Press Release Sify Technologies Limited

Press Release

Sify Technologies Limited March 30, 2021 Ratings Facilities/Instruments Amount (Rs. crore) Ratings Rating Action 1,127.53 CARE A+; Stable Long Term Bank Facilities Reaffirmed (Reduced from 1,170.14) (Single A Plus; Outlook: Stable ) CARE A+; Stable / CARE A1+ Long Term / Short Term Bank 168.00 (Single A Plus ; Outlook: Stable/ Reaffirmed Facilities A One Plus ) CARE A1+ Short Term Bank Facilities 63.00 Reaffirmed (A One Plus ) 1,358.53 (Rs. One Thousand Three Total Bank Facilities Hundred Fifty-Eight Crore and Fifty-Three Lakhs Only) CARE A1+ Commercial Paper (Carved out)** 50.00 Reaffirmed (A One Plus ) 50.00 Total Short Term Instruments (Rs. Fifty Crore Only) Details of instruments/facilities in Annexure-1 ** carved out of the sanctioned working capital limits of the company Detailed Rationale & Key Rating Drivers The ratings assigned to the bank facilities and commercial paper of Sify Technologies Limited (Sify) factor in the comfortable financial position of the company marked by consistent improvement in revenue, healthy profitability, comfortable liquidity position. The ratings continue to derive strength from the company’s established presence and long-standing experience of the promoter in the Information Communication Technology (ICT) industry, its wide portfolio of services and pan-India presence, wide customer base and fair degree of revenue visibility. The ratings are, however, constrained by Sify’s need to regularly invest in upgrading and expanding its network architecture which is critical in its line of business, the company’s proposed debt-funded capital expenditure towards expansion of its Data Centers (DCs), and elongated receivables position. The ratings also take note of the long gestation period for its investments in infrastructure which temper the return on capital employed and the company’s presence in a highly competitive and regulated ICT industry.

Rating Sensitivities Positive Factors  Ability to maintain consistency in the profitability margins at 18%-20%.  Improvement in collection period to below 120 days on a sustained basis. Negative Factors  Deterioration in capital structure marked by overall gearing of over 1.00x.  Increase in the collection period above 180 days.

Detailed description of the key rating drivers Key Rating Strengths Long-standing experience of the promoter Mr Raju Vegesna, Chairman and Managing Director, is a Silicon Valley entrepreneur possessing vast experience in the technology domain and has been associated with leading technology companies at senior positions. He has over two decades of experience in ICT and has also founded several leading edge technology companies such as Server-Engines LLC, Ross Technology and Server-Works Corporation (acquired by Broadcom in 2001). Mr Vegesna holds several patents in microprocessor and multiprocessor technology. The promoter had also demonstrated financial support to Sify during the past.

Wide portfolio of services and pan India presence Sify offers a wide array of services with the connectivity services normally being the entry point for a client relationship. Data and enterprise voice connectivity continues to remain major constituent of the total income at 55.9% in FY20 and about 47.4% in 9MFY21. The data center services accounting for 16.9% of the total income being one of the major contributors to the overall profitability; for the period 9MFY21 the data center business contributed to a significant 22.6% of the overall revenue. Revenue from Technology Integration Services (TIS) moderated during FY20 as the company had increased the focus on other operating segments. TIS accounted for 13.5% of total income in FY20. Cloud and managed services has also seen good traction with income growth of 14.8% in FY20, as the company has been investing in this business in the form of tools and other resources. 1 CARE Ratings Limited

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Wide customer base and fair degree of revenue visibility Backed by diversified service offering, the company has been able to create a broad customer base across business segments ranging from BFSI, telecom, manufacturing, PSUs, etc. Most large clients are present across multiple segments and this ensures fair degree of stickiness, revenue visibility and reducing risk of churn.

Consistent growth in income, Healthy profit margins and cash accruals The total income increased by 10.09% y-o-y during FY20 and the PBILDT margin improved from 15.34% for FY19 to 18.96% in FY20 and further improved to 21.9% for 9MFY21. During 9MFY21, the company reported a total income of Rs.1,732 crore (9MFY20: Rs.1,711crore), PBILDT of Rs. 379 crore (9MFY20: Rs.321 crore) and PAT of Rs.73 crore (9MFY20: Rs.58 crore). Overall, PAT has moderated to Rs.74 crore in FY20 from Rs.105 crore in FY19 as the tax benefit of past losses available to the company has been utilized in full until last year. However, the overall profit after tax for 9MFY21 stood at Rs.73 crores as against Rs. 58 crores for 9MFY20.The capital structure is marked by increasing debt levels over the last few years on account of the largely debt-funded investments in the data center business. The gearing deteriorated from 0.85x as on March 31, 2019 to 0.98x as on March 31, 2020, due to availment of term loans for execution of new Data Center where marquee clients are committed to take up space immediately on completion of projects.

