Company Quick10K Filing
Sify Technologies
20-F 2020-03-31 Filed 2020-07-29
20-F 2019-03-31 Filed 2019-06-20
20-F 2018-03-31 Filed 2018-06-20
20-F 2017-03-31 Filed 2017-06-16
20-F 2016-03-31 Filed 2016-06-22
20-F 2015-03-31 Filed 2015-06-19
20-F 2014-03-31 Filed 2014-07-21
20-F 2013-03-31 Filed 2013-07-31
20-F 2012-03-31 Filed 2012-08-13
20-F 2011-03-31 Filed 2011-10-13
20-F 2010-03-31 Filed 2010-11-30

SIFY 20F Annual Report

Part I
Item 1. Identity of Directors, Senior Management and Advisers.
Item 2. Offer Statistics and Expected Timetable
Item 3. Key Information
Item 4. Information on The Company
Item 4A. Unresolved Staff Comments
Item 5. Operating and Financial Review and Prospects
Item 6. Directors, Senior Management and Employees
Item 7. Major Shareholders and Related Party Transactions
Item 8. Financial Information
Item 9. The Offer and Listing
Item 10. Additional Information
Item 11. Quantitative and Qualitative Disclosures About Market Risk
Item 12. Description of Securities Other Than Equity Securities
Item 12(D). American Depositary Shares
Part II
Item 13. Defaults, Dividend Arrearages and Delinquencies
Item 14. Material Modifications To The Rights of Security Holders and Use of Proceeds
Item 15. Controls and Procedures
Item 16A. Audit Committee Financial Expert
Item 16 B. Code of Ethics
Item 16C. Principal Accountant Fees and Services
Item 16D. Exemptions From The Listing Standards for Audit Committees
Item 16E. Purchase of Equity Securities By The Issuer and Affiliated Purchasers
Item 16F. Change in Registrant's Certifying Accountant
Item 16 G. Corporate Governance
Item 16 H. Mine Safety Disclosure
Part III
Item 17. Financial Statements
Item 18. Financial Statements
Item 19. Exhibits
EX-2.1 sify008_ex2-1.htm
EX-8.1 sify008_ex8-1.htm
EX-12.1 sify008_ex12-1.htm
EX-12.2 sify008_ex12-2.htm
EX-13.1 sify008_ex13-1.htm
EX-13.2 sify008_ex13-2.htm
EX-15.1 sify008_ex15-1.htm

Sify Technologies Earnings 2020-03-31

Balance SheetIncome StatementCash Flow

20-F 1 sify008_20f.htm FORM 20-F

 

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

___________________________________________

 

FORM 20-F

 

(Mark One)

 

¨REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Or

 

þANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

 

For the fiscal year ended March 31, 2020.

 

Or

 

¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the transition period from                  to                 

 

¨SHELL COMPANY PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

Date of event requiring this shell Company report                 

 

Commission file number 000-27663

 

Sify Technologies Limited

(Exact name of Registrant as specified in its charter)

 

Not Applicable

(Translation at Registrant’s name into English)

 

Chennai, Tamil Nadu, India

(Jurisdiction of incorporation or organization)

 

TIDEL Park, 2nd Floor

4, Rajiv Gandhi Salai

Taramani, Chennai 600 113 India

(91) 44-2254-0770, Fax (91) 44 -2254 0771

(Address of principal executive office)

 

M.P.Vijay Kumar, Chief Financial Officer, (91) 44-2254-0770; vijaykumar.mp@sifycorp.com

TIDEL Park, 2nd Floor, 4, Rajiv Gandhi Salai, Taramani, Chennai 600113 India

(Name, Telephone, Email and/or Facsimile number and Address of Company Contact Person)

 

Securities registered or to be registered pursuant to Section 12(b) of the Act

 

Title of each class   Trading Symbol   Name of each Exchange on which registered
         
American Depository Shares, each represented by One Equity Share, par value ₹ 10 per share   SIFY   NASDAQ Capital Market (NASDAQ-CM)

 

Securities registered or to be registered pursuant to Section 12(g) of the Act

 

Title of each class   Name of each Exchange on which registered
     
None   Not Applicable

 

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act

 

Not Applicable

 

(Title of class)

 

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

 

179,223,247 Equity Shares.

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

 

Yes ¨   No þ

 

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

 

Yes ¨   No þ

 

Note - Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.

 

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

Yes þ   No ¨

 

Indicate by check mark whether the registrant has submitted electronically, if any, every Interactive Data file required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

 

Yes þ   No ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer or an emerging growth company. See definition of “large accelerated filer,” and large “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  ¨ Accelerated filer  ¨ Non-accelerated filer  þ
Emerging growth company  ¨    

 

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    

 

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. þ

 

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

 

US GAAP  ¨ International Financial Reporting Standards as  
  issued by the International Accounting Standards Board  þ Other  ¨

 

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow:     Item 17      Item 18

 

If this is an annual report, indicate by check mark whether the registrant is a shell Company (as defined in Rule 12b-2 of the Exchange Act).

 

Yes ¨   No þ

 

 

 

 

 

 

Table of Contents

 

Item   Page
     
Currency of Presentation and Certain Defined Terms 3
Forward-Looking Statements 4
   
PART I    
     
Item 1. Identity of Directors, Senior Management and Advisers 5
Item 2. Offer Statistics and Expected Timetable 5
Item 3. Key Information 5
Item 4. Information on the Company 30
Item 4A. Unresolved Staff Comments 43
Item 5. Operating and Financial Review and Prospects 43
Item 6. Directors, Senior Management and Employees 61
Item 7. Major Shareholders and Related Party Transactions 69
Item 8. Financial Information 73
Item 9. The Offer and Listing 75
Item 10. Additional Information 75
Item 11. Quantitative and Qualitative Disclosures About Market Risk 100
Item 12. Description of Securities Other Than Equity Securities 101
   
PART II  
   
Item 13. Defaults, Dividend Arrearages and Delinquencies 102
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds 102
Item 15. Controls and Procedures 102
Item 16A. Audit Committee Financial Expert 105
Item 16B. Code of Ethics 105
Item 16C. Principal Accountant Fees and Services 105
Item 16D. Exemptions from the Listing Standards for Audit Committees 105
Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers 105
Item 16F. Change in Registrant’s Certifying Accountant 106
Item 16G. Corporate Governance 106
Item 16H. Mine Safety Disclosure 106
     
PART III    
     
Item 17. Financial Statements 107
Item 18. Financial Statements 107
Item 19. Exhibits 170

 

 2 

 

 

Currency of Presentation and Certain Defined Terms

 

Unless the context otherwise requires, references in this annual 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 Annual Report on Form 20-F for the year ended March 31, 2020 (the “Annual Report”) are the property of their respective owners. In this Annual 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. References to the “Group” mean Sify Technologies Limited and its subsidiaries. References to “equity shares” refer to our Indian Equity Shares, which are not traded on an exchange in India or the United States. References to “ADSs” refer to our American Depositary Shares, which are traded on the NASDAQ Capital Market under the symbol “SIFY.”

 

For your convenience, this Annual 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 Annual Report, all translations from Indian rupees to U.S. dollars contained in this Annual Report have been based on the reference rate in the City of Mumbai on March 31, 2020 for cable transfers in Indian rupees as published by the Reserve Bank of India (RBI), which was ₹ 75.386 per US $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 Annual 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 this Annual Report.

 

 3 

 

 

Forward-Looking Statements

 

This Annual Report contains “forward-looking statements”, as defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that are based on our current expectations, assumptions, estimates and projections about our Company, our industry, economic conditions in the markets in which we operate, and certain other matters. Generally, these forward-looking statements can be identified by the use of forward-looking terminology such as ‘anticipate’, ‘believe’, ‘estimate’, ‘expect’, ‘may’, ‘intend’, ‘will’, ‘project’, ‘seek’, ‘should’ and similar expressions. Those statements include, among other things, the discussions of our business strategy and expectations concerning our market position, future operations, margins, profitability, liquidity and capital resources. These statements are subject to known and unknown risks, uncertainties and other factors, which may cause actual results or outcomes to differ materially from those implied by the forward-looking statements. Important factors that may cause actual results or outcomes to differ from those implied by the forward-looking statements include, but are not limited to, those discussed in the “Risk Factors” section in this Annual Report. In light of these and other uncertainties, you should not conclude that the results or outcomes referred to in any of the forward-looking statements will be achieved.

 

We operate in rapidly changing businesses, and new risk factors emerge from time to time. We cannot predict every risk factor, nor can we assess the impact, if any, of all such risk factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those projected in any forward-looking statements. All forward-looking statements included in this Annual Report are based on information available to us, and reflect management’s beliefs, on the date hereof, and we do not undertake to update these forward-looking statements to reflect future events or circumstances. In addition, readers should carefully review the other information in this Annual Report and in our reports and other documents filed with the United States Securities and Exchange Commission (“SEC”) from time to time.

 

 4 

 

 

PART I

 

Item 1. Identity of Directors, Senior Management and Advisers.

 

Not applicable.

 

Item 2. Offer Statistics and Expected Timetable

 

Not applicable.

 

Item 3. Key Information

 

Selected Financial Data

 

Summary of Consolidated Financial Data

 

You should read the summary of consolidated financial data below in conjunction with the Company's consolidated financial statements and the related notes, as well as the section entitled “Operating and Financial Review and Prospects,” all of which are included elsewhere in this Annual Report. The summary of consolidated statements of income data for the five years ended March 31, 2020, 2019, 2018, 2017 and 2016 and the summary of consolidated Statement of Financial Position as of March 31, 2020, 2019, 2018, 2017 and 2016 have been derived from our audited consolidated financial statements and related notes to the consolidated financial statements which were prepared and presented in accordance with International Financial Reporting Standards (IFRS) as issued by International Accounting Standards Board (IASB). Historical results are not necessarily indicative of future results.

 

 5 

 

 

Sify Technologies Limited

Consolidated Statement of Income

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

 

   Year ended March 31, 
  

2020

  

2019

  

2018

  

2017

  

2016

   2020
Convenience
translation
into US$ in
thousands,
except share
and per share
data
 
                       (See Note 1) 
Revenue   22,952,067    21,546,885    20,685,613    18,432,020    15,034,896    304,461 
Cost of goods sold and services rendered   (14,364,827)   (13,602,224)   (13,434,950)   (11,870,221)   (9,103,864)   (190,551)
Other income   97,155    217,216    189,738    145,872    104,885    1,289 
Selling, general and administrative expenses   (4,513,646)   (4,874,620)   (4,394,814)   (3,991,273)   (3,479,287)   (59,874)
Depreciation and amortization   (2,290,777)   (1,533,912)   (1,754,537)   (1,758,776)   (1,598,037)   (30,387)
Profit / (loss) from operating activities   1,879,972    1,753,345    1,291,050    957,622    958,593    24,938 
                               
Finance income   193,877    46,314    129,325    122,584    45,437    2,572 
                               
Finance expenses   (1,054,133)   (728,344)   (496,780)   (437,109)   (565,712)   (13,983)
Net finance income / (expense)   (860,256)   (682,030)   (367,455)   (314,525)   (520,275)   (11,411)
Profit / (loss) before tax   1,019,716    1,071,315    923,595    643,097    438,318    13,527 
Income tax (expense) / benefit   (314,339)   (2,612)   (194)   (698)   135    (4,170)
Profit / (loss) for the year attributable to equity holders   705,377    1,068,703    923,401    642,399    438,453    9,357 
                               
Earnings per share                              
Basic earnings per share   3.94    6.92    6.14    4.45    3.11    0.05 
Diluted earnings per share   3.90    6.86    6.11    4.45    3.10    0.05 
                               
Dividend paid per share *                              
Fully paid up (₹ 10 per share)   -    1.20    1.20    1.00    1.00    - 
Partly paid up (₹ 7.75 per share)   -    1.04    0.93    0.70    0.70    - 

 

* Excluding dividend distribution tax

 

 6 

 

 

Particulars

(Rupees in thousands, except share and per share data)

Balance Sheet data

 

   March 31,  

Convenience
translation

into US$ in

thousands,
except share

and per share

data

(see note 1 )

 
   2020   2019   2018   2017   2016   2020 
                  $ 
Cash and cash equivalents including restricted cash   2,651,085    2,247,975    2,288,121    1,884,265    1,735,880    35,167 
                               
Net  current assets   142,564    2,671,491    1,851,124    700,522    1,046,673    1,891 
                               
Total assets   34,255,392    29,936,178    24,462,104    21,534,054    18,601,926    454,401 
                               
Total equity attributable to equity shareholders of the Company   11,351,308    10,778,828    9,004,953    8,264,419    7,500,831    150,576 
                               
Capital Stock   21,163,069    21,156,342    20,212,444    20,197,606    19,897,606      
No of equity shares   179,223,247    179,144,347    178,684,647    178,530,787    178,530,787      
                               
Cash Flow Data                              
Net cash provided by / (used in):                              
Operating activities   5,042,818    1,441,380    2,120,604    1,748,483    2,442,662    66,893 
Investing activities   (4,326,319)   (3,973,682)   (1,794,304)   (1,609,979)   (1,566,051)   (57,389)
Financing activities   3,921    3,054,389    (1,048,056)   (257,913)   (580,313)   52 

 

Notes

 

1.Reference to shares and per share amounts refers to our equity shares. Our outstanding equity shares include equity shares held by a depository underlying our ADSs. Effective September 24, 2002, one ADS represented one equity share.

 

 7 

 

 

Exchange Rates

 

Our functional currency is the Indian rupee. The exchange rate between the rupee and the U.S. dollar has changed substantially in recent years and may fluctuate substantially in the future. Our exchange rate risk primarily arises from our foreign currency revenues, receivables and payables.

 

On March 31, 2020, the reference rate in the City of Mumbai for cable transfers in Indian rupees as published by RBI was ₹75.386.

 

On July 27, 2020, the reference rate in the City of Mumbai for cable transfers in Indian rupees as published by RBI was ₹74.76

 

Capitalization and indebtedness

 

Not applicable.

 

Reasons for the offer and use of proceeds

 

Not applicable.

 

Risk Factors

 

Investing in our American Depositary Shares, or ADSs, involves a high degree of risk. This Annual Report contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those described in the following risk factors and elsewhere in this Annual Report. If any of the risks actually occur, our business, financial condition, operating results and prospects could be materially and adversely affected. In that event, the market price of our ADS could decline, and you could lose part or all of your investment. Our business, operating results, financial performance, or prospects could also be harmed by risks and uncertainties not currently known to us or that we currently do not believe are material.

 

COVID-19 Impact

 

The COVID-19 pandemic is having an impact on our entire risk landscape and will continue to impact, the extent of which depends on various factors which are beyond the control of the Group. We have incorporated COVID-19 commentary below, which gives an overview of the related uncertainties and potential impacts on the Group. These are to be considered along-with the principal risk factors that are highlighted below.

