Earnings call transcript: Sify Technologies' Q2 2025 revenue rises, stock dips

Sify Technologies Limited (market cap: $892 million) reported its financial results for the second quarter of the fiscal year 2025-2026, showing a 3% year-over-year increase in revenue to INR 10,533 million. Despite this growth, the company posted a loss before tax of INR 194 million and a loss after tax of INR 275 million. The stock closed down 5.59% at $12.33 but showed a slight recovery in premarket trading, rising 1.95% to $12.57. According to InvestingPro, the stock has delivered an impressive YTD return of 361%, though current analysis suggests the stock may be overvalued.

Key Takeaways

• Revenue increased by 3% year-over-year to INR 10,533 million.
• EBITDA grew significantly by 20% year-over-year.
• The company posted a loss after tax of INR 275 million.
• Stock price fell by 5.59% post-earnings but rebounded slightly in premarket trading.
• Continued focus on AI-led transformation and data center expansion.

Company Performance

Sify Technologies demonstrated solid revenue growth in Q2 2025-2026, driven by its diversified service offerings. The company continues to leverage its position in India's burgeoning digital infrastructure market, with significant contributions from network services, data center services, and digital services. However, the increased capital expenditure and losses before and after tax highlight ongoing challenges in achieving profitability.

Financial Highlights

• Revenue: INR 10,533 million (+3% YoY)
• EBITDA: INR 2,361 million (+20% YoY)
• Loss Before Tax: INR 194 million
• Loss After Tax: INR 275 million
• Capital Expenditure: INR 3,064 million
• Cash Balance: INR 4,149 million

Market Reaction

The market reacted negatively to Sify's earnings, with the stock dropping 5.59% to $12.33 at the close. This decline reflects investor concerns over the company's profitability despite revenue growth. In premarket trading, the stock showed signs of recovery, rising by 1.95% to $12.57, suggesting a cautious optimism among investors.

Outlook & Guidance

Sify Technologies remains focused on expanding its data center capacity and enhancing its digital services platform. The company is preparing for an IPO of Sify Infinite Spaces and expects network services margins to improve to over 20%. Future projections indicate a positive trajectory, with expected EPS growth in the upcoming fiscal years.

Executive Commentary

Chairman Raju Vegesna emphasized India's pivotal role in the digital transformation landscape, stating, "India's digital transformation is entering a decisive phase." CFO M.P. Vijay Kumar noted, "Post-COVID, most IT is getting consumed as a service," highlighting the shift in market dynamics.

Risks and Challenges

• Continued losses despite revenue growth pose a challenge to profitability.
• High capital expenditure may impact cash flow and financial flexibility.
• Competitive pressures in the digital services and data center markets.
• Economic uncertainties and regulatory changes in India.
• Execution risks associated with planned expansions and IPO.

Q&A

During the earnings call, analysts focused on the structure of the upcoming data center IPO, margin compressions in network services, and the company's digital services strategy. Management addressed concerns about digital services performance and reiterated their commitment to strategic investments.

Full transcript - Sify Technologies Limited (SIFY) Q2 2026:

Speaker 6: Ladies and gentlemen, we do appreciate your patience. This call will be starting very shortly. Thank you.

Ali, Conference Operator: Greetings, and welcome to the Sify Technologies Limited financial results for the second quarter of financial year 2025-2026 conference call. At this time, all participants are on a listen-only mode, and a question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press 0 on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Mr. Praveen Krishna. Sir, you may begin.

Praveen Krishna, Investor Relations, Sify Technologies Limited: Thank you, Ali. I'd like to extend a warm welcome to all our participants on behalf of Sify Technologies Limited. I'm joined on the call today by Mr. Raju Vegesna, Chairman, and Mr. M.P. Vijay Kumar, Executive Director and Group CFO of Sify Technologies. Following our comments on the results, there will be an opportunity for questions. If you do not have a copy of our press release, please call Lurie Group at 1-646-824-2856, and we'll have one sent to you. Alternatively, you may obtain a copy of the release at the Investor Information section on the company's corporate website at www.sifytechnologies.com/investors. A replay of today's call may be accessed by dialing in on the numbers provided in the press release or by accessing the webcast in the Investor Information section of the Sify corporate website.

Some of the financial measures referred to during this call and in the earnings release may include non-GAAP measures. Sify's results for the year are according to the International Financial Reporting Standard, or IFRS, and will differ somewhat from the GAAP announcements made in the previous year. A presentation of the most directly comparable financial measures calculated and presented in accordance with GAAP and a reconciliation of such non-GAAP measures and of the differences between such non-GAAP measures and the most comparable financial measures calculated and presented in accordance with GAAP will be made available on Sify's website. Before we continue, I'd like to point out that certain statements contained in the earnings release and on this conference call are forward-looking statements rather than historical facts and are subject to risks and uncertainties that could cause actual results to differ materially from those described.