Key Rating Weaknesses Capital intensive nature of operations The connectivity and data center businesses are characterized by high capital costs towards up gradation and maintenance of the network links and need-based investment towards addition of DC space. The company is expanding the capacity of its existing DCs in Mumbai & also creating new DC facility in Kolkata, Noida and Hyderabad and proposes to expand DC capacity at Chennai and Bengaluru. The investments in the data center business over the FY21-23 period is expected to be around Rs. 430 crore a large part of which would be debt funded. Hon’ble NCLT has approved the Resolution Plan submitted by the company to acquire Print House (India) Private Limited (PHIPL), Mumbai. The factory unit of Print House is located adjacent to its Rabale DC facility. The total amount of consideration is Rs.56.91 crore. The company intends to convert into Data Centers, resulting in scalability of capacity and cost synergies by extending existing infrastructure and facilities.

Elongated receivables position Sify’s collection period remained high, albeit a marginal improvement as on March 31, 2020 at 157 days vis a vis 164 days as on March 31, 2019. A large share of Government business has led to an elongation in the recent years where operational and procedural issues have been extending the collections days. CARE has noted that significant collections have been made from Government clients and the share of government and PSU revenue has also reduced in FY20 and further the intended scaling down of the TIS segment is likely to improve collection days. Improvement in the collection days would remain a key rating monitorable.

Dynamic regulatory and technological environment Telecommunication sector in India is highly regulated in terms of licensing, costing, etc. The company provides connectivity and voice services under Unified License. Under data connectivity services, the company faces competition from established players like Bharti Airtel, Vodafone Idea, Jio, etc. Sify is uniquely positioned in the domestic connectivity industry being a pure play enterprise player. Connectivity needs for various e-governance measures and ICT implementation across smart cities are expected to drive growth in the segment.

Liquidity: Strong The company uses cash credit limits from banks to fund its working capital requirements and had an average working capital utilization of 59% for the last 12 months ended January 2021. Sify’s operating cycle has improved to 52 days in FY20 as against 62 days in FY19. The company had a collection period of 157 days in FY20 as against 164 days in FY19 and creditor period of 135 days during FY20 (PY:127 days). The company has a healthy free cash & bank balance of Rs.317 crore as on December 31, 2020 as against Rs.212.92 crore as on March 31, 2020. The company had availed moratorium for the working capital facilities and term loans (principal and interest) for period March 2020 – May 2020 and also repaid the entire moratorium availed for working capital in June 2020.

Analytical approach: Standalone Applicable Criteria Criteria on assigning ‘outlook’ and ‘credit watch’ to Credit Ratings CARE’s Policy on Default Recognition Financial ratios – Non-Financial Sector Rating Methodology - Service Sector Companies

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Criteria for Short Term Instruments Liquidity Analysis of Non-Financial Sector Entities

About the Company Sify Technologies Limited (Sify), incorporated as Satyam Infoway Private Limited in 1995, is the first non-telecom Internet Service Provider (ISP) in the country. USA-based technocrat entrepreneur, Mr Raju Vegesna, acquired the company from erstwhile promoters Satyam Computer Services Limited in 2005. As on March 31, 2020, Mr Raju Vegesna & associates hold 85.62% stake and the balance is held in the form of American Depository Receipts (ADRs), with the company being listed on NASDAQ since 1999. Today, Sify is an enterprise focused ICT (integrated Communication Technologies) solutions provider. Along with data and voice-based connectivity services (telecom), the company has also diversified into providing Data Center services, Managed Cloud Services, Technology Integration Services and Application Integration services. Brief Financials (Rs. crore) FY19 (A) FY20 (A) Total income 2,072.58 2,281.68 PBILDT 318.01 432.72 PAT 104.78 74.08 Overall gearing (times) 0.85 0.98 Interest coverage (times) 4.38 4.12 A: Audited Status of non-cooperation with previous CRA: Not Applicable Any other information: Not Applicable Rating History for last three years: Please refer Annexure-2 Complexity level of various instruments rated for this company: Annexure 3 Covenants of rated instrument / facility: Detailed explanation of covenants of the rated instruments/facilities is given in Annexure-4

Annexure-1: Details of Instruments/Facilities Size of the Rating assigned Name of the Date of Coupon Maturity ISIN Issue along with Instrument Issuance Rate Date (Rs. crore) Rating Outlook Fund-based - LT-Cash CARE A+; Stable - - - - 325.00 Credit Non-fund-based - ST- CARE A1+ - - - - 63.00 Letter of credit Non-fund-based - LT-Bank CARE A+; Stable - - - - 259.00 Guarantees CARE A+; Stable Non-fund-based - LT/ ST- - - - - 168.00 / CARE A1+ BG/LC

Fund-based - LT-Term CARE A+; Stable - - - Dec 2025 493.53 Loan Fund-based - LT-Buyers CARE A+; Stable - - - - 50.00 Credit Commercial Paper- CARE A1+ Commercial Paper - - - 7-364 days 50.00

(Carved out)

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Annexure-2: Rating History of last three years Current Ratings Rating history Name of the Type Rating Date(s) & Date(s) & Date(s) & Instrument/ Amount Date(s) & Rating(s) Sr. No. Rating(s) Rating(s) Rating(s) Bank Outstanding assigned in 2018- assigned in assigned in assigned in Facilities (Rs. crore) 2019 2020-2021 2019-2020 2017-2018 1)CARE A+; 1)CARE A+; Positive Positive (18-Mar-19) (15-Jan-18) 1)CARE A+; 2)CARE A+; 2)CARE A+; Fund-based - CARE A+; Stable Positive Positive 1. LT-Cash LT 325.00 Stable - (03-Mar-20) (08-Mar-19) (11-Jul-17) Credit 3)CARE A+; 3)CARE A+; Positive Stable (05-Oct-18) (17-Apr-17)