 

COVID-19 PANDEMIC

 

The global COVID-19 pandemic is having an impact on our associates, operations, suppliers, customers, governments and the general public. The COVID-19 pandemic has resulted in a series of measures implemented by governments around the world aimed at mitigating the further spread of the virus. These measures include restrictions on travel, closure of national borders, imposition of quarantines, prolonged closures of workplaces and curfews or other social distancing measures. The extent of the impact on the Group is dependent on a variety of factors including, but not limited to, the length of lockdowns in India and the geographies in which our customers and suppliers operate, levels of employee absence, virus recurrence, insolvency rates, unemployment levels, nature and extent of any government interventions, severity of economic effects and the subsequent speed and nature of the recovery.

 

The COVID-19 pandemic has resulted in adverse impacts on sales activity and demand, which may be partially offset by increased use of connectivity, data center and cloud usage by existing customers. There is a potential that supply chain issues and/or prolonged associate absence may inhibit our ability to deliver products and services to customers, with an associated impact on our customer experience.

 

With a prolonged economic downturn, we may be exposed to material bad debt if a significant number of our large corporate customers and smaller and medium enterprises experience financial distress or insolvency. The collective impacts of the pandemic and associated economic downturn could negatively impact our cash position and ability to fund desired investment projects and ongoing operations.

 

Due to the uncertainty of the duration and economic impact of the COVID-19 pandemic, we are continually evaluating variety of scenarios with the financial impacts across the Group, as well as assessing the liquidity mitigation options that could be used if required. We have also carried out risk assessments for each of our customer-facing business units, considering potential strategic, operational, regulatory and associate related impacts.

 

 8 

 

 

The following are the risk factors that we envisage to be affected as a result of COVID-19 Pandemic:

 

Political Risk

 

The COVID-19 pandemic presents challenges related to our infrastructure resilience, support for staff and customers, with any failure to manage these challenges likely to create governmental and political pressure on the Group.

 

Industry Regulations

 

Our associates are focused on maintaining critical services and meeting customers’ needs. An inflexible approach to regulation during the COVID-19 pandemic could stretch the delivery capability of our associates and could result in significant non-compliance.

 

Cyber Security

 

The sustained absence of key staff due to the COVID-19 pandemic could adversely affect our ability to defend against cyber-attacks. We continue to develop our cyber defense capability, make use of proactive threat-hunting and invest more in automatic detection and prevention systems. If we are unable to successfully implement these enhancements, we may not be able to keep pace with the evolving threat and protect our assets and our customers’ assets.

 

Supply Chain

 

Our supply chain which has a combination of global partners and domestic partners in India, could be adversely affected by the COVID-19 pandemic. While we take all efforts to minimize the risks, any adverse impact on our supply chain could impact our customer experience, result in higher costs and cause potential damage to our brand.

 

IT Projects

 

Our IT projects with reference to improving customer experiences, automate processes, simplify products play critical role in our transformation journey. With the COVID-19 pandemic, the resources could become scarcely available for these transformational projects (e.g., shortage due to availability, remote working and also other important developments due to the impact of COVID-19) and could negatively impact customer experience, operational efficiency and thereby ability to make future investments.

 

Customer Projects

 

COVID-19 related challenges like associate absenteeism, impact on supplier and customer businesses, may also impact our ability to deliver all aspects of the projects. There are delays in recognition of a small portion revenue, as there are delays in obtaining sign-off from customers. Due to the negative business impact on our clients’ business and operations, there have been requests for discount, delayed payment terms and postponement of new installations. There are possibilities of invocation of Force Majeure clauses in contract. All of these may impact our future revenue, profitability and cash generation adversely.

 

Associate Engagement

 

Due to cost optimization and austerity measures that may be required to be taken by us if the COVID-19 pandemic adversely affects our businesses and liquidity in the future, we may fail to retain employees and attract suitable talents to the company. The productivity of our employees may be negatively impacted due to isolated remote working from home, quarantine requirements, negative social sentiment and personal anxiety. Our operations could get disrupted if any of the employees test positive for COVID-19 after returning to office. We could be subject to lawsuits from employees alleging exposure to health risks as we transition them to working from office or clients’ place. All these could further adversely affect our ability to continue the operations and develop our business.

 

 9 

 

 

Risk of Fixed Cash Outflow

 

A few of our business have fixed costs like office space, associate costs and there are semi-variable costs like networking costs, maintenance costs, power and fuel costs. With the adverse impact of COVID-19, we might have to continue to make payments towards these expenses irrespective of the amount we would be able to receive from the customers. Cost of insurance could go up due the impact of COVID-19 on insurance companies. This could adversely impact profitability and liquidity of the Group. A deterioration in liquidity might have an adverse effect of Board’s assessment of going concern.

 

Expansion and Replacement Capex

 

COVID-19 pandemic could adversely impact customer demands and also the liquidity and/or ability to raise additional funds for expansion of business and replacement of existing capital expenditure to sustain current businesses. This could affect our ability to grow and make profits.

 

Compliance Costs

 

Due to stricter regulations due to COVID-19, our cost of compliance of safety regulations for associates, partners, customers and vendors could increase. Higher costs have to be incurred to ensure a safe and hygienic workplace for operations that are run from office. This would impact the profitability which might not be correspondingly reflected in the product pricing.

 

Significant Control Failure

 

COVID-19 pandemic has had significant impact in the way our business processes are being carried out. Due to the demanding times and the changes that were required to be made to combat the situation causes, our internal controls over financial reporting could have been exposed to inherent risks which may not help us prevent or detect misstatements. This could result in financial misstatement, financial loss or key decision being taken based on incorrect information.

 

Privacy and Data Protection

 

Due to COVID-19 pandemic, an increased number of our associates are currently working from home, which presents additional data security and privacy related risks.

 

Geo-political Risks

 

The COVID-19 pandemic presents challenges related to our infrastructure resilience, support for staff and customers and related to macro-economic factors like, increase in unemployment across economies, extended recession in the economy, with any failure to manage these challenges likely to create geo-political tension and social unrest, which could impact the profitability of the Group.

 

Risks Related to our Company and Industry

 

We may incur losses in the future and we may not achieve or maintain profitability.

 

We have in the past incurred losses. We may, in the future incur net losses and suffer negative operating cash flows. We expect to increase our expenditures as we continue to expand our services, promote our brand, and invest in the expansion of our infrastructure. In the future, we may incur expenses in connection with investments in Network, Data Centers and related infrastructure. Accordingly, we will need to significantly increase our revenues in order to improve our profitability. We cannot assure you that we will improve our profitability or that we will not incur operating losses in the future. If we are unable to become consistently profitable and incur losses, we may be unable to build a sustainable business and our results of operations may be adversely affected. In this event, the price of our ADSs and the value of your investment may decline.

 

The economic environment, increased pricing pressure and decreased utilization rates could negatively impact our revenues and operating results.

 

IT spending of customers is often driven by the growth in revenue of customers. Global economic slowdown in the past has reduced the IT spending budgets of our customers and have in the past adversely affected and may in the future adversely affect our revenue, profitability and results of operation. Global economic performance also has a bearing on our Infrastructure and e-Learning businesses. Currency fluctuations will also lead to variations in revenue. The Infrastructure Managed Services, National Long Distance (‘NLD’) / International Long Distance (‘ILD’) business and eLearning may be affected in terms of prices and growth.

 

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With regard to the Indian economy, we continue to experience pricing pressure due to competition in the markets in which we operate. Lead times for orders or contracts have become much longer, as we have longer credit periods. These factors have affected and will affect the growth in demand for our corporate business.

 

We have invested in building our network and Data Center infrastructure and will continue to invest in the future. Our utilization rates of the existing and prospective infrastructure will determine our profitability. We may not utilize our infrastructure at the optimum level which would impact our revenue.

 

Reduction in IT spending, inability to maintain or increase prices, extended credit terms, and inability to maintain or improve utilization rates of our infrastructure may adversely impact our revenues, gross profits, operating margins and results of operations.

 

Currency fluctuations may affect the results of our operations or the value of our ADSs.

 

The exchange rate between the Indian rupee and the U.S. dollar has changed significantly in recent years and may continue to fluctuate substantially in the future.

 

We use derivative financial instruments, such as foreign exchange forward and option contracts, to mitigate the risk of changes in foreign exchange rates on accounts receivable, payable, foreign currency loans and forecast cash flows denominated in US dollar. We may not purchase derivative instruments for an amount sufficient to adequately insulate ourselves from foreign currency exchange risks. We have entered into interest rate swap transactions. Exchange rate fluctuations may adversely impact our cash flows on these transactions.

 

For the year ended March 31, 2020, we have recognized a net loss of ₹ 2.98 million ($0.04 million) arising on account of foreign exchange fluctuations. If foreign exchange currency markets continue to be volatile, such fluctuations in foreign currency exchange rates could materially and adversely affect our results of operations in future periods. Also, the volatility in the foreign currency markets may make it difficult to hedge our foreign currency exposures effectively and make them expensive.

 

Further, the policies of the Reserve Bank of India (RBI) may change from time to time which may limit our ability to hedge our foreign currency exposures adequately. Full or increased capital account convertibility, if introduced, could result in increased volatility in the fluctuations of exchange rates between the Indian rupee and US dollar. Our US customers may leave us exposed to fluctuation in revenues based on currency fluctuations.

 

A significant portion of our revenue arises from exports in foreign currency and hence, any appreciation/ depreciation in Indian Rupee in relation to any foreign currency may affect our revenue and profits.

 

In July 2012, the RBI mandated conversion of foreign currency balances held in Export Earners Foreign Currency (EEFC) Accounts, before the end of subsequent month of the transaction. This may force us to convert foreign currency balances to INR at an unfavorable exchange rate, which will result in loss.

 

Intense competition in our businesses could prevent us from improving our profitability and we may be required to further modify the rates we charge for our services in response to new pricing models introduced by new and existing competition which would significantly affect our revenues.

 

We operate in extremely competitive markets where the investment capability and the size of the competitors are much larger than us. For instance, Our corporate network services compete with well-established companies, including Bharti Airtel, Tata Communications Limited, the Government-owned telecom companies, Bharat Sanchar Nigam Limited and Mahanagar Telephone Nigam Limited and new players like Reliance Jio

 

The large players, may enjoy significant competitive advantages over us, including greater financial resources, which could allow them to charge prices that are lower than ours in order to attract customers. These factors could result in actual average selling prices of our services. With the entry of a new player, the retail internet market has seen significant reduction in prices by all operators due to pricing strategy by the new entrant. This has significantly affected the customer base and the average revenue per user of the existing operators. We may see similar trends in enterprise market as well, which may have an adverse effect on our revenues and operating margins. We expect the market for Internet access and other connectivity services to remain extremely price competitive. Increased competition may result in operating losses, loss of market share and diminished value in our services, as well as different pricing, service or marketing decisions. In addition, competition may generally cause us to incur unanticipated costs associated with research and product development. Additionally, we believe that our ability to compete also depends in part on factors outside our control, such as the availability of skilled employees in India, the price at which our competitors offer comparable services, and the extent of our competitors’ responsiveness to their clients’ needs. We cannot assure you that we will be able to successfully compete against current and future competitors, or that we will not lose key employees or customers to such competitors, which may adversely affect our business and results of operations.

 

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Pressure on margins may affect the results of our operations.

 

Our margins have been relatively stagnant due to competitive pricing pressure. While we seek to manage costs efficiently, there may not be improvements in margins due to the sustained pricing pressure. Unavailability of tax loss carryforwards might impact our margins in the current year and the future. Our continuing investment in infrastructure may result in lower margins in the initial years of investment and may or may not improve further, which will adversely impact our margins.

 

We may fail to meet such obligations of export under the Export Promotion Capital Goods Scheme (EPCG) and be subjected to penalties.

 

We have been availing duty benefit for our import of capital goods under the EPCG scheme available for export of services. Under the scheme, we are eligible to import capital goods without import duty with an obligation to generate export earnings to the extent of 6 times the value of such duty benefit availed within a period of 6 years over and above the annual average export obligation. Though there are export earnings at present, we may fail to fulfill such obligation in the future. In the case of a shortfall in fulfilment of such export obligation, we may be subjected to repay the duty benefit availed along with interest.

 

Our business will suffer if we fail to anticipate and develop new services and enhance existing services in order to keep pace with rapid changes in technology

 

The technology market is characterized by rapid technological change, evolving industry standards, changing client preferences and new product and service introductions. Our future success will depend on our ability to anticipate these advances and develop new product and service offerings to meet client needs. We may fail to anticipate or respond to these advances on a timely basis, or, if we do respond, the services or technologies that we develop may not be successful in the marketplace. We have introduced and propose to introduce several solutions involving complex delivery models combined with innovative outcome-based pricing models. The complexity of these solutions, our inexperience in developing or implementing them and significant competition in the markets for these solutions may affect our ability to market these solutions successfully. In addition, better or more competitively priced products, services or technologies that are developed by our competitors may render our service non-competitive.

 

Despite our best efforts to optimize costs, our future operating results could fluctuate in part because our expenses are relatively fixed in the short term while future revenues are uncertain, and any adverse fluctuations could negatively impact the price of our ADSs.

 

Our revenues, expenses and operating results have varied in the past and may fluctuate significantly in the future due to a number of factors, many of which are outside our control. A significant portion of our investment and cost base is relatively fixed in the short term. Our revenues in the foreseeable future will depend on many factors, including the following:

 

the range of services provided by us and the usage thereof by our customers;

 

the quantum and nature of any agreements we enter into with strategic partners for our services;

 

the services, products or pricing policies introduced by our competitors;

 

capital expenditure and other costs relating to our operations;

 

the timing and quality of our marketing efforts;

 

our ability to successfully integrate operations and technologies from any acquisitions, joint ventures or other business combinations or investments;

 

the introduction of alternative technologies; and

 

technical difficulties or system failures affecting the telecommunication infrastructure in India, the Internet generally or the operation of our websites.

 

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We plan to continue to expand and invest in our network infrastructure. Many of our expenses are relatively fixed in the short-term. We cannot assure you that our revenues will increase in proportion to the increase in our expenses. We may be unable to adjust spending quickly enough to offset any unexpected revenues shortfall. This could lead to a shortfall in revenues in relation to our expenses and adversely affect our revenue and operating results.

 

You should not rely on yearly comparisons of our results of operations as indicators of future performance and operating results may be below the expectations of public market analysts and investors. In this event, the price of our ADSs may decline.

 

Our business may not be compatible with delivery methods of Bandwidth / Connectivity developed in the future.