With respect to such forward-looking statements, the company seeks protection afforded by the Private Securities Litigation Reform Act of 1995. These risks include a variety of factors, including competitive developments and risk factors listed from time to time in the company's SEC reports and public releases. Those lists are intended to identify certain principal factors that could cause actual results to differ materially from those described in the forward-looking statements, but are not intended to represent a complete list of all risks and uncertainties inherent to the company's business. Let me now introduce Mr. Raju Vegesna, Chairman of Sify Technologies Limited. Chairman.

Raju Vegesna, Chairman, Sify Technologies Limited: Thank you, Praveen. Good morning. Thank you for joining us on the call. As India's digital transformation is entering a decisive phase, redefining its role in the global technology ecosystem, the acceleration in the cloud adoption, AI integration, and data center expansion underscores India's emergence as the next hub of digital infrastructure. At Sify Technologies Limited, our focus remains on aligning with this momentum through the sustained investments in the hyperscale data centers, robust network expansion, and AI-ready platforms. These initiatives are strengthening our position as a trusted enabler of enterprise transformation across both public and private sectors. We believe the next decade will see India set global benchmarks in digital innovation. Sify Technologies Limited will continue to play a pivotal role in empowering this journey, building the infrastructure and platforms that will drive the country's growth in the AI-led economy.

Let me now bring our Executive Director and Group CFO, M.P. Vijay Kumar, to explain both on the business and the financial highlights. Vijay Kumar?

Praveen Krishna, Investor Relations, Sify Technologies Limited: Yes. Thank you, Chairman. We remain steadfast in our commitment to fiscal discipline while continuing to invest strategically for long-term growth. The current phase of expansion across our data center, network, and digital platforms reflects deliberate choices to build future-ready capabilities. The network and data center businesses are scaling as per plan. The loss in our IT services business represents our continued investment to prepare ourselves for the opportunities ahead. Our liquidity position remains robust, underpinned by prudent cash flow management and operational efficiency. As we move ahead, our focus will be on sustaining agility in financial planning, embedding accountability and sustainability into every decision, and driving enduring value creation for all stakeholders. Let me now expand on the business highlights for the quarter. The revenue split between the three businesses for the quarter was network services 41%, data center services 39%, and digital services 20%.

During the quarter, Sify sold 3 megawatt additional data center capacity. As of 30th September 2025, Sify provides services via 1,196 fiber nodes across the country, a 12% increase over the same quarter last year, and has deployed 9,992 contracted SD-WAN service points across the country. A detailed list of our key wins is recorded in our press release, now live on our website. Let me briefly sum up the financial performance for Q2 for financial year 2025-2026. Revenue was INR 10,533 million, an increase of 3% over the same quarter last year. EBITDA was INR 2,361 million, an increase of 20% over the same quarter last year. Loss before tax was INR 194 million, and loss after tax was INR 275 million. Capital expenditure during the quarter was INR 3,064 million. The cash balance at the end of the quarter was INR 4,149 million.

I will now hand over to our Chairman for his closing remarks. Chairman?

Raju Vegesna, Chairman, Sify Technologies Limited: Thank you, M.P. Vijay Kumar. In the coming quarters, our focus will sharpen on empowering AI-led transformation and partnering with the new generation of enterprises that are ready to innovate and scale. With our integrated infrastructure and mature suite of digital services, Sify Technologies Limited stands poised to lead in this new era of intelligent computing. I extend my sincere thanks to your continued trust and belief in our vision. Thank you for joining on this. I will now hand over to the operator for questions.

Ali, Conference Operator: Thank you. At this time, we'll be conducting our question-and-answer session. If you would like to ask a question, please press 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the keys. One moment, please, while we poll for questions. Thank you. Our first question is coming from Jonathan Atkin with RBC Capital. Your line is live.

Thank you. A couple of questions, if I may, about the data center services segment. First of all, can you give us a flavor for the types of returns, financial returns, that you are achieving when you do sort of like the 3 MW deal that you referred to and just the range of financial returns that you're thinking about for enterprise as well as hyperscale deals? If you could also remind us what you consider to be kind of your all-in cost of capital. Thanks.