1)CARE A1+ 1)CARE A1+ (18-Mar-19) (15-Jan-18) Non-fund- CARE 1)CARE A1+ 2)CARE A1+ 2)CARE A1+ based - ST- 2. ST 63.00 A1+ - (03-Mar-20) (08-Mar-19) (11-Jul-17) Letter of 3)CARE A1+ 3)CARE A1 credit (05-Oct-18) (17-Apr-17)

1)CARE A+; 1)CARE A+; Positive Positive (18-Mar-19) (15-Jan-18) Non-fund- 1)CARE A+; 2)CARE A+; 2)CARE A+; CARE A+; based - LT- Stable Positive Positive 3. LT 259.00 Stable - Bank (03-Mar-20) (08-Mar-19) (11-Jul-17)

Guarantees 3)CARE A+; 3)CARE A+; Positive Stable (05-Oct-18) (17-Apr-17)

1)CARE A+; 1)CARE A+; Positive / CARE Positive / A1+ CARE A1+ (18-Mar-19) (15-Jan-18) CARE A+; 1)CARE A+; 2)CARE A+; 2)CARE A+; Non-fund- Stable / Stable / Positive / CARE Positive / LT/S 4. based - LT/ 168.00 CARE - CARE A1+ A1+ CARE A1+ T ST-BG/LC A1+ (03-Mar-20) (08-Mar-19) (11-Jul-17) 3)CARE A+; 3)CARE A+; Positive / CARE Stable / CARE A1+ A1 (05-Oct-18) (17-Apr-17)

1)CARE A+; 1)CARE A+; Positive Positive (18-Mar-19) (15-Jan-18) 1)CARE A+; 2)CARE A+; 2)CARE A+; Fund-based - CARE A+; Stable Positive Positive 5. LT-Term LT 493.53 Stable - (03-Mar-20) (08-Mar-19) (11-Jul-17) Loan 3)CARE A+; 3)CARE A+; Positive Stable (05-Oct-18) (17-Apr-17)

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1)CARE A+; Positive Debentures- 1)Withdraw 1)CARE A+; (11-Jul-17) Non n Positive 6. LT - - - 2)CARE A+; Convertible (03-Mar-20) (05-Oct-18) Stable Debentures (17-Apr-17)

1)CARE A1+ 1)Withdraw 1)CARE A1+ (11-Jul-17) Commercial n 7. ST - - - (05-Oct-18) 2)CARE A1 Paper (03-Mar-20) (17-Apr-17)

1)Withdraw Fund-based - n 8. LT-Cash ------(26-Aug-20) Credit

Non-fund- 1)Withdraw based - LT- n 9. ------Bank (26-Aug-20) Guarantees 1)CARE A+; Fund-based - CARE A+; Stable 10. LT-Buyers LT 50.00 Stable - - - (03-Mar-20) Credit

Commercial Paper- CARE 1)CARE A1+ 11. Commercial ST 50.00 A1+ (26-Aug-20) - - - Paper (Carved out)

Annexure 3: Complexity level of various instruments rated for this Company Sr. No. Name of the Instrument Complexity Level 1. Commercial Paper-Commercial Paper (Carved out) Simple 2. Fund-based - LT-Buyers Credit Simple 3. Fund-based - LT-Cash Credit Simple 4. Fund-based - LT-Term Loan Simple 5. Non-fund-based - LT-Bank Guarantees Simple 6. Non-fund-based - LT/ ST-BG/LC Simple 7. Non-fund-based - ST-Letter of credit Simple

Annexure 4: Detailed Explanation of covenants of the rated instruments/facilities: Not applicable

Note on complexity levels of the rated instrument: CARE has classified instruments rated by it on the basis of complexity. This classification is available at www.careratings.com. Investors/market intermediaries/regulators or others are welcome to write to [email protected] for any clarifications.

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Analyst Contact Name: Mr. P Sandeep Contact no.: 044 2850 1000 Email ID: [email protected]

Relationship Contact Name: Mr. V Pradeep Kumar Contact no. : 044 2850 1001 Email ID : [email protected]

About CARE Ratings: CARE Ratings commenced operations in April 1993 and over two decades, it has established itself as one of the leading credit rating agencies in India. CARE is registered with the Securities and Exchange Board of India (SEBI) and also recognized as an External Credit Assessment Institution (ECAI) by the Reserve Bank of India (RBI). CARE Ratings is proud of its rightful place in the Indian capital market built around investor confidence. CARE Ratings provides the entire spectrum of credit rating that helps the corporates to raise capital for their various requirements and assists the investors to form an informed investment decision based on the credit risk and their own risk-return expectations. Our rating and grading service offerings leverage our domain and analytical expertise backed by the methodologies congruent with the international best practices.

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