 

We face the risk that fundamental changes may occur in the delivery of connectivity services in India. The internet market has seen significant changes in the recent past from connecting fixed offices/locations to connecting mobile devices to connecting disparate automated devices and to continue to be relevant in this dynamic and disruptive environment, we will have to develop new technology or modify our existing technology to accommodate these developments. Our pursuit of these technological advances, whether directly through internal development or by third-party license, may require substantial time and money. We may be unable to adapt our connectivity service business to alternate delivery means and new technologies may not be available to us at all. We provide wireless connectivity on the 5.7 GHz spectrum allotted to us by the Wireless Planning Commission. This spectrum has been de-licensed during the current fiscal year. Hence, we do not own any licensed spectrum to offer our services. We are exploring suitable spectrum that is technically feasible to offer our services. We may not get the licensed spectrum. The spectrum allocation may be inconsistent with industry standards. The current capacity may be insufficient to offer a breadth of services. The Government may issue instructions to release the spectrum that we hold. High cost of spectrum acquisition may be inconsistent with our revenue and cost models. We may not keep up with the pace of change that takes place in wireless technologies.

 

Disruption to our Networks and Data Center infrastructure may cause us to lose customers and/or incur additional expenses.

 

Some of the risks to our infrastructure include physical damage, security breaches, capacity limitations, power surges or outages, software incompatibility and/or other disruptions beyond our control, such as natural disasters and acts of terrorism. From time to time in the course of our operations, we experience disruptions in our service due to factors such as cable damage, theft of our equipment, inclement weather and service failures of our third-party service providers. Disruptions may cause interruptions in service or reduced capacity for customers, either of which could cause us to lose customers, or increase our operating expense, both of which could adversely affect our business, revenues and cash flows.

 

The success of our business depends on wider reach of network in India, which may be slowed or halted by technical obstacles in India.  

 

Wider reach of network and availability of increased bandwidth in India, which is the measure of Network penetration, has been relatively low and slow compared to many developing and developed countries in the world. Though in recent years, the coverage of tier III/tier IV cities has increased, there may be many technical obstacles to accessing certain regions which may increase the cost of building the network and thereby cause a slowdown or halt the consumption of network services, which will adversely affect our operations.

 

We may be compelled to surrender or pay additional for the spectrum that was allotted to us earlier. 

 

The Government of India has asked us to surrender certain range of spectrum allotted to us and the same was auctioned as BWA spectrum. The Government also has asked the company to make payment for certain spectrum from the date of allotment or to surrender the same. The other range of spectrum that we have been operating, 5.7 GHz, is also close to capacity utilization and will need to be augmented in the near future. Enterprise connectivity will need licensed bands of spectrum for assured quality and security, so the non-availability of spectrum would materially adversely affect our business and results of operations. In the event of the surrender of the spectrum certain frequencies, it may hamper our future plans for expansion of services, and there are no assurances that we will be able to obtain additional replacement spectrum.

 

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We might not be able to grow Network Connectivity services due to a declining contribution.

 

In the Network Connectivity business, realization could be lower year on year based on the market conditions. Every year when annual contracts come up for renewal, customers sign up for more bandwidth or more links at a lower unit price. This is offset somewhat by lower bandwidth costs, which we renegotiate with our service providers. This impacts us in two ways: first, despite an increase in sales volume, we may not see a commensurate rise in revenues; and secondly, margins in our business are continually shrinking.  Therefore, our revenue from our connectivity business may stagnate with declining bandwidth prices.

 

We may not be able to retain and acquire customers for our Data Centers.

 

In the field of Data Center services, competition from Data Center operators may attract customers away from us or make it more difficult for us to attract new customers. If competitors are more successful than us in the market, it could be difficult for us to retain and/or acquire customers. Furthermore, once customers cease using our services and choose another service provider, it may require substantial efforts in terms of cost and time to re-acquire such customers, and despite spending on such customer acquisition or retention, we may be unsuccessful in retaining such customers.

 

In order to improve our competitiveness, we continue to expand our Data Center infrastructure. If we are unable to attract adequate customers, we will not be able to achieve the revenues initially anticipated, which could have an adverse effect on our future results of operations and financial condition.

 

Our Data Centers may not be competitive enough in terms of green features.

 

We may fail to convert our existing Data Centers and/or build new Data Centers under the LEED (Leadership in Energy and Environmental Design) Commercial Interior (CI) program of United States Green Building Council (USGBC). LEED certification is an internationally recognized program and is considered one of the highest standards for energy efficient constructions. The Data Center uses several green features such as site ecology, water conservation, smart energy meters and equipment, reduction of CO2 emissions, high recycle content, effective waste management and eco-friendly interiors. Increased demand for green Data Center may hamper the marketing of our existing Data Centers that are not LEED certified.

 

Reduction in power supply and non-availability of fuel may affect our Data Centers.

 

There has been acute power shortage in the past in India and hence, there could be a reduction in the availability of electricity. Where there is non-availability of power supply in Data Centers, we resort to alternate sources of power (fuel) and the running of the Data Centers mainly depend on the availability of fuel, which will increase the cost of operations. Additionally, non-availability of power/fuel will disrupt our operations and it would be difficult for our customers to access data during such times.

 

We may lose relevance and revenues if we do not position our business models in line with current and future technology trends.

 

Technology trends, such as cloud computing, IoT, SD-WAN and software-as-a-service, allow new business models that could replace current lines of business. The markets for our services are characterized by rapidly changing technology, evolving industry standards, emerging competition and frequent introduction of new services. We may not successfully identify new opportunities, develop and bring new services to market in a timely manner. Unless we are able to adopt and deploy these advancements, we may lose our competitive position in the marketplace, which would adversely affect our revenues and may lead to increased customer attrition, as our customers switch to other providers.

 

We face risks associated with having a long selling and implementation cycle for our services that requires us to make significant capital expenditures and resource commitments prior to recognizing revenue for those services.

 

Data Center service typically requires significant investment of capital, human resources and time by both our customers and us. Constructing and commissioning of a Data Center requires significant capital expenditures. A customer’s decision to utilize our colocation services, our managed services or our other services typically involves time-consuming contract negotiations regarding the service level commitments and other terms, and substantial due diligence on the part of the customer regarding the adequacy of our infrastructure and attractiveness of our resources and services. Our efforts in pursuing a particular sale or customer may not be successful. If our efforts in pursuing sales and customers are unsuccessful, our financial condition could be negatively affected.

 

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The Data Center business is capital-intensive, and our expectation for our capacity to generate capital in the short term may be insufficient to meet our anticipated capital requirements.

 

The costs of constructing, developing and operating Data Centers are substantial. Further, we may encounter development delays, excess development costs, or delays in developing space for our customers to utilize. We also may not be able to identify suitable land or facilities for new Data Centers or at a cost on terms acceptable to us. We are required to fund the costs of constructing, developing and operating our Data Centers with cash retained from operations, as well as from financings from bank and other borrowings. Moreover, the costs of constructing, developing and operating Data Centers have increased in recent years, and may further increase in the future, which may make it more difficult for us to expand our business and to operate our Data Centers profitably. If we cannot generate sufficient capital to meet our anticipated capital requirements, our financial condition, business expansion and future prospects could be materially affected.

 

Our customer base may decline if our customers or potential customers develop Data Centers or expand their own existing Data Centers.

 

Some of our customers may develop their own Data Center facilities. Other customers with their own existing Data Centers may choose to expand their Data Center operations in the future. In the event that any of our key customers were to develop or expand their Data Centers, we may lose business or face pressure as to the pricing of our services. In addition, if we fail to offer services that are cost-competitive and operationally advantageous as compared with services provided in-house by our customers, we may lose customers or fail to attract new customers. If we lose a customer, there is no assurance that we would be able to replace that customer at the same or a higher rate, or at all, and our business and results of operations would suffer.

 

Our Data Center infrastructure may become obsolete or unmarketable and we may not be able to upgrade our power, cooling, security or connectivity systems cost-effectively or at all.

 

The markets for the Data Centers we own and operate are characterized by rapidly changing technology, evolving industry standards, frequent new service introductions, shifting distribution channels and changing customer demands. As a result, the infrastructure at our Data Centers may become obsolete or unmarketable due to demand for new processes and/or technologies, including, without limitation: (i) new processes to deliver power to, or eliminate heat from, computer systems; (ii) customer demand for additional redundancy capacity; (iii) new technology that permits higher levels of critical load and heat removal than our Data Centers are currently designed to provide; and (iv) an inability of the power supply to support new, updated or upgraded technology. In addition, the systems that connect our Data Centers to the Internet and other external networks may become outdated, including with respect to latency, reliability and diversity of connectivity. When customers demand new processes or technologies, we may not be able to upgrade our Data Centers on a cost-effective basis, or at all, due to, among other things, increased expenses to us that cannot be passed on to customers or insufficient revenue to fund the necessary capital expenditures. The obsolescence of our power and cooling systems and/or our inability to upgrade our Data Centers, including associated connectivity, could reduce revenue at our Data Centers and could have a material adverse effect on us.

 

Procuring power at lower costs for Data Centers by the competitors may put us at a disadvantage in terms of pricing for our Data Center operations.

 

The single largest operating cost in Data Centers is power. Currently all Data Centers are located in proximity to, or at the edge of major urban centers such as Mumbai, Chennai, Bengaluru and Noida. Inexpensive land and labor allow companies to locate new Data Centers in remote locations. We may neither be in a position to develop Data Centers at remote locations where power is cheap nor procure power at cheaper rates for our Data Centers. If our competitors procure power at lower cost, they may have an advantage over us with respect to pricing. Our inability to offer competitive pricing may result in loss of customers and will impact our business and result of operations. The alternate sources of power are also exposed to inflation, regulation and hence, any undue price increase would affect our energy cost significantly.

 

If we are not successful in expanding our service offerings, we may not achieve our financial goals and our results of operations may be adversely affected.

 

We have plans to expand the nature and scope of our service offerings, particularly into the area of cloud and managed services, including direct private connection to major cloud platforms and the provision of cloud infrastructure. The success of our expanded service offerings depends, in part, upon demand for such services by new and existing customers and our ability to meet their demand in a cost-effective manner. We may face a number of challenges expanding our service offerings, including:

 

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oacquiring or developing the necessary expertise in IT;
omaintaining high-quality control and process execution standards;
omaintaining productivity levels and implementing necessary process improvements;
ocontrolling costs; and
osuccessfully attracting existing and new customers for new services we develop.

 

A failure by us to effectively manage the growth of our service portfolio could damage our reputation, cause us to lose business and adversely affect our results of operations. In addition, cloud and managed services may require significant upfront investment and continued expansion into these services may impact our profit margins. In the event that we are unable to successfully grow our service portfolio, we could lose our competitive edge in providing our existing cloud and managed services.

 

We may be vulnerable to security breaches which could disrupt our operations and have a material adverse effect on our financial condition and results of operations.

 

As we provide assurances to our customers that we provide the highest level of security, any breach on such security could be harmful to our brand and reputation. We may be required to expend significant capital and resources to protect against such threats or to alleviate problems caused by breaches in security. In addition, as we continue expanding our service offerings in managed cloud services, including direct private connection to major cloud platforms and the provision of cloud infrastructure, we will face greater risks from potential attacks because the provision of cloud-related services will increase the flow of Internet user data through the Data Center facilities we operate and create broader public access to our system. As techniques used to breach security change frequently and are often not recognized until launched against a target, we may not be able to implement new security measures in a timely manner or, if and when implemented, we may not be certain whether these measures could be circumvented. Any breaches that may occur could expose us to increased risk of lawsuits, regulatory penalties, loss of existing or potential customers, harm to our reputation and increases in our security costs, which could have a material adverse effect on our financial condition and results of operations.

 

In addition, any assertions of alleged security breaches or systems failure made against us, whether true or not, could harm our reputation, cause us to incur substantial legal fees and have a material adverse effect on our business, reputation, financial condition and results of operations.

 

We may encounter litigation and penalties due to breach of system and security controls by associates or sub-contractors in the online assessment services

 

We provide online assessment services to the Government, Public & Private sector undertakings. We provide these services through our online assessment tool. This tool engages employees and sub-contractors for student registration, exam center allocation, hall ticket issuance, question paper content creation, logistics planning, exam-day management, and results management.  We cannot assure you that there may not be any breach of the system and security controls including any malpractices by candidates or sub-contractors or any person engaged with the conduct of the examination, which may expose us to criminal or civil enforcement actions in addition to penalties and suspension or disqualifications.

 

Despite our endeavor to maintain the robust system the examinations, an incident occurred in the month of February 2018 where Sify observed a technical glitch in the question paper. We decided to cancel the question paper and reexamination was successfully conducted immediately. A few answer keys appeared in the social media posted by an unknown person. Pursuant to the protests carried out by certain sections of students in Delhi, the government tasked the country’s investigating agency with probing the matter. On May 23, 2018, Central Bureau of Investigation (CBI) conducted inquiry at 12 locations including 4 premises of Sify Technologies Limited. Sify extended its full support by submitting the reports, statements, process documents to CBI during the preliminary enquiry.

 

The authorities during the inquiry collected data pertaining to the examination conducted between February 17 to 22, 2018, in a FIR (First Information Report) filed subsequently, the authorities have suspected 7 candidates (appeared for exam) cheating at different exam centers. The authorities have also named 9 personnel of a private third-party agency engaged by Sify for the exam. Further, the authorities have also named one employee of Sify in his capacity as custodian of the question paper in his individual capacity.

 

In a Public Interest Litigation filed before Supreme Court, pending CBI enquiry, a seven-member committee was constituted to look into the allegations and submit its report.

 

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Although Sify Technologies was not party to the proceedings, we have extended full support and cooperation to the authorities in the investigation.

 

We cannot assure you that similar instances will not occur in future and any such instances may impact our reputation and cause adverse effect on our business or results of operations.

 

We engage third-party contractors to carry out various services.

 

We endeavor to engage third-party contractors with proven track records, reliability and adequate financial resources. However, any such third-party contractor may still fail to provide satisfactory services at the level of quality required by us. Such failure could harm our reputation and have a material adverse effect on our business, reputation, financial condition and results of operations.

 

We may fail to augment our skills and capability to best manage our services over Internet Protocol and data networks.

 

We have been able to build a reputation and maintain our lead because of our expertise and capability with the delivery and management of services over Internet Protocol and data networks. With the build-up of the capability and experience of our competitors, we are at the risk of losing market share, if we do not augment our skills and capabilities to keep our qualitative lead over them. Infrastructure such as networks is considered by customers as a commodity, and the only differential that we offer is our ability to manage and monitor services in a superior manner.

 

It may not be possible for us to retain our brand equity if we do not resort to huge investments for brand development.

 

Our competitors offering similar services are all large telecom companies who make substantial investments in building their brand image across their services. Conversely, we are focused on IT infrastructure services over data networks and we believe that we enjoy the reputation of a specialist in these services. However, if we do not build up awareness as well as our brand and reputation over time, the sheer weight of investments in brand development by the larger telecommunication providers will dilute our brand recognitions and competitive advantages.