Praveen Krishna, Investor Relations, Sify Technologies Limited: As far as the 3-megawatt deal is concerned, it's a very small enterprise deal. Our data center business is both hyperscale and enterprise, approximately in the ratio of two-thirds, one-third. Our project IRRs historically have yielded IRRs north of 20%, which is a little late 20% kind of IRRs have been the returns which we have generated.

As you look at the opportunity set, given where India is in terms of hyperscale AI, but also enterprise AI adoption, as we look over the next couple of years, what do you see the sales pipeline looking like that you could accommodate? Any sort of general comments about other players in the market that are also building, in some cases, larger-scale projects compared to yourself and how you see the competitive environment?

The next couple of.

Yeah.

Please go ahead.

Raju Vegesna, Chairman, Sify Technologies Limited: Sure. John, basically, as you know, we have big campuses in Mumbai, Noida, and Chennai, and we invested in what are the basic requirements as India AI scales up. We are getting ready. Similarly, we are looking at multiple places. Basically, we are capable of delivering big projects, and we are looking at this AI momentum takeoff in India, which is, we are seeing some positiveness, both hyperscalers and enterprises. What is in a simple sense is we are ready to expand. Your point is there are other people. Yes, there are other people. I think one other thing is being 25 years in the market in India, and we are established as a brand, and I think we will get our own share.

Lastly, just in terms of the breadth of opportunity, you mentioned three markets where there's skill development and demand, but also a lot of activity around edge, like multiple double-digit number of cities where there's also data center opportunities that are recognized. Maybe comment about the edge opportunity as well as maybe how that kind of fits in with your network services business.

Yes, we are building edge data centers also. One of the uniquenesses of Sify Technologies Limited is having a network business that positions us not only as just a colocation player, but with network integrated with that. We have plans to expand into these tier two and tier three cities where edge is important. We have our own sites, planning and building 10 to 12 edge sites over time based on the demand. There also, we are making ahead into certain cities. Once they're live, we will be more than happy to share with you. Yes, you're right. Edge also, we are playing, we are going to play a role.

Thank you.

Ali, Conference Operator: Thank you. Our next question is coming from Gregory John Burns with Sidoti & Company. Your line is live.

Morning. I just wanted to ask about the proposed IPO of Sify Infinite Spaces. Why was now the right time to consider that type of transaction?

Praveen Krishna, Investor Relations, Sify Technologies Limited: Yeah. Greg, the tailwinds for the data center colocation industry growth is very strong, and it is important to have access to capital. The listing will help us to continuously access capital to meet the demand forecast which we see.

Okay. What % of the new entity will Sify retain ownership of?

We will retain ownership of a substantial %. Greg, the exact % will be known after the book-building process is completed. What we will be holding is a very substantial % going forward.

Okay. CoTech.

If we raise capital in the future, we will dilute.

Okay. Great. CoTech, their investment is converting into Infinite Spaces equity, or does it convert into Sify Technologies equity? What % or how much stock are their debentures converting into?

Their debentures will get converted into Sify Infinite Spaces equity. This conversion will happen after the draft prospectus is approved by the securities regulator in India. At that time, we'll publish the exact percentage of how much will be their holding. CoTech's interest is to remain invested in the company. A small portion of their holding, they will be offering for sale as part of the public offering, essentially to support the float on that stock.

Okay. You mentioned kind of how your network business integrates or works with the data center operations. Once you split off the data center business, are they going to be signing long-term, like multi-year agreements with the networking operations, or are they free to kind of go contract elsewhere?

No. Even at present, the contracting happens separately for the networking with the parent company, which carries the licenses for the networking business. For colocation, there are separate contracts which are entered with the data center company. The customer relationships and the go-to-market strategy for the company will continue to remain the same. To our customers, we'll present an integrated offering where they'll consume network services, colocation services, and IT services which they would require.

Okay. Great. Thanks. Lastly, you mentioned the 3 megawatts of new contracted capacity this quarter. Could you just give us the full complexion of the data center business? I know you have 14 operational. How much design capacity do you have in the market versus what is currently operational?

We have about 188 megawatts of design capacity, which is ready for sale, out of which about 130 megawatts is built. What is now sold is a small requirement for one of our existing customers. The rest of it is ready for sale and at different stages of customer conversations for contracting.

Okay. What is the roadmap for the rest of the, or maybe the next 12 months, in terms of data center builds? How much design capacity are you, or how much design capacity is in the pipeline to be built out?

Yeah. Greg, I have a little bit of a constraint. Generally, we don't make forward statements. More importantly, having filed the draft prospectus with the securities regulator, I'm prohibited from making any forward statements. I just want to suffice it to say that there is a substantial amount of new greenfield project construction, which is happening in parallel.

