noida's location facilitates convenient and least-disruptive movement of materials during the construction stage, because it is an upcoming suburb of Delhi and is well connected by the National Expressway that connects two states and the NCR region.

Our construction ensured that the largely under-developed land got its first road connectivity. With the land being earlier untouched by construction activities, scientific engineering ensured that there was minimum impact on local resources like land and water. The facility uses water based chillers eliminating the issue of non-recyclable waste from oil based chillers. Today, the facility completely regenerates waste water for all non-human consumption, thus ensuring that the environment impact is minimal.

Being a fringe suburb, the maximum number of employable hands came from around the location. This practice increases employability and provides better social conditions. These workers were trained in safe and practical working methods. They were employed based on regulatory working hours, paid the statutory labor charges and given the stipulated holidays.

The Delhi NCR belt has a substantial employable population of engineering and non-engineering graduates. Typically, when job opportunities are created around their neighborhood, the eligible literate 6.7. Infrastructure Investments and Services 23 population begins to migrate closer to home. We have noticed that a growing number of our employees also come from the surrounding areas. The economic impact has been that the area is now seeing larger investment from industrial and business houses creating a larger pool of working professionals.

As this investment becomes consistent, the local community begins to see larger opportunity, wider choices and enhancement of social life; a fact replicated around our Noida data centre.

Expenditure on local suppliers in significant locations of operation

We value the supplier eco-system of our business and believe that every service provider is critical for our existence. In the process of building a technology rich nation, we are extending our operations across the country by creating new facilities and making ourselves available for all the customers. Instead of continuing our association with a particular set of suppliers, we take steps to provide opportunities to budding entrepreneurs who have the acumen to deliver quality services and create value for money. We also engage local suppliers in significant locations of operations and ensure that value is generated both from and to the organization.

Our strategy in choosing the suppliers, involves the evaluation of the quality of service and the cost at which it is being given. This practice helps us provide services to our customers at competitive rates. Our suppliers are for the purpose of this disclosure, being divided into those who:

  • Provide goods and services directly in relation to the activities of our business
  • Provide services that are vital for the support system of our business.

Our business activities are spread across the country and so are our vendors. The nature of our industry is such that the vendors are generally not local suppliers but are national and international players. In spite of that, we make our best efforts to mark our dependence on local suppliers for possible goods and services, thereby creating a sustainable supply chain.

Local suppliers are of two categories:

  • Indian companies from whom we procure goods and services
  • Local Vendors located in significant locations of our operation

The order of goods and services based on the annual expenditure made is as follows:

  • Purchase of bandwidth capacity
  • Purchase of Networking equipments
  • Purchase of Data Centre equipments
  • Purchase of administrative items

Purchase of Bandwidth Capacity

Bandwidth capacity is the major raw material of our industry; as our network expands across the country, we procure capacity from the domestic vendors (Indian Companies) from several places. The major portion of the bandwidth capacity is procured from large players (Telcos) in the 24industry. Apart from the purchase of capacity from the Telcos, we also purchase ‘Dark Fibre Cables’ from the local vendors in significant locations of our operation. The percentage of annual expenditure on the bandwidth purchase with the ratio of purchase from local vendors is represented by using a chart. Networking costs account for about 64% of our direct costs and 36% of the total expenses incurred by our organization.

Of the total cost incurred for networks, around 94% is attributed to the purchases made from India-based companies. These costs are for foreign companies operating in India and the balance are attributed towards foreign companies for our local operations in the US, UK and other locations .

Around 3% of our costs incurred in purchase of bandwidth capacity are attributed towards the purchase of dark fibre cable from the local suppliers located at our small locations of operations. The vendors of these dark fibre cables are generally budding small scale connectivity companies who provide quality services at competitive rates and are mostly in proximity to customer location. We avail services from these small scale vendors for the purpose of providing connectivity to those customers and areas where there are no big Telcos located.

Purchase of Networking Equipment:

Networking equipments are purchased from both domestic and international suppliers. 60% of our networking equipment are imported taking into account the quality perspective.

Purchase of Data Centre Equipments:

During the year 2013-14, we successfully started operations in Noida. We have also opened our data centre at Rabale, during 2014-15.

The major part of the infrastructure development happened during the year ending March 31, 2014. Every time a major activity is taken up in our company, we ensure that we provide opportunities for the local suppliers so that everyone is economically benefited through our existence in the location. Without compromising on quality grounds, we choose to select the suppliers available in the local area, especially, around our significant locations of operation.

For the total cost incurred for these data centre, attributing to land, building and infrastructure, major portion (around 82%) of the items are purchased from the local vendors at Rabale. Apart from the capital cost incurred for the data centre, economic value is generated by the employment opportunities created in the local area. We engaged local suppliers for about 84% of the total cost incurred for the construction of the data centre in Noida.

Apart from the engagement of local vendors for constructing data centre, we plan to continually involve these vendors or look out for new vendors, for facilitating the supply of water and electricity, maintenance of equipment and other indirect purchases for administrative purposes. Such practices ensure generation of economic value around our place of business.

Purchase of Administrative Items

We have 11 branch offices spread across the country, from where local business operations are carried out. The items required for running the daily business operations and support systems are procured locally at the location of the respective branch offices. This practice ensures that the local suppliers are also given an opportunity to develop their businesses.

Significant locations of operations include the location of the head office, branch offices and data centres.

Our Client