 

Any loss of business from our top clients could reduce our revenue and significantly impact our business.

 

In fiscal 2020, none of the customers accounted for revenue more than 10%. The services we offer for specific clients are likely to vary from year to year. Thus, a major client in one year may not provide the same level of revenues in a subsequent year. A number of factors other than our performance could cause the loss of or reduction in business or revenue from a client, and these factors are not predictable. For example, a client may demand price reductions, change its outsourcing strategy or move work in-house. If we lose one of our major clients or if one of our major clients significantly reduces its volume of business with us, our revenues and profitability could be reduced.

 

If we are unable to meet our service level commitments, our reputation and results of operation could suffer.

 

Most of our customer contracts provide that we maintain certain service level commitments to our customers. If we fail to meet our service level commitments, we may be contractually obligated to pay the affected customer a financial penalty, which varies by contract, and the customer may in some cases be able to terminate its contract. In addition, if such a failure were to occur, there can be no assurance that our customers will not seek other legal remedies that may be available to them, including:

 

·requiring us to provide free services;
·seeking damages for losses incurred; and
·cancelling or electing not to renew their contracts.

 

Any of these events could materially increase our expenses or reduce our net revenue, which would have a material adverse effect on our reputation and results of operations. Our failure to meet our commitments could also result in substantial customer dissatisfaction or loss. As a result of such customer loss and other potential liabilities, our net revenue and results of operations could be materially and adversely affected.

 

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We may not meet the selection criteria set for high value contracts by the Government.

 

As we participate in bidding for large Government of India contracts, as well as business from large corporations, we increasingly come under scrutiny for financial indicators. Unless we leverage our capacity and become consistently profitable, we could be excluded from major government projects because we fail to meet their selection criteria, which would adversely affect our business and results of operations.

 

The success of our business depends on our capability to develop compatible applications and tools.

 

As we offer our Applications Integration services to an increasing base of large corporations, we run the risk of not being able to meet their needs for scaling and sophistication in the future if we do not build the capacity to develop and integrate applications software to meet with future needs. We may not have adequate resources to develop our capability as a result of emerging sophistication required for such services. The failure to develop such resources may adversely affect our business and results of operations.

 

We may fail to offer end-to-end managed services to sustain our position.

 

The telecommunications market is evolving towards service providers who offer end-to-end managed services that include managing everything down to desktops. If we are to continue to lead the market, we need to extend our bouquet of services to ensure that our portfolio grows to include managed services where we can maintain leadership. It may be difficult for us to offer end-to-end managed services to sustain our leadership in managed services without significant capital expenditures which would adversely affect our cash position and results of operations.

 

We may be unable to replace lost revenue due to customer cancellations, renewals at lower rates or other less favorable terms

 

It is key to our profitability that we offset committed recurring revenue due to customer cancellations, terminations, price reductions or other less favorable terms by adding new customers, selling more high-margin services, features and functionalities to existing customers and increasing traffic usage by all customers. Some customers may elect not to renew and others may renew at lower prices, lower committed traffic levels, or contract only for shorter time frame. Historically, a significant percentage of our renewals, particularly with larger customers, have led to declines in unit price as competition has increased and the market for certain parts of our business has saturated. Our renewal rates may decline as a result of a number of factors, including competitive pressures, customer dissatisfaction with our services, customers' inability to continue their operations and spending levels, the impact of multi-vendor policies, customers implementing or increasing their use of in-house technology solutions and general economic conditions.

 

In addition, as we expand the network to small cities and towns (semi – urban and rural locations), there is an operational cost involved in both the establishment and operation of these nodes. While the expansion is facilitated by a corporate order, we have to subsequently get additional business for capacity utilization in these nodes to make them profitable. If we are not able to do this rapidly by scaling up the business through these towns, we run the risk of overcapacity on the network in new areas, which results in a higher cost structure and lower margins.

 

Absence of policy support will hamper Internet and Data Services.

 

We have and continue to be subject to Indian regulations regarding the VPN license requirements, including the percentage of foreign holdings to offer VPN services as well the need for NLD/ILD licenses to offer VPN services and carrier voice services. The growth and development of the data and Internet sector is dependent on the policy support of Department of Telecommunications. Regulatory changes, as well as the continuing lack of policy initiatives to revitalize the data and Internet sector continue to be a risk.

 

We cannot influence policies that facilitate the growth and development of data and Internet connectivity in India. The absence of policy support for Internet and data services may hamper the growth of such services in the future, which would adversely affect our business and results of operations.

 

Constant improvement of technology standards/ skills and evolving tools and applications are essential to sustain our position in remote management of IT infrastructure.

 

We are relatively unknown outside India in comparison to other established IT players who have a large base of customers. If we are not able to constantly upgrade our technology standards and skills, and if we are unable to scale for critical mass in the near term, our competitive position would be adversely affected.

 

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Management of IT infrastructure is dependent on sophisticated tools and applications to remotely monitor the IT infrastructure and assets of customers. If we are unable to retain our competitive advantages in terms of the evolving tools & applications, or the maturity of our processes, we may lose customers and be at a competitive disadvantage compared with our larger competitors

 

Emergence of Enterprise Software Suites, Artificial Intelligence, Robotics and Machine Learning may hamper the growth of our e-Learning stream.

 

The emergence of competitors such as Oracle, IBM, SAP, SumTotal and SABA offering Enterprise Software Suites for eLearning for large organizations to develop their own learning platforms could be a threat to our business in the future. We may lose our business to our competitors, and if we are unable to acquire new customers or retain our existing customers, our revenues and results of operations may suffer. Additionally, the emergence of Machine Learning and Artificial Intelligence could adversely impact our revenues.

 

If we do not continue to develop and scale compelling content, products and services, our ability to attract new customers or maintain the engagement of our existing consumers could be adversely affected. 

 

In order to increase advertising revenues, we need to continue to increase the number of users of our sports, recipes and entertainment video content through our websites. In order to attract consumers and generate increased engagement on our website portals, we believe we must offer compelling content, products and services. If we are not able to attract and keep new users in a constantly evolving user base, we are likely to lose page views, and advertisers may reduce or cease publishing advertisements in our websites.  It is important for us to provide necessary content through our websites (e.g. live videos, new channel-based portals, etc.) to attract more users.  However, acquiring, developing and offering new content, products and services, as well as new functionality, features and enhanced performance of our existing content, products and services, may require significant costs and time to develop. In addition, consumer tastes are difficult to predict and subject to rapid change.

 

Cyber security threats could damage our reputation or result in liability to us.

 

Our businesses depend on the reliability and security of our information technology systems and infrastructure. They must remain secure and be perceived by our corporate and consumer customers to be secure, as we retain confidential customer information in our database. Despite the implementation of security measures, our infrastructure may be vulnerable to physical break-ins, computer hacking, computer viruses, other malware, ransomware or cyber-attacks beyond our control. If our security measures are circumvented, it would jeopardize the security of confidential information stored on our systems, proprietary information could be misappropriated or cause interruptions to our operations. We may be required to make significant additional investments and efforts to protect against or remedy security breaches. Unauthorized disclosure of sensitive or confidential client and customer data, whether through breach of our computer systems, systems failure or otherwise, could damage our reputation and adversely affect our business and results of operations

 

Though we have not had any attempted cybersecurity breaches reported, the security services that we offer in connection with our business customers’ networks cannot assure complete protection from computer viruses, break-ins and other disruptive problems and the occurrence of these problems could result in claims against us or liability on our part. These claims, regardless of their ultimate outcome, could result in costly litigation and could damage our reputation and hinder our ability to attract and retain customers for our service offerings.

 

We face a competitive labor market for skilled personnel and therefore are highly dependent on our existing key personnel and on our ability to hire additional skilled employees.

 

Our success depends upon the continued service of our key personnel including our senior management team, including our CEO, Chairman and Managing Director, Mr. Raju Vegesna. Each of our employees may voluntarily terminate his or her employment with us. Our success also depends on our ability to attract and retain such highly qualified technical, marketing and sales personnel. The labor market for skilled employees in India is extremely competitive, and the process of hiring employees with the necessary skills is time consuming and requires significant resources. We may not be able to retain or integrate existing personnel or identify and hire additional personnel in the future. The loss of the services of key personnel or the inability to attract additional qualified personnel could disrupt the implementation of our business strategy, upon which the success of our business depends.

 

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The failure to keep our technical knowledge confidential could erode our competitive advantage.

 

Our technical know-how is not protected by intellectual property rights such as patents and is principally protected by maintaining its confidentiality. We rely on trade secrets, confidentiality agreements and other contractual arrangements. As a result, we cannot be certain that our know-how will remain confidential in the long run. Employment contracts with certain of our employees who have special technical knowledge about our products or our business contain a general obligation to keep all such knowledge confidential. In addition to the confidentiality provisions, these employment agreements typically contain non-competition clauses.

 

If either the confidentiality provisions or the non-competition clauses are unenforceable, we may not be able to maintain the confidentiality of our know-how. In the event that confidential technical information or know-how about our products or business becomes available to third parties or to the public, our competitive advantage over other companies in the wireless based IP/VPN industry could be harmed which could have an adverse material effect on our current business, future prospects, financial condition and results of operations.

 

Our inter-city network is leased from other service providers and is dependent on their quality and availability.

 

We have provided inter-city connectivity for our Enterprise customers through lease arrangements rather than through capital investment in assets, our ability to offer high quality telecommunication services depends, to a large extent, on the quality of the networks maintained by other operators, and their continued availability, neither of which is under our control. However, the abundance of inter-city connectivity provides us with the ability of switching to Telco’s offering better services. Although we always use more than one service provider where required, there can be no assurance that this dependence on external parties would not affect our network availability. Any prolonged loss of network availability could adversely affect our business and results of operations.

 

Our current infrastructure may not accommodate increased use while maintaining acceptable overall performance.

 

Currently, only a relatively limited number of customers use our corporate network. We must continue to add to our network infrastructure to accommodate additional users, increasing transaction volumes and changing customer requirements. We may not be able to project accurately the rate or timing of increases, if any, in the use of our websites or upgrade our systems and infrastructure to accommodate such increases. Our systems may not accommodate increased use while maintaining acceptable overall performance. Service lapses could cause our users to use the online services of our competitors, and numerous customer defections may adversely affect our results of operations.

 

Our increasing work with Governmental agencies may expose us to additional risks.

 

We are increasingly bidding to work with Governments and Governmental agencies. Projects involving Governments or Governmental agencies carry various risks inherent in the Government contracting process, including the following:

 

·Such projects may be subject to a higher risk of reduction in scope or termination than other contracts due to political and economic factors such as changes in Government, pending elections or the reduction in, or absence of, adequate funding;

 

·Terms and conditions of Government contracts tend to be more onerous than other contracts and may include, among other things, extensive rights of audit, more punitive service level penalties and other restrictive covenants. Also, the terms of such contracts are often subject to change due to political and economic factors;

 

·All Government bids are subject to Bank Guarantee depending upon the size of the tender. Any shortfall in service, inability to deliver committed SLA during the project may force the Government to invoke the bank guarantee leading to huge cash losses;

 

·Government contracts are often subject to more extensive scrutiny and publicity than other contracts. Any negative publicity related to such contracts, regardless of the accuracy of such publicity, may adversely affect our business or reputation;

 

·Participation in Government contracts could subject us to stricter regulatory requirements, which may increase our cost of compliance; and

 

·Such projects may involve multiple parties in the delivery of services and require greater project management efforts on our part. Any failure in this regard may adversely impact our performance.

 

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·In addition, we operate within jurisdictions in which local business practices may be inconsistent with international regulatory requirements, including anti-corruption and anti-bribery regulations prescribed under the U.S. Foreign Corrupt Practices Act (“FCPA”), which, among other things, prohibits giving or offering to give anything of value with the intent to influence the awarding of Government contracts. Also, Prevention of Corruption (Amendment) Bill 2013, (“PCA”) prohibits giving bribe to a public servant. Although we believe that we have adequate policies and enforcement mechanisms to ensure legal and regulatory compliance with the FCPA, PCA and other similar regulations, it is possible that some of our employees, subcontractors, agents or partners may violate any such legal and regulatory requirements, which may expose us to criminal or civil enforcement actions, including penalties. If we fail to comply with legal and regulatory requirements, our business and reputation may be harmed.

 

Any of the above factors could have a material and adverse effect on our business or our results of operations.

 

Our dividend payment policy is contingent upon the Company’s profits each year.

 

The dividend payment policy of the Company is not certain and is contingent upon the level of performance of the Company and the recommendation of the Board of Directors and the approval of the shareholders. Thus, there is no assurance that dividends will be paid in the future.

 

Prior to 2013-14 we did not pay dividends due to the losses incurred in the previous years and non-availability of divisible profits under Indian law. In view of the consistent positive performance of the Company, we paid dividends till the previous fiscal year of 2018-19. For the current year, considering the looming uncertainty over the economic conditions in the light of COVID-19, the Board of Directors have recommended that no dividend be paid and have advised to conserve capital for financing expansion.

 

Risks Related to Regulation and Compliance

 

We may encounter legal confrontations as the Information Technology Act 2000 lacks specificity as to issues on online processes and/or Internet.

 

We believe that the Information Technology Act of 2000, as amended in 2011 (the “ITA”), an Indian regulation, does not address all areas of online processes or the Internet. In exercise of the powers conferred by the ITA, the Government of India issued rules in April 2011 called Information Technology rules with stringent privacy norms for Internet Service Providers and the intermediary who is handling sensitive personal information. The ITA has mandated the service providers to maintain transactions, receipts and vouchers in specific formats. The records must be produced for inspection and audit by a government nominated agency or person. The Government of India is authorized to audit security and privacy protection measures. We are exposed to risks relating to unauthorized access and non-compliance of regulations by our business partners. Such events may negatively affect our reputation, and violations of the Information Act may result in fines and litigation or cause us to incur legal costs, which may adversely affect our business and results of operations.

 

We may encounter legal confrontations under the Information Technology Act 2000 on our digital certification business.

 

We have been granted license as Certifying Authority (CAs) to issue digital signature certificate for electronic authentication of users. The CAs are governed by Controller of Certifying Authority (CCA) under the ITA which prescribes duties to be followed, standards to be maintained and a list of documents to be maintained by Certifying Authorities. The guidelines also require the company to bill the end customer to whom the Digital Signature Certificate (DSC) is sold effective from 1st of August 2017. System development changes have been made by the company to support the billing to the end customers. Any actual or perceived failure to comply with such obligations could harm our business. Non-Compliance with such laws, rules and regulations may result in fines and litigation or cause us to incur legal costs, which may adversely affect our business and results of operations.