Okay. All right. Great. Thank you.

Thanks, Greg.

Ali, Conference Operator: Thank you. Our next question is coming from Mahir Thakur with Privasti. Your line is live.

Good evening, and thank you for the opportunity. I have a few detailed questions, and we'll take a bit of time for the Q&A. My first question is regarding the IPO of Sify Infinite Spaces, in which Sify Technologies Limited directly holds equity. Given that Sify is Nasdaq-listed entirely, where about 84% is held by promoter group and 16% by ADR holders, could you please explain the rationale behind pursuing the IPO of Sify Infinite Spaces through a holding company structure under Sify Technologies Limited rather than directly distributing ownership or a demerger-based structure in Sify Infinite Spaces between promoters and ADR holders in the same 84-16% proportion and then proceeding with the IPO? Basically, because of this holding company setup, both the promoter shareholders and ADR holders are currently unable to directly participate in the valuation upside of the data center business.

What was the strategic, regulatory, or tax rationale behind adopting this holding company now?

Praveen Krishna, Investor Relations, Sify Technologies Limited: Prithvi, I think it's a very involved question. I think we have got guided largely by our bankers and advisors in terms of the best structure for raising capital. As you know, the data center business is a completely India-focused business and a capital-intensive business. Equally important, there is a depth of capital market in India, which we have witnessed over the last few years. In terms of value realization and to eventually reflect hopefully in the parent company, the bankers have advised this is the best path.

Actually, I have also the limited knowledge. If you had gone through the demerge structure, it would have been helpful to the minority holders to unlock the value. Is there any intent post-IPO to simplify the structure?

It's difficult to respond to that, Prithvi. We will see it as time passes by. Whatever best advice we get in terms of what is best for the shareholders, we will certainly do.

Yeah, it would be just helpful if you can keep this in mind for future perspective.

Sure, sure, sure.

Thank you.

Thank you.

My next question is regarding, I just wanted to get a sense of the roadmap. What is the expected timeline for the Sify Infinite Spaces IPO from here?

Yeah. The DRHPO is filed last week. Usually, Sify takes a time of three months for approval of the draft prospectus. Thereafter, we'll get guided by the bankers in terms of what is the appropriate timing to take to the market.

Okay. My next question is regarding the network services business. If we look at the trend over the last decade, the operating margins have declined materially from 23-25% during FY 2016 to 2020 to about 10-15% levels in the last five years, even though revenues have grown only at about 5-6% CAGR. I have noticed a recent improvement in margins in Q1 and Q2 at around 14-18%. Could you please elaborate on what led to this sharp margin compression earlier? Is this margin behavior structural or cyclical? Can we expect the segment to gradually revert to the 20% plus range as utilization and demand improves?

Correct. It is structural, and it's by design. You have started witnessing the improvement in margin. What happens is as the network expansion happens, and more importantly, when you invest in new age networks to support AI kind of demands, you invest in new infrastructure, which will take time to monetize. These are important investments which have to be done ahead of time. These are done by design and as a structure. The trend which you have observed should continue.

Okay, should we assume like the current 14-16% band is the new steady state?

It should get better. It should get better.

Okay. Over the future period, we should be able to see 20% plus kind of range, right?

Yeah, that's our expectation, and we are working towards that.

Okay. Thank you so much. My last question is on the digital services segment. Similarly, over the last decade, the business has shown uneven revenue growth, periods of high growth like FY 2016 to 2018, then FY 2023 followed by flat or negative years with an overall CAGR of about 11%. At the same time, operating margins have steadily eroded from around 15-20% during FY 2016-2018 to negative territory in 2024-2025. The losses have also continued in Q1 and Q2. Can you please help me understand the key factors behind this deterioration?

Yeah. Two reasons, Prithvi. One is there's a complete change in the way IT is getting consumed by enterprises post-COVID. Earlier, there used to be a substantial amount of IT projects which were delivered on a system integration model. Post-COVID, most of it is getting consumed as a service. Project-based revenues by design as a company, we have chosen to scale it down. Unlike in the past, that's one reason. The second is also what's happening in the last three, four years, and we have consistently shared in all our communication. This is a business where we are investing significantly in terms of people and in terms of building IP to be very relevant for the way IT is going to be consumed by the large enterprises and the upper end of the medium enterprises. There's a lot of work happening there. It will take some time.

It will take some time. We are confident that we will be relevant to the market with the investments which we are making now. We'll continue to do this for a few more quarters before we start hopefully seeing the results.

Okay. Thank you so much. That's it from my side.

Thanks.