 

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We may encounter litigation and penalties due to non-compliance with relevant laws applicable to the products sold and services rendered by us.

 

The products and services that we deal with are subject to various laws such as the ITA. We are exposed to risks relating to non-compliance with such laws which may affect our reputation and also result in litigations and penalties which may adversely affect our business and results of operations.

 

We may not be able to comply with direct & indirect tax laws resulting in litigations and penalties.

 

Tightening of regulatory framework, new legislative changes and heightened enforcement activity by the tax departments across the world has brought the importance of tax risk on the radar of the corporates in India. From a business standpoint, income tax remains the most important tax for companies because of its impact on corporate bottom-line. Unpredictable rulings & interpretations of tax authorities are the key reasons leading to tax risks. In India, changes in taxation laws are announced on an annual basis in February, when the Union Budget is presented. These changes in law may affect the accuracy of our estimated tax obligations, or the obligations of holders of our equity shares and ADSs. Significant judgment is required in determining our worldwide provision for income taxes and other tax liabilities. We are regularly under audit by tax authorities and those authorities may not agree with positions taken by us on our tax returns. Although we believe that our estimates are reasonable, there is no assurance that the final determination of tax audits or tax disputes will not be different from what is reflected in our historical income tax provisions and accruals. We are also exposed to risks of non-compliance with the requirement of law which may affect our reputation and also result in litigations and penalties which may adversely affect our business and results of operations.

 

Any of the above could have a material adverse effect on our business and future results. Additionally, due to the complexity of the fiscal environment, the ultimate resolution of any tax matters may result in payments greater or lesser than amounts accrued.

 

The Government of India, through Finance Act, 2020, has withdrawn Dividend Distribution Tax wherein the dividends are now taxable in the hands of the shareholders. These dividends when declared by an Indian company is subject to withholding tax provisions, where tax would be deducted at source by the company and paid to the Government, which shall be available as tax credit for the shareholders. This could impact the net cash earnings of the shareholders. The Government of India could change the incident of taxation, the rate of withholding tax, the availability of tax credit for shareholders in the future, which will have direct impact on the earnings of the shareholders.

 

Government of India rolled out Goods and Service Tax (GST) effective from 1st July 2017. GST has subsumed several central, state and local tax laws such as excise duty, service tax, value added tax, central sales tax, entry tax, etc. The GST law prescribes compliance and procedures which are more comprehensive than prior tax laws. The GST Council has proposed a new process which allows credit to the company based on the invoices uploaded by the vendors in their tax returns. Hence, tax credits will be available to the company based on proper compliance by all the vendors and filing of returns on time. Any failure to comply with the requirement of law by the vendor may impact availment of input tax credit by the company. We are also exposed to risks of non-compliance with the requirement of law which may affect our reputation and also result in litigations and penalties which may adversely affect our business and results of operations.

 

The legal system in India does not protect intellectual property rights to the same extent as the legal system of the United States, and we may be unsuccessful in protecting our intellectual property rights. 

 

Our intellectual property rights are important to our business. We rely on a combination of copyright and trademark laws, trade secrets, confidentiality procedures and contractual provisions to protect our intellectual property.

 

Our efforts to protect our intellectual property may not be adequate. We hold no patents, and our competitors may independently develop similar technology or duplicate our services. Unauthorized parties may infringe upon or misappropriate our services or proprietary information. In addition, the laws of India do not protect proprietary rights to the same extent as laws in the United States, and the global nature of the Internet makes it difficult to control the ultimate destination of our services. For example, the legal processes to protect service marks in India are not as effective as those in place in the United States. The misappropriation or duplication of our intellectual property could disrupt our ongoing business, distract our management and employees, reduce our revenues and increase our expenses. In the future, litigation may be necessary to enforce our intellectual property rights or to determine the validity and scope of the proprietary rights of others. Any such litigation could be time-consuming and costly.

 

We could be subject to intellectual property infringement claims as the number of our competitors grows and the content and functionality of our websites or other service offerings overlap with competitive offerings. Our defenses against these claims, even if not meritorious, could be expensive and divert management’s attention from operating our Company. If we become liable to third parties for infringing their intellectual property rights, we could be required to pay a substantial award as damage and forced to develop non-infringing technology, obtain a license or cease selling the applications that contain the infringing technology. We may be unable to develop non-infringing technology or even obtain a license on commercially reasonable terms.

 

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Compliance with new and changing corporate governance and public disclosure requirements adds uncertainty to our compliance policies and increases our costs of compliance.

 

Changing laws, regulations and standards relating to accounting, corporate governance and public disclosure, including the Dodd–Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”)Sarbanes-Oxley Act of 2002 (“SOX”), new SEC regulations and NASDAQ Stock Market rules, are creating uncertainty for companies like ours. These new or changed laws, regulations and standards may lack specificity and are subject to varying interpretations. Their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs of compliance as a result of ongoing revisions to such governance standards.

 

Indian regulatory authorities are increasingly focused on standards of accounting, auditing, public disclosure and corporate governance and may impose new regulations that can lead to increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities.

 

In addition, it may become more expensive and/or more difficult for us to obtain director and officer liability insurance due to increases in premium rates. Further, our Board members, CEO, Chairman and Managing Director and our Chief Financial Officer could face an increased risk of personal liability in connection with their performance of duties and our SEC reporting obligations. As a result, we may face difficulties attracting and retaining qualified Board members and executive officers, which could harm our business. If we fail to comply with new or changed laws or regulations, our business and reputation may be harmed.

 

The Indian Companies Act, 2013, which replaced the Companies Act, 1956, effective April 1, 2014, has imposed numerous and onerous compliance requirements on the Corporates in India. The Act introduced significant provisions relating to governance, e-management, compliance and enforcement, enhanced disclosure norms, accountability of management, stricter enforcement, investor protection, class action suits, corporate social responsibility, compulsory appointment of Independent and Woman Directors, rotation of Auditors etc. among others. Compliance with the provisions of the new Act may pose a greater challenge to the Corporates in India both in terms of responsibility and cost.

 

We may inadvertently fail to comply with local laws of other countries in connection with the negotiation and execution of operational agreements.

 

As part of our international business, we may negotiate with and enter into contracts with strategic partners, clients, suppliers, employees and other third parties in various countries. We may inadvertently fail to comply with their laws, which may result in lawsuits or penalties and could adversely affect our business or results of operations.

 

We are subject to quality of service (QOS) guidelines issued by the Telecom Regulatory Authority of India (“TRAI”). Failure to comply with one or more applicable guidelines may expose us to fines/penalties.

 

TRAI has issued the following guidelines to the ISPs for improving the quality of service:

 

·All Internet service providers shall provide adequate information to subscribers regarding Internet/broadband services being offered and marketed by them.

 

·All Internet service providers shall provide information regarding contention ratios or the number of users competing for the same bandwidth, adopted by them to provide Internet/broadband service in their tariff plans submitted to TRAI, manual of practice, call centers and on their websites

 

·All Internet service providers shall publish quarterly contention ratio for different Internet/broadband services on their website to facilitate subscribers to take informed decision.

 

·All Internet service providers must use the contention ratios better than specified ratios for different services to ensure sufficient bandwidth for providing good quality of service to their subscribers.

 

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Fixing up a contention ratio may put standalone ISPs at a disadvantage as cost of delivery of Internet bandwidth may increase. Telecom companies offering similar internet services are tempted to offer significantly lower prices and incentives as they own the last mile. Also, by bundling telephony along with Internet, they can enhance their otherwise idle last mile. Under such circumstances, it will be very difficult for ISPs providing retail service to compete with big Telco’s which can offer broadband services by cross subsidizing with voice/other services.

 

·Submission of Carbon foot print report from the financial year 2011-12 and also to submit a carbon foot print report twice a year from the financial year 2013-14, for the six months ending September 30, before 15th of November and for the six months ending March 31, by 15th of May each year.

 

In the event of our failure to comply with one or more of the above guidelines, we may expose ourselves to fines/penalties.

 

We may be liable to third parties for information retrieved from the Internet.

 

We could become liable if confidential information is disclosed inappropriately on or through our websites. Others could also sue us for the content and services that are accessible from our websites through links to other websites or through content and materials that may be posted by our users in chat rooms or bulletin boards. The laws in India relating to the liability of companies which provide Internet services, like ours, for activities of their users, are still relatively unclear. Investigating and defending these claims is expensive, even if they do not result in liability Allegations of impropriety, even if unfounded, could damage our reputation, disrupt our ongoing business, distract our management and employees, reduce our revenues and increase our expenses.

 

Risks Related to the ADSs and Our Trading Market

 

We may fail to meet the continued listing requirements of the NASDAQ, which could cause our ADS to be delisted.

 

Pursuant to the listing requirements of the NASDAQ, if a company’s share price is below $1.00 per share for 30 consecutive trading days, NASDAQ will notify the company that it is no longer in compliance with the NASDAQ continued listing qualifications.  If a company is not in compliance with the minimum bid price rule, the company will have 180 calendar days to regain compliance. If the company does not regain the compliance within the initial 180 days, the company may be eligible for an additional 180-day period as set forth in NASDAQ listing rule 5810(c)(3)(A). The company may regain compliance if the bid price of its shares closes at $1.00 per share or more for a minimum of ten consecutive business days at any time during the cure period.

 

On December 27, 2016, the Company received notice from NASDAQ that the minimum bid price for our ADS was below $1.00 per ADS for a period of 30 consecutive business days, and that we therefore did not meet the minimum bid price requirement of the NASDAQ Listing Rule. Based on the Company’s application, on July 11, 2017, NASDAQ approved the transfer of the Company’s ADS to the NASDAQ Capital Market under the same symbol “SIFY” and granted additional 180 days calendar period to cure the minimum bid price deficiency.   

 

On September 28, 2017, the Company received a letter from NASDAQ stating that the closing bid price of the Company’s ADS had been $1 or greater for 10 consecutive trading days. Accordingly, the Company regained compliance with the Listing Rule 5550(a)(2).

 

On April 23, 2020, Sify Technologies Limited (the “Company”) received a letter from the Listing Qualifications Department of the Nasdaq Stock Market (“Nasdaq”) indicating that, based upon the closing bid price of the Company’s common stock for the last 30 consecutive business days, the Company did not meet the minimum bid price of $1.00 per share required for continued listing on The Nasdaq Capital Market pursuant to Nasdaq Listing Rule 5550(a)(2).

 

The letter also indicated that the Company will be provided with a compliance period of 180 calendar days in which to regain compliance pursuant to Nasdaq Listing Rule 5810(c)(3)(A).

 

Given the extraordinary market conditions, Nasdaq has determined to toll the compliance periods for the bid price and market value of publicly held shares (“MVPHS”) requirements (collectively, the “Price-based Requirements”) through June 30, 2020. In that regard, on April 16, 2020, Nasdaq filed an immediately effective rule change with the Securities and Exchange Commission. As a result, the compliance periods for the Price-based Requirements will be reinstated on July 1, 2020. This translates as 180 calendar days provided to Sify to expire on December 28, 2020.

 

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The letter further provided that if, at any time during this tolling period or the 180-day period, the closing bid price of the Company’s common stock is at least $1.00 for a minimum of ten consecutive business days, Nasdaq will provide the Company with written confirmation that it has achieved compliance with the minimum bid price requirement.

 

Though the Company regained compliance with the NASDAQ continued listing requirements in the past, we may not be able to meet the continued listing requirements of NASDAQ today or in the future. If we are unable to satisfy the NASDAQ criteria for maintaining our listing, our securities could be subject to delisting. As a consequence of any such delisting, our ADS holders would likely find it more difficult to dispose of or to obtain accurate quotations as to the prices of our securities, and there would likely be less liquidity in our stock. In the event of a delisting, we could face significant material adverse consequences including a limited availability of market quotations for our securities and a decreased ability to issue additional securities or obtain additional financing in the future.

 

The interests of our significant shareholder, Mr. Raju Vegesna, our CEO, Chairman and Managing Director may differ from your interests.

 

Effective as of October 30, 2010, upon the consummation of the private placement to an entity controlled by Mr. Raju Vegesna, our , CEO, Managing Director and Chairman of the Board of Directors of the company, Mr. Raju Vegesna beneficially owns approximately 85.96% of our outstanding equity shares. As a result, Mr. Raju Vegesna will be able to exercise control over many matters requiring approval by our Board of Directors and / or shareholders, including the election of directors and approval of significant corporate transactions, such as a sale of our company. Under Indian law, a simple majority is sufficient to control all shareholder action except for those items, which require approval by a special resolution. If a special resolution is required, the number of votes cast in favor of the resolution must not be less than three times the number of votes cast against it. Examples of actions that require a special resolution include:

 

altering our Articles of Association;

 

issuing additional shares of capital stock, except for pro rata issuances to existing shareholders;

 

commencing any new line of business; and

 

commencing a liquidation.

 

Circumstances may arise in which the interests of Mr. Raju Vegesna could conflict with the interests of our other shareholders or holders of our ADSs. Mr. Vegesna, or the entities that he controls, could delay or prevent a change of control of our Company even if a transaction of that sort would be beneficial to our other shareholders, including the holders of our ADSs. This concentrated control will limit your ability to influence corporate matters and as a result, we may take actions that our ADS holders do not view as beneficial. As a result, the market price of our ADS could be adversely affected.

 

An investor in our ADSs may not be able to exercise preemptive rights for additional shares and may thereby suffer dilution of such investor's equity interest in us.

 

Under the Companies Act, 2013, or the Indian Companies Act, a Company incorporated in India must offer its holders of equity shares pre-emptive rights to subscribe and pay for a proportionate number of shares to maintain their existing ownership percentages prior to the issuance of any new equity shares, unless such pre-emptive rights have been waived by three-fourths of the shares voting on the resolution to waive such rights.

 

Holders of ADSs may be unable to exercise pre-emptive rights for equity shares underlying ADSs unless a registration statement under the Securities Act of 1933, as amended, or the Securities Act, is effective with respect to such rights or an exemption from the registration requirements of the Securities Act is available. To the extent that holders of ADSs are unable to exercise pre-emptive rights granted in respect of the equity shares represented by their ADSs, their proportional interests in us would be reduced.

 

ADS holders may be restricted in their ability to exercise voting rights.

 

At our request, Citibank N.A, (the “Depository”) will mail to holders of our ADSs any notice of shareholders’ meeting received from us together with information explaining how to instruct the Depository to exercise the voting rights of the securities represented by ADSs. If the Depository receives voting instructions from a holder of our ADSs in time, relating to matters that have been forwarded to such holder, it will endeavor to vote the securities represented by such holder’s ADSs in accordance with such voting instructions. However, the ability of the Depository to carry out voting instructions may be limited by practical and legal limitations and the terms of the securities on deposit. We cannot assure you that the holders of our ADSs will receive voting materials in time to enable such holders to return voting instructions to the Depository. Securities for which no voting instructions have been received will not be eligible to vote.

 

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Under Indian law, subject to the presence in person at a shareholder meeting of persons holding equity shares representing a quorum, all resolutions proposed to be approved at that meeting are voted on by a show of hands unless shareholders present in person and holding (a) not less than one-tenth of the total voting power entitled to vote on a resolution or (b) shares with an aggregate paid up capital of at least ₹ 500,000 demand that a poll be taken. Equity shares not represented in person at the meeting, including equity shares underlying ADSs for which a holder has provided voting instructions to the Depository, are not counted in a vote by show of hands. As a result, only in the event that a shareholder present at the meeting demands that a poll be taken will the votes of ADS holders be counted. Securities for which no voting instructions have been received will not be voted on a poll. Accordingly, you may not be able to participate in all offerings, transactions or votes that are made available to holders of our equity shares.

 

As a foreign private issuer, we are not subject to the SEC’s proxy rules, which regulate the form and content of solicitations by United States-based issuers of proxies from their shareholders. To date, our practice has been to provide advance notice to our ADS holders of all shareholder meetings and to solicit their vote on such matters through the Depository, and we expect to continue this practice. The form of notice and proxy statement that we have been using does not include all of the information that would be provided under the SEC’s proxy rules.

 

The market price of our ADSs has been and may continue to be highly volatile. Many factors could cause the market price of our ADSs to rise and fall. Some of these factors include:

 

perception of the level of political and economic stability in India;

 

actual or anticipated variations in our quarterly operating results;

 

announcement of technological innovations;

 

conditions or trends in the network/data services, Internet and electronic commerce industries;

 

the competitive and pricing environment for network services in India and the related cost and availability of bandwidth;

 

the perceived attractiveness of investment in Indian companies;

 

acquisitions and alliances by us or others in the industry;

 

changes in estimates of our performance or recommendations by financial analysts;

 

market conditions in the industry and the economy as a whole;

 

introduction of new services by us or our competitors;

 

changes in the market valuations of other Internet service companies;

 

announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures or capital commitments;

 

our failure to integrate successfully our operations with those of any acquired companies;

 

additions or departures of key personnel; and

 

other events or factors, many of which are beyond our control.

 

The financial markets in the United States and other countries have experienced significant price and volume fluctuations, and the market prices of technology companies, particularly Internet-related companies, have been and continue to be extremely volatile with negative sentiment prevailing. Volatility in the price of our ADSs may be caused by factors outside of our control and may be unrelated or disproportionate to our operating results, which may adversely affect the value of your investment and the price of our ADSs.

 

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An active or liquid market for the ADSs is not assured.

 

We cannot predict that an active, liquid public trading market for our ADSs will continue to exist. Although ADS holders are entitled to withdraw the equity shares underlying the ADSs from the Depository at any time, there is no public market for our equity shares in India or the United States.  The loss of liquidity could increase the price volatility of our ADSs.

 

The future sales of securities by us or existing shareholders may reduce the price of our ADSs.

 

Any significant sales of our equity shares or ADSs or a perception that such sales may occur might reduce the price of our ADSs and make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate. We may issue additional equity shares to raise capital and to fund acquisitions and investments, and the parties to any such future transactions could also decide to sell them.

 

Capital and credit market conditions may adversely affect our access to capital, the cost of capital, and ability to execute our business plan.

 

Access to capital markets is critical to our ability to operate. We may require additional financing in the future for the development of our business. Declines and uncertainties in the global capital markets over the years have severely restricted raising new capital and have affected companies’ ability to continue to expand or fund new projects. If these economic conditions continue or become worse, our future cost of equity or debt capital and access to the capital markets could be adversely affected.  Our ability to obtain future financing will depend on, among other things, our financial condition and results of operations as well as the condition of the capital markets or other credit markets at the time we seek financing. In addition, an inability to access the capital markets on favorable terms due to our low stock price, or upon our delisting from the NASDAQ Capital Market if we fail to satisfy a listing requirement, could affect our ability to execute our business plan as scheduled.

 

We can give no assurance as to the availability of such additional capital or, if available, whether it would be on terms acceptable to us. In addition, we may continue to seek capital through the public or private sale of securities, if market conditions are favorable for doing so. If we are successful in raising additional funds through the issuance of equity securities, stockholders will likely experience substantial dilution. If we are unable to enter into the necessary financing arrangements or sufficient funds are not available on acceptable terms when required, either due to market fluctuations or regulations imposed by the Indian Governmental authorities, we may not have sufficient liquidity and our business may be adversely affected. 

 

We may be required to list our Equity Shares on an Indian stock exchange. If we were to list our Equity Shares on an Indian stock exchange, conditions in the Indian securities market may require compliance with new and changing regulations framed by Securities Exchange Board of India, listing requirements of stock exchange, corporate governance, accounting and public disclosure requirements which might add uncertainty to our compliance policies and increases our costs of compliance.

 

In 2006, The Ministry of Finance (MoF), issued a press release by which Indian companies cannot raise new capital abroad unless, the securities of the company are listed on a stock exchange in India. However, by virtue of notification issued by the MoF on October 21, 2014, the issuance of depository receipts has been taken out of the 1993 Scheme and is now regulated by the Depository Receipts Scheme, 2014. The 2014 Scheme allows Indian companies, whether listed or unlisted, to access the international capital markets using depository receipts. Such issuances can either be through a public offering of depository receipts or through a preferential allotment or qualified institutional placement. They can also either be sponsored by the issuer company or unsponsored (such as when an existing shareholder sells its holding through the issue of depository receipts). These issuances are subject to the usual foreign investment regime, including in relation to sectoral caps as well as pricing.  Moreover, such issuances are permitted only to investors in certain specific jurisdictions as listed in the 2014 Scheme, which currently consists of a list of 34 countries. The earlier condition of mandatory listing in India is dispensed with.

 

However, in the future we may be required by the Government of India to list on the Indian stock exchange. We may not be able to comply with any timeline for listing and other standards imposed on us, and we are uncertain as to the consequences to us of any non-compliance. If we were to list our equity shares on an Indian stock exchange, we would have to comply with changing laws, regulations and standards relating to accounting, corporate governance and public disclosure, including the SEBI rules and regulations and stock exchange listing requirements which may create uncertainty for companies like ours. These new or changed laws, regulations and standards may lack specificity and are subject to varying interpretations. Their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs of compliance as a result of ongoing revisions to such governance standards.

 

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Risks Related to Investments in Indian Companies

 

We are incorporated in India, and a significant majority of our assets and employees are located in India. Consequently, our financial performance and the market price of our ADSs will be affected by changes in exchange rates, interest rates, Government of India policies, including taxation policies, as well as political, social and economic developments affecting India.

 

Changes in the policies of the Government of India could delay the further liberalization of the Indian economy and adversely affect economic conditions in India generally, which could impact our business and prospects.

 

Since 1991, successive Indian Governments have pursued policies of economic liberalization, including significantly relaxing restrictions on the private sector. Nevertheless, the role of the Central and State Governments in the Indian economy as producers, consumers and regulators has remained significant. The rate of economic liberalization could change, and specific laws and policies affecting technology and telecom companies, foreign investment, exchange rate regime and other matters affecting investment in our securities could change as well. A significant change in India's economic liberalization and deregulation policies could adversely affect business and economic conditions in India generally, and our business in particular.

 

Regional conflicts in South Asia could adversely affect the Indian economy, disrupt our operations and cause our business to suffer.

 

South Asia has, from time to time, experienced instances of civil unrest and hostilities among neighboring countries, including between India and Pakistan. Military activity or terrorist attacks in the future could influence the Indian economy by disrupting communications and making travel more difficult and such political tensions could create a greater perception that investments in Indian companies involve higher degrees of risk. This, in turn, could have a material adverse effect on the market for securities of Indian companies, including our equity shares and our ADSs, and the market for our services.

 

Terrorist attacks or a war could adversely affect our business, results of operations and financial condition.

 

Terrorist attacks, such as the attacks of February 14, 2019 in Jammu Srinagar highway (Pulwama attack), the attacks of July 25, 2008 in Bangalore, the attacks of November 26 to 29, 2008 in Mumbai, the attack at New Delhi High Court on September 7, 2011 and other acts of violence have the potential to affect us or our clients. In addition, such attacks may destabilize the economic and political situation in India. Furthermore, such attacks could cause a disruption in the delivery of our services to our clients, and could have a negative impact on our business, personnel, assets and results of operations, and could cause our clients or potential clients to choose other vendors for the services we provide. Terrorist threats, attacks or war could make travel more difficult, may disrupt our ability to provide services to our clients and could delay, postpone or cancel our clients' decisions to use our services.

 

The markets in which we operate are subject to the risk of earthquakes, floods and other natural disasters.

 

Some of the regions that we operate in, are prone to earthquakes, flooding and other natural disasters. In the event that any of our business centers are affected by any such disasters, we may sustain damage to our operations and properties, suffer significant financial losses and be unable to complete our client engagements in a timely manner, if at all. Further, in the event of a natural disaster, we may also incur costs in redeploying personnel and property. In addition, if there is a major earthquake, flood or other natural disaster in any of the locations in which a significant number of our customers are located, we face the risk that our customers may incur losses, or sustained business interruption and/or loss which may materially impair their ability to continue their purchase of products or services from us. A major earthquake, flood or other natural disaster in the markets in which we operate could have a material adverse effect on our business, financial condition, results of operations and cash flows.

 

We are subject to foreign investment restrictions under Indian law that limit our ability to attract foreign investors which, together with the lack of a public market for our equity shares, may adversely impact the value of our ADSs.

 

Currently, there is no public trading market for our equity shares in India or elsewhere nor can we assure you that we will take steps to develop one. Our equity securities are only traded on NASDAQ through the ADSs. Under prior Indian laws and regulations, our Depository could not accept deposits of outstanding equity shares and issue ADRs evidencing ADSs representing such equity shares without prior approval of the Government of India. The Reserve Bank of India has announced fungibility regulations permitting, under limited circumstances, the conversion of ADSs to equity shares and the reconversion of equity shares to ADSs provided that the actual number of ADSs outstanding after such reconversion is not greater than the original number of ADSs outstanding. If you elect to surrender your ADSs and receive equity shares, you will not be able to trade those equity shares on any securities market and under present law, likely will not be permitted to reconvert those equity shares to ADSs.

 

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If in the future a market for our equity shares is established in India or another market outside of the United States, those shares may trade at a discount or premium to the ADSs. Under current Indian regulations and practice, the approval of the Reserve Bank of India is not required for the sale of equity shares underlying ADSs by a non-resident Indian to a resident India as well as for renunciation of rights to a resident of India, unless the sale of equity shares underlying the ADSs is through a recognized stock exchange or in connection with the offer made under the regulations regarding takeovers. Since exchange controls still exist in India, the Reserve Bank of India will approve the price at which the equity shares are transferred based on a specified formula, and a higher price per share may not be permitted. Holders who seek to convert the rupee proceeds from a sale of equity shares in India into foreign currency and repatriate that foreign currency from India will have to obtain Reserve Bank of India approval for each transaction. We cannot assure you that any required approval from the Reserve Bank of India or any other government agency can be obtained.

 

The Government of India may change its regulation of our business or the terms of our license to provide Internet access services, Voice over Internet Protocol (VoIP) and VPN services without our consent, and any such change could decrease our revenues and/or increase our costs, which would adversely affect our operating results.

 

Our business is highly regulated as per extant telecom policy of the Government of India (the “GOI”). Our ISP license issued in the year 1998 was valid for a term of 15 years. We have been issued new licenses under the Unified License dated June 2, 2014 with a validity of 20 years. If we are unable to renew the licenses for any reason, we will not be able to carry on the said business beyond license term, which may adversely affect our business or results of operations

 

The GOI has right to revoke, terminate or suspend or take over entire operations for reasons such as national security or similar reasons without compensation to us. In view of increasing cyber threats and attacks, the GOI may require telecom licensees (including ISPs) at their costs to provide monitoring facility across its network, and facilities for capture and retention of data in terms of traffic flow, usage details, etc. This would result in significant increase in costs and possible lesser usage due to perceived invasion of privacy by customers.

 

Certain government departments have been making queries whether use of Session Initiation Protocol, or SIP, terminal to make calls to phones abroad is permissible within ISP license. We believe that such overseas phone calls are permitted, since, SIP terminal is a “computer” as defined in Information Technology Act, 2000. We may have to make a significant investment as capital outlay in SIP terminals to make it a PC-equivalent, if the government authorities issue regulations governing SIP usage contrary to our beliefs, which would have a material effect on our results of operations.

 

Our profits may be impacted due to the increase in license fee on the NLD/ILD license and inclusion of pure Internet service and non-licensed activities under such license fee by the Department of Telecommunications, Government of India.

 

Effective July 2012, the Government of India amended the NLD/ILD/ISP license agreements with respect to Annual License Fee. 

 

Under such amendment, all services under the NLD/ILD license have been subjected to an increased license fee from the existing 6% to 7% from July 2012 to March 2013 and 8% from April 2013 onwards. In addition, the Government has also amended the ISP license and brought the same under such license fee of 7% from July 2012 till March 2013 and 8% from April 2013 onwards. Our present license for Unified License ISP issued on June 2, 2014 provides for payment of License fee on pure
Internet services also. The Company had approached Honourable High Court of Madras (Court) by filing a writ petition prohibiting Department of Telecommunications (DOT) from levying license fee on non-licensed activities.

 

Such amendments to the license agreements will significantly impact the profitability of the Company by way of additional expense due to increased license fees.

 

Increase in license fees paid for the licensed spectrum to Department of Telecommunications (‘DoT’) may adversely affect our cost and in turn our cash flow and profitability

 

DoT may increase significantly the license fees to be paid for using the licensed spectrum. This will adversely affect our profitability. We cannot assure you that there would not be any increases of license fees in the future.

 

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In the event that the Government of India or the Government of another country changes its tax policies in a manner that is adverse to us, our tax expense may materially increase, reducing our profitability.

 

The statutory corporate income tax rate in India was 30% during fiscal year 2020 and was subject to a 12% surcharge where the taxable total income exceeds ₹ 10 crore (7% where the taxable total income is less than ₹ 10 crores but greater than ₹ 1 crore), 4% health and education cess resulting in an effective tax rate of 34.944%. New corporate tax regime was introduced reducing the corporate tax rate to 22%. The provisions are discussed in detail under the head ‘Additional information’.

 

We cannot assure you that the surcharge will be in effect for a limited period of time or that additional surcharges will not be implemented by the Government of India. We may be subject to tax claims by the Government of India against us in the future. Defending these claims would be expensive, time consuming and may divert our management's attention and resources from our operations.