Ali, Conference Operator: Thank you. As a reminder, ladies and gentlemen, if there are any further questions or comments, please indicate so now by pressing 1 on your telephone keypad. Thank you. We have a question from Srithu, who is a private investor. Your line is live.

Good evening. Good evening, Chairman, sir. Good evening, Mr. Vijay Kumar. I have a couple of questions pretty much in line with what other participants have asked. Correct me if I'm wrong. From whatever I have reviewed, the published results, the network services has grown at 16%. Data services is around 25%. The digital services has degrown at around 30-35% this quarter. Is that a fair statement?

Praveen Krishna, Investor Relations, Sify Technologies Limited: Yeah.

Related to this, the digital services, I know we have spoken in the last few quarters, that whole offering is being redesigned. Maybe some non-value-added services are being discontinued. That entire division is being revamped, so to speak. I know the network services and data center are kind of related to each other. You could offer both. How much of digital services is standalone, and how much is it actually dependent on the other two businesses? To reframe the question, a data center client might request even the network services. How much of them are actually requesting for digital services?

Yeah. Srikant, as far as the IT services are concerned, we broadly offer network-managed services. Then we offer the cloud and managed services. Then we have security-related services broadly at a high level. The network-managed services is very closely linked with our network business, the network infrastructure business. In the network-managed services, we manage for enterprises, large and including the banks, PSUs, and all. We manage the networks for them, irrespective of where they are sourcing from. The whole network is managed by us. There is a correlation there. As far as the cloud and managed services are concerned, the cloud services, ultimately, for the customers, they require a good network to reach the cloud, whether it is clouds which we build for them in our facility or the public clouds.

We have solutions, including technology platforms, which help enterprises to manage hybrid cloud consumption, where they consume partly from public cloud and partly from the private cloud, which is set up on our data centers. There's a correlation. Our security solutions are, again, largely around the infrastructure-related security solution, whether it is security at the network layer or at the data center layer or at the cloud layer. Of course, we do some bit of security around applications as well. There is a correlation. Beyond this, as far as our enterprise customers are concerned, the customer touchpoints are similar. Our effort is to ensure that in the large enterprises, we are able to maximize our share of engagement with them. We have witnessed some amount of success in that. We'll continue to put our efforts to get it better.

Thank you. The other question, again, going onto the digital services. It's basically the loss in the digital services division has dragged the overall results. Otherwise, this quarter's results are probably similar to last quarter, maybe with a 3 or 4% growth, had it not been for the loss in digital services?

Correct. Correct. Correct.

Okay. Obviously, you know, I'm sure this division is on focus now on everybody's radar, that you know, you would obviously don't want this to drag the results of other divisions within the group.

Correct. Correct. You're right.

Okay. Last.

We're focused on that, but we don't want to stop investing either because, unlike the network and data center where your investments are in balance sheet items, in the case of IT services business, your investment is in the P&L item. This loss sort of reflects our investments for the future. Of course, we are focused on reducing this, monetizing it early. If some of our bets are not working, we will redesign our strategy. We are also focused on that.

Okay. One last question, sir, on the upcoming IPO. The fact that Sify Infinite Spaces will be listed in India, Sify Technologies is the holding company, which is Nasdaq-listed. We are indirectly, not indirectly, directly shareholder in Sify Infinite Spaces, which will be listed in India.

Yeah.

Given that the existing Sify Technologies Limited shareholders will not be able to directly participate other than any Indian resident who can apply in the IPO, have you considered doing any kind of, I mean, for lack of a better word, maybe private placement or some kind of opportunity for existing investors in Sify Technologies Limited who have an appetite to probably participate in the proposed IPO other than just applying in the IPO, whoever is eligible?

We haven't done any specific work on this, but let me socialize with the bankers. We have got guided on the entire process by the bankers on the regulatory process and what is best for maximizing the value to all the existing shareholders.

It just may be a nice way of rewarding the existing shareholders a bit.

I've understood your ask, but I think I need to be conscious of the regulatory framework as well.

Absolutely. That's all from my side, sir. Praveen, thank you for the opportunity and everybody who was involved in this call. Thank you for the opportunity.

Thank you, Srikant.

Ali, Conference Operator: Thank you. As we have no further questions on the lines at this time, I would like to turn the call back over to Mr. Raju Vegesna for any closing remarks.

Raju Vegesna, Chairman, Sify Technologies Limited: Thank you very much for joining this call and having continuous interest in Sify Technologies Limited. Have a good day. Thank you.

Ali, Conference Operator: Thank you, ladies and gentlemen. This does conclude today's call. You may disconnect your lines at this time, and we thank you for your participation.

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