 

Goods and Services Tax has replaced the majority of the existing indirect tax regulations in India. The point of taxation has been changed and also rates for our services were increased from 15% to 18%. Consequently, the incremental costs will impact the profitability and cash flow of the company. There may be future increases in tax rate that will impact our profitability and cash flows adversely.

 

Item 4. Information on the Company

 

Company Overview

 

We are 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 network infrastructure reaching more than 1600 cities and towns in India. This network also connects 49 Data Centers across India including Sify’s 10 concurrently maintainable Data Centers across the cities of Chennai, Mumbai, Delhi, Bengaluru, Hyderabad, Kolkata and customer Data Centers.

 

Our mission is building a world in which our converged ICT ecosystem and our ‘bring it on’ attitude will be the competitive advantage to our customers. Our 7 core values which is called ‘The Sify way’ are 1) Put customers’ needs first, 2) Be accountable, 3) Treat others with dignity, 4) Be action oriented, 5) Have the courage to confront issues, 6) Always remember that you are a part of Sify’s team, 7) Protect Sify’s interest always.

 

Our primary geographic market are India and Rest of the world. Our revenue is derived from services to enterprise customers, comprising Network services*, Data Center services, Cloud and Managed services, Technology Integration services and Applications Integration services.

 

* The word telecom was largely understood as providing telecommunication services to consumers and also mobility services. Since the company services were not relating to either consumer services or mobility services and that company services were limited to enterprise data network, and services on the data network that spawns multiple services relating to Network Connectivity, the said Telecom services will henceforth be referred for appropriate representation of the substance, as Network services and all businesses dependent on the Network infrastructure will be collectively referred to as Network Centric Services

 

Our revenue grew by 1,405 million over the previous fiscal, which represents an annualized growth rate of 7% . We have been subject to tax on net income from current fiscal, on account of utilization of all the unabsorbed depreciation and carried forward business losses. Profit before tax was ₹ 1,020 million for the current fiscal as compared to ₹ 1,072 million for the previous fiscal.

 

HISTORY AND DEVELOPMENT

 

We were incorporated on December 12, 1995 in Andhra Pradesh, India as Satyam Infoway Private Limited, a Company under the Indian Companies Act, 1956 to develop and offer connectivity-based corporate services in India. Until December 2002, we were a majority-owned subsidiary of Satyam Computer Services Limited, an Indian information technology Services Company traded on the New York Stock Exchange and the principal Indian Stock Exchanges. We changed our name from Satyam Infoway Limited to Sify Limited in January 2003 and from Sify Limited to Sify Technologies Limited in October 2007. We completed our initial public offering of ADSs in the United States in October 1999. We listed our ADS on the NASDAQ Global Market on October 19, 1999. In February 2000, we completed our secondary offering of ADS in the United States.

 

Refer to Note 33 ‘Related Party Transactions’ in Item 18 of this Annual Report for the list of our subsidiaries

 

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The address of our principal executive office is TIDEL Park, 2nd Floor, 4, Rajiv Gandhi Salai, Taramani, Chennai 600 113 India, and our telephone number is 91-44-2254-0770. Our agent for Investors Relations in the United States is Grayling Global, 101 Avenue of the Americas, 14th Floor, NY 10013, United States, phone +1-646-284-9400. Our website address is www.sifytechnologies.com and the information contained in our website does not constitute a part of this Annual Report.

 

All of our publicly filed SEC reports are available at the SEC’s website, www.sec.gov, which contains all the public filings and other information regarding registrants that make electronic filings with the SEC using its EDGAR system.

 

Initial Public Offering and Subsequent Financing Transactions

 

In October 1999, we completed our initial public offering on the NASDAQ National Market and issued 4,801,250 ADSs at a price of $18.00 per ADS. We received proceeds of approximately $79.2 million, net of underwriting discounts, commissions and other offering costs. In connection with our initial public offering, we received the benefit of exemptions from the NASDAQ corporate governance rules relating to shareholder meeting quorum, solicitation of proxies and shareholder approval for issue of shares other than in a public offering under NASDAQ rules. We will continue to avail of the exemptions from the NASDAQ corporate governance rules.

 

In February 2000, we completed a secondary offering and issued 467,175 ADSs at a price of $320.00 per ADS. We received proceeds of approximately $141.2 million, net of underwriting discounts, commissions and other costs.

 

In October 2002, we agreed to sell an aggregate of 7,558,140 ADSs to SAIF for consideration of $13.0 million and to sell an aggregate of 2,034,883 equity shares to VentureTech for consideration of $3.5 million. This transaction was approved by our shareholders at our Extraordinary General Meeting held on December 9, 2002. In December 2002, we completed the sale of the ADSs to SAIF and the sale of 2,034,883 equity shares to VentureTech. In April 2003, we sold an additional 1,017,442 equity shares to VentureTech. In July 2003, we sold an additional 1,017,441 ADSs to an affiliate of Venture Tech.

 

On November 10, 2005, Infinity Capital Ventures, LP (“Infinity Capital”) acquired 11,182,600 ADS of our Company from Satyam Computer Services Limited (“Satyam”) for US $5.60 per share in cash through a Sponsored ADR Program arranged by the Company. The total purchase price for the Satyam shares was approximately US $62.6 million.

 

In a separate transaction, also on November 10, 2005, Infinity Capital entered into a Subscription Agreement with us pursuant to which, upon the terms and subject to the conditions set forth therein, Infinity Capital agreed to purchase from us approximately 6.7 million newly-issued equity shares or ADSs at a purchase price of US $5.60 per share in cash. The total purchase price for the newly issued shares was approximately US $37.5 million. This transaction was approved by our shareholders at our Extraordinary General Meeting held on December 23, 2005. In January 2006, we completed the transaction. Also, on November 10, 2005, Sify, Infinity Capital and Mr. Raju Vegesna entered into a Standstill Agreement pursuant to which, upon the terms and subject to the conditions set forth therein, Infinity Capital agreed not to purchase more than 45% of our fully diluted equity. The Board of Directors waived the above clause in the standstill agreement passed through a Board resolution dated January 22, 2008.

 

Following the transactions, Mr. Raju Vegesna of Infinity Capital was appointed as the Chairman of our Board of Directors. Mr. P. S. Raju was the second nominee of Infinity Capital to our Board of Directors.

 

On March 24, 2008, the Company entered into a Subscription Agreement with Infinity Satcom Universal Private Limited (Infinity Satcom Universal), a private limited Company in India which is controlled by Ananda Raju Vegesna and brother of Raju Vegesna, CEO, Chairman and Managing Director, for issuance of 12,817,000 Equity Shares of the Company with face value of 10/- per share at a premium of 165/-. It was approved by the Company’s shareholders at the Extraordinary General Meeting held on March 17, 2008.

 

On March 24, 2008, we received a sum of 112.14 million (comprising of 12.81 million towards face value and 99.33 million towards securities premium). Subsequently, Infinity Satcom Universal communicated to the Company that they would focus their attention on the business of Sify Communication Limited (erstwhile subsidiary) and hence shall not contribute the balance money towards the subscription of 12,817,000 Equity Shares on call. On August 29, 2008, the Board of Directors, forfeited the shares allotted and the application monies collected ( 112.14 million including sums towards capital and premium).

 

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On October 30, 2010, we consummated the issuance and sale of 125,000,000 of our equity shares in a private placement to Raju Vegesna Infotech and Industries Private Limited, our promoter group, and an entity affiliated with our CEO, Managing Director and Chairman, Mr. Raju Vegesna. See note 36 in the notes to the financial statements in this Annual Report.

 

Acquisition of Minority Interest in Subsidiary

 

In January 2008, our Board of Directors of Sify approved the merger of our subsidiary, Sify Communications Limited (“Sify Comm”) with our Company. The Boards of each of Sify and Sify Comm determined that a merger would produce cost savings efficiencies and as a combined entity, benefit all shareholders. The Board then submitted the proposed merger to the shareholders and to the High Court of Madras for approval. In August 2008, while approval for the merger was pending, the Indian Government proposed new regulations regarding the delivery of Internet services and was expected to announce changes to the policy governing the spectrum for the delivery of wireless data. The Board reviewed these regulatory changes and determined that it would be in the best interest of each Company to remain as separate entities, as opposed to combining the entities as contemplated by the proposed merger. The Company submitted a petition to the High Court of Madras to withdraw the merger, and such petition was approved.

 

In October 2008, the Company again evaluated the feasibility of a merger between Sify and Sify Comm and the Board of Directors of the Company at their meeting held on November 24, 2008 approved the merger of Sify Comm with retrospective effect from April 1, 2008, subject to approval by the Shareholders, the Honorable High Court and other statutory authorities. The Board considered the deterioration of the Indian and global economy, and its effect on the Company’s performance during the first half of fiscal 2009 as well as the impact of a prolonged economic downturn on the Company during the third and fourth 2009 fiscal quarters. The Board evaluated these issues and determined that a combined entity would provide cost savings and increased cash flow, and strengthen the Company’s ability to borrow additional funds, if necessary. Accordingly, the Board of Sify determined that the merger should again proceed and sought shareholder approval and submitted the merger to the High Court of Madras for approval. The Honorable High Court approved the merger on 26th June 2009. In connection with such merger the Company has issued 10.53 million equity shares to Infinity Satcom Universal Private Limited, a 26% stake holder in the erstwhile Sify Communications Limited prior to merger.

 

On July 15, 2009, Infinity Satcom Universal Private Limited has acquired 4,000,000 shares of the Company from Infinity Capital LP, USA in a private transaction.

 

Principal Capital Expenditures

 

In fiscal years 2020, 2019 and 2018, we spent 2,382 million (US$ 34.44 million), 1,475 million (US$ 22.67 million) and 1,940 million (US$ 29.92 million) respectively, on capital expenditures of which 1.63 million (US$ 0.024 million), 0.31 million (US$ 0.004 million) and 1 million (US$ 0.02 million) were incurred in North America in fiscal years 2020, 2019 and 2018 respectively. . The remaining amounts were incurred in India. As of March 31, 2020, we had contractual commitments of approximately 6,141 million (US $81.46 million) for capital expenditures towards the acquisition of property, plant and equipment. These commitments included approximately 4,908 million (US $ 65.11 million) in domestic purchases and 1,232 million (US $ 16.35 million) in imports and overseas commitments for products and spares. The total capital expenditure with respect to capital work in progress as on March 31, 2020 amounted to ₹ 905 million (US$ 12.01 million). All our capital expenditures were financed out of cash generated from operations, equity infusion, finance leases and borrowings from banks.

 

Investment Strategy

 

In evaluating investment opportunities, we consider important factors, such as strategic fit, competitive advantage and financial benefit, through a formal net present value evaluation.

 

Proposed demerger

 

Our Board of Directors, in its meeting held on May 5, 2020 has approved the proposal to demerge the businesses carried on by Sify Technologies Limited into two wholly owned subsidiaries. Network centric businesses will be carried on by Sify Technologies Limited, while Data center services will be transferred to one of the wholly owned subsidiaries and IT managed Services, which comprise of Cloud and Managed Services, Technology Integration Services and Applications Integration Services will be transferred to the other wholly owned subsidiary. This would help in strategic focus and strategic investments in to the developing business of Data center services and IT Managed Services. The demerger is proposed to be executed as slump sale for exchange of shares of Subsidiary companies. The transaction will have to be approved by Members in the AGM proposed to be held during September 2020.

 

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BUSINESS OVERVIEW

 

Industry Overview

 

Rapid digital revolution is transforming businesses in every industry across the world. The ICT industry is at the forefront of the digital revolution that is cascading across industries, redefining business processes, customer experiences and cost economics. Advanced network technologies, the explosion of bandwidth consumption, rapid adoption of cloud technologies and cloud-based applications resulting in massive need for increased data processing and storage capabilities are catalyst to this digital revolution.

 

This digital revolution also meant that IT investments of companies has shifted from building own IT infrastructure to adopting scalable, agile infrastructure on services model. The need to leverage these technologies and models in the digital era coupled with the need to establish future proof businesses are key strategic imperative for business leaders. This widens the paradigm of IT environment developing human-machine interfaces, deriving value from large volumes of digitized data, building software applications that will build efficiency on distributed cloud computing and one that is not restricted by the technology landscape of companies.

 

The rapid pace and the changes brought in by digital revolution also means that the skillsets required to manage the IT and ICT landscape of companies are continuously evolving. This is driving business to rely on third party providers to realize their business transformation objective.

 

While presenting strong market opportunities, the digital revolution also means the ICT industry itself would have to transition to provide more flexible, scalable and agile products and solutions to customers, reimagine the cost structures, embrace automation and other emerging technologies.

 

The COVID-19 pandemic with its disruption of demand and supply chains across industries and geographies, has presented with opportunities for ICT industry with more companies looking towards technology initiatives on automation, remote working, cloud-based applications, security of the data and application in the new environment and managment of the changed IT policies.

 

Strategy

 

Our strategic objective is keeping our customers ahead in their digital journey through our entire stack of ICT solutions and services and delivering value to all the stakeholders involved – employees, suppliers, environment and the society and the shareholders.

 

In fiscal 2020, our strategy was driven by the theme “cloud@core” to further strengthen our products, capabilities and solutions. Our focus areas to achieve this were:

 

1.To continue investing in future proof infrastructure and technologies
2.To productize our solutions to achieve scale
3.To Reskill our employees
4.Investing in tools and technologies

 

In fiscal 2021, we will continue to pursue our strategy with the same principles. The investments we have made have served us well. We will continue to make investments in building our capacities and resources while optimizing the way in which our operations and business processes are carried out with automation technologies. We are reaching our customers with solutions that are productized with our “cloud@core” theme. This approach will continue to be adopted even in the light of COVID-19, as we believe there will be a surge in demand for our products and services once businesses are restarted.

 

Key highlights of our strategy execution during fiscal 2020 are as follows:

 

1.To continue investing in future proof infrastructure and technologies

 

Hyperscale network in two of the cities in India went into service during the year. With this we have hyperscale networks in 5 major cities in India. We propose to extend this to 3 more cities in the coming year. We have also invested in setting up of Edge Data Centers (Edge DC) in Tier 2 locations where the network consumption is scaling with mobile network penetration in India and the necessity for Network nodes closer to the eyeballs is fueling demand for these services.

 

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We have continued to increase our data center capacity during the current year as well. Our next Tier III data center in Hyderabad went live during the year. We have reached 70.87 MWA of capacity during the year with 29.7 MWA of capacity added during the year. We have also upgraded one of our existing data centers during the current year.

 

2.To productise our solutions to achieve scale

 

Productizing the existing solutions has helped us achieve scale in terms of ability to deliver to large number of our customers, our solutions that would involve multiple products across our service offerings. Customer experience has improved due to this standardization.

 

3.To Reskill our employees

 

We have invested in reskilling of our employees through our Learning and Development programs. The training enablement is done through various modes like ILT, VLT, eLearning and Webinars. Around 2,714 associates have taken advantage of the eLearning platforms of myAcademy. Around 167 learning solutions have been internally created, amounting to an aggregate duration of more than 45,000 hours.

 

In line with specific business needs, certification programs are organized with a twin objective of meeting business goals and providing associates with an opportunity to strengthen their conceptual, functional and technical expertise. Around 96 certifications have been created internally to validate learning effectiveness across various skills. During 2019-20, 1,285 associates undertook internal certification programs and also industry certifications offered by Amazon, Microsoft, SAP, etc. Training programs covering the certification content were organized, followed by certifications.

 

4.Investing in tools and technologies

 

We have enhanced our ERP features during the current year. We have also invested in new tools for our unified infrastructure monitoring, management and customer relationship management. The investments are made with a view to improve customer experience by optimizing business processes, enable automation and analytics with the large pool of data that is collected.

 

Service Offerings

 

Our 5 business segments are grouped into two broad categories:

 

1)Network centric services
2)Data Center centric IT services

 

a)Network-centric services

 

(i)Network Services

 

We offer a range of network services and the related managed services with the network that reaches more than 1600 towns and cities, with over 3150 points of presence and with our Global Network Operations Center having over 500 associates managing network and network devices of various customers across the globe Our network extends across the globe with 9 International POPs and seamless Network to Network Interconnection with multiple global network providers. We have a cable landing station in India which lands two of the cable systems that come into India.

 

Our network is built with a combination of leased capacities, leased fiber and own fiber. Our strength has been delivering services on wireless last mile which helped our strategy of hyper reach and with the investments in building fiber network in major cities is helping us have hyper scale network delivered to our clients. We lease capacities from multiple telco operators and build redundancies relevant to our architecture. We are carrier agnostic. The prices of network capacities that we procure has been relatively stable over the years. We have our network spread across 1600 towns and cities, which is managed by our manpower and in certain cases through our field partners who attend to tickets. Our rental of network nodes is a combination of full lease and colocation basis, which enables optimum operating costs for our network. Major cost for our Network operations center which delivers managed services to our clients is employee costs.

 

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The focus of the Network Services is on the following lines:-

 

  § India Network Business – Catering to the growing data communication needs of enterprises in India that demands agility and security, , we offer Internet, MPLS, SDWAN, Managed Wi-Fi, Internet of Things (IoT), and proactive monitoring and management of the network and devices on the network for the customers.

 

  § Global Network Business – catering primarily to international carriers wanting to access Indian markets for Dedicated Internet Access, India In MPLS, Layer 1/Layer 2 and managed services

 

  § Wholesale Voice – Addressing the ‘India termination’ and several other countries for Hubbing.

 

§Retail Voice – The company offers services in the retail voice market in partnership with International players.

 

The following range of services are offered as part our network services portfolio:

 

WAN Portfolio

 

  · 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:

 

  · 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.

 

  · 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.
 

 

·

 

DC/Cloud Interconnect portfolio

 

Data Center Interconnect provides access to 48 major data centers across the country with Data center to Data center connectivity over Ethernet, Fiber Channel, SDH or IP/VPN.

 

GlobalCloudConnect provides seamless connectivity to global cloud service providers and multiple direct interconnects to Cloud Service Providers in India like Amazon web services (AWS), Microsoft Azure and Google Cloud Interconnect.

 

Oracle FastConnect provides access to Oracle Cloud region across the globe leveraging Sify’s GlobalCloudConnect,(GCC) and Interconnection in major data centers. Sify’s GCC interconnects with Oracle cloud infrastructure ensuring fast and reliable access to the cloud region

 

AMS-IX is private internet exchange set up in Mumbai in partnership with Amsterdam Internet Exchange (AMS-IX) where we offer services of private peering for the content providers and the private ISPs

 

Managed Network Services portfolio

 

Network Operations Center (NOC) services offer full network, device and performance monitoring across network infrastructure and providers. We offer these services to customers as Shared NOC, Dedicated NOC and Hybrid NOC.

 

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

 

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.

 

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. 

 

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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.

 

  ·

DDoS Protect services which offers protection from DDoS attack to corporate customers.

 

  · Managed SDWAN with features such as intelligent routing, faster troubleshooting, zero-touch provisioning, providing application level visibility, security, network management and performance management is a transformational approach to design enterprise WANs to simplify deployment and management of the network.

 

EDGE Services Portfolio

 

Edge Connect (Managed WLAN) provides Managed Wi-Fi solutions offering connect devices to the network of the customer and the internet at customer locations.

 

Internet of Things (IoT) services leverages our network, cloud, applications and network integration capabilities to deliver turnkey solutions to our customers ranging from employee/vehicle tracking to smart metering, smart energy monitoring. There are off-the shelf solutions and customized solutions to solve customer problems.

 

During the year, we have offered Managed SDWAN, Internet of Things (IoT), Application to Person (A2P), Unified Communication as a service (UCaaS) along with scaling of our existing network services portfolio.

 

b)Data Center-centric IT services

 

(i)Data Center services

 

Our Data centers are designed to be reliable, secure and scalable 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 rent ‘secure cages’ at the hosting facility as per their application requirements. We also offer a wide variety of managed data center services, such as storage and back-up management, performance monitoring and Infrastructure monitoring and management, network availability, server load balancing, managed shared firewall, Web server log reporting and remote hands and smart hands services. Our data center in Rabale also hosts our private internet exchange AMS-IX.

 

We pioneered the Data Center business in India with the first commercial Data Center in Vashi in the year 2000, beginning small with 0.9 MW and since then, has expanded to become one of the largest home-grown colocation service providers. Today, we offer a combined IT power of 71 MW across its 10 Data Centers, located in all the major business districts. Sify Data Centers have distinguishing features that help customers to stay ahead of the competition. Apart from all of them being Concurrently maintainable, the Rabale campus comes with an on-premise substation and the Noida Data Center is amongst the few green Data Centers available in India. Our Data Centers are built as per the 4th generation SDA (Sify Data Center Architecture) and operate on an ITIL-based service delivery framework. These Data Centers have highly scalable IT infrastructure with mature operational processes, strong vendor relationships, and provide industry standard IT support functions. All our Data Centers follow professional standards of ISO 9001 for quality, ISO 27001 for information security and ISO 20000 for service delivery.

 

Power is the major source of input for our DC operations. We source power from the Government in most of our Data Centers, while we have solar power generation, wind power generation done in few of our facilities. We constantly look for alternate and sustainable sources of power to run our DC operations in a cost-efficient manner.

 

(ii)Cloud and Managed services

 

We offer range of cloud services to our customers:

 

CloudInfinit is enterprise public cloud services managed by our experts in our concurrently maintainable data centers, with ready to use compute, storage and network resources to host applications of customers on multitenant cloud infrastructure. We offer Infrastructure as a Services (IaaS), Platform as a Service (PaaS), Virtual Private Data Center (VPDC) in a secure SSAE-16 and SOC-2 accreditation.

 

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GoInfinit VPE is a private cloud computing service with dedicated compute capacity and secure logically segregated storage, network and security resources delivered out of our robust Data Centers.

 

GoInifit AWS+ is offering public cloud services out of AWS infrastructure. As a consulting partner for AWS, our managed services team provides the customer with variety of services to simplify the AWS experience.

 

GoInfinit Private is an enterprise-grade, fully integrated private cloud IT platform with specific controls, compliance and IT architecture in a flexible model. Containers and rack space are fully cloud enabled, built to meet enterprise’s needs of today and tomorrow.

 

GoInfinit Backup is a simplified and standardized data backup and recovery solution. This is available on-prem or in Sify data centers. This backup process is simplified and compatible with a wide range of backup platforms, including Sify cloud and public clouds like Microsoft Azure and AWS.

 

GoInfinit Recover provides an unified data protection solution. It includes backup, snapshot, disaster/ raid recovery, Dev/Test and analytics all through a single gold copy. This SLA-backed disaster recovery as a service (DRaaS) offering enables fast recovery with complete protection of business systems and data. It’s a complete data recovery services platform that customers address their disaster recovery management requirements easily through scalable, secure and automated services

 

GoInfinit Accelerate is provided in partnership with Akamai, a global Content Delivery Network (CDN) with presence in over 650 cities across the world. We offer cloud-based CDN services and other SaaS in cloud computing to enable fast and secure content delivery to any device anywhere.

 

Our Remote and Onsite Infrastructure Managed services provide 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 Managed Security services are enabled with Sify’s security experts using latest tools and technologies to monitor customer’s infrastructure and network every minute of every day. They monitor all events, provide proactive and real-time attack mitigation. Based on the Sify Cyber Threat Intelligence Framework - a set of comprehensive services and best practices developed over the past decade.

 

Our associates are major source of input for the services provided in addition to the infrastructure that is built. Most of our associates have to carry additional certifications or skillsets to offer managed services for our customers.

 

(iii)Technology Integration services

 

TIS leverages Sify’s home-grown expertise in design, implementation and maintenance to deliver end- to-end managed IT services across Data Centers, network and security.

 

Major focus is as follows:

 

Service Desks and Command Centers
Voice and Video Conferencing
Hosted Contact Centers
Unified Communication and Unified Access
Virtualization
Data Center Build
Campus/LAN/Data Center Networking
WAN Architectures
Enterprise and End Point Security

 

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

 

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

 

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 consists 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.

 

(iv)Applications Integration services

 

Our applications integration services were built to leverage on our network, cloud, security capabilities and integrator strengths that would help us offer applications that were developed in house and manage industry standard applications. Our offerings are:

 

Talent Management

 

iTest is our in-house application through which we offer solutions such as Online examination services, Online Registration services and student lifecycle management services to our customers.

 

Supply Chain Management

 

Forum NXT offers tools to effectively manage front-end supply chain of our customers. It offers an integrated inventory system software and financial accounting systems that can be used by all stakeholders in the distribution network of customers. Forum NXT automates salesforce operations with inventory management mobile app for order tracking, market surveys, and more.

 

Web portal solutions

 

Sify.com channels

 

Sify.com provides a gateway to the Internet by offering communication and search tools such as travel, online portfolio management and channels for personal finance, astrology, lifestyle, shopping, movies, sports and news. We have also launched mobile applications to offer the below-mentioned services on the mobile.

 

·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.

 

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Content services – From strategy to implementation, we enable our customers to have the most relevant content that can be easily discovered and shared.

 

Portal development - Our portal development and maintenance solutions, leverage an extensive experience in handling challenging web development projects for some of India’s leading government and private sector organization

 

eLearning

 

Our eLearning services create immersive and engaging learning experiences with new technology and interactive learning. Our innovative eLearning technologies and courseware solutions leverages the power of the web, mobile and the cloud. We offer custom solutions to customer to develop their courses using modern technologies like Virtual Reality, Game based Learning and Interactive 3D learning in addition to more traditional methods of instructor led training and developing video-based learning modules for our customers.

 

Digital Signature Services

 

Safescrypt is our flagship managed CA public key infrastructure (PKI) services offered from our world class data center in Chennai. Our solution to customers incorporates business and audit requirements in compliance with legal and regulatory mandates.

SAP Services

 

We offer a range of support services, and our experts help with everything from SAP implementation and maintenance to SAP GST ready, SAP Basis and SAP HANA cloud hosting to system improvements and innovation strategies. With our vast experience across geographies and industries, we have the right people, practices, and solutions to help organizations generate the greatest return on their SAP investments and build a transparent business

 

Microsoft Services

 

We offer support and implementation services for Microsoft Office 365, Azure cloud solutions and SQL enterprise grid.

 

Oracle Services

 

We help customers deploy their Oracle applications and business critical infrastructure – migrate, integrate and upgrade - either in their Data Centre or enabling them to deploy over the Cloud. We help organizations of all sizes to deploy, migrate, integrate, develop, enhance, optimize, monitor and manage Oracle software, platforms, and infrastructure. We have extensive expertise in Oracle technology to help deploy:

 

·Oracle Cloud infrastructure - application, platform or infrastructure

 

·Oracle On-Premise implementations - database, middleware and Oracle applications

 

·Design of mobile apps, intelligent chatbots and custom analytics for Oracle environments

 

Customers

 

Our customers from India are spread across industries and range in sizes from large corporations to SMB. We have customers across verticals like Banking Financial Services and Insurance (BFSI), Manufacturing, Retail and Distribution (MRD), Pharmaceuticals, Media, Printing and Publishing, Information Technology Enabled Services (ITES), Telecommunication, Power, Public Sector Units and Governments. We have more than 10000+ customers as on date. We also have our wholesale businesses with fellow carriers for data, voice and data center services.

 

As a % of total revenue by geographic segment for the last three fiscal years are as follows:

 

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Geography  2020   2019   2018 
India   77.59%   78.34%   80.49%
Rest of the world   22.41%   21.66%   19.51%

 

As a % of total revenue by operating segment for the last three fiscal years are as follows:

 

Operating Segment  2020   2019   2018 
Network Services   55.23%   53.84%   48.25%
Data center centric services               
Data center Services   16.66%   14.60%   11.77%
Cloud and Managed Services   6.95%   6.84%   4.62%
Technology Integration Services   13.24%   16.18%   16.65%
Applications Integration Services   7.93%   8.54%   18.70%

 

Customer Service and Technical Support

 

We have a single window help desk for all our customers across different service lines. This helps in customers reaching the right technical support at an accelerated pace and get issues resolved. We support both telephonic and email interactions from our clients and support for Enterprises services is 24x7.

 

Sales and Marketing

 

Our sales and marketing functions are structured based on geographies to cater to the needs of respective markets. We have sales and marketing teams in India, Singapore, United Kingdom and the United States. While India sales is further divided to regions such as North, East, West, South and based on the customer segment as Digital Sales Team and Wholesale, the Singapore is responsible for rest of Asia Pacific, United Kingdom is responsible for Europe market and the United States is responsible for coverage in North America.

 

Technology and Network Infrastructure

 

Geographic coverage: Our network today reaches more than 1600 towns and cities and between them have more than 125,000+ 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 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
·Layer 1 / Layer 2 networks
·Data center / cloud interconnections

 

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.

  

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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 network. 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 10 concurrently maintainable Internet Data Centers, five in Mumbai, one each at Chennai, Bangalore, Hyderabad, Kolkatta and Noida (UP). We offer managed hosting, security and infrastructure managed 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 standards to cater to the security consideration of our customer servers.

 

Competition

 

The market we operate in is extremely competitive as the technology landscape is rapidly changing. While we compete with large incumbent players, we also face competition from smaller niche technology companies. We go through the process of Request for Proposals (RFP) from customers. Our ability to operate across the spectrum of ICT has put us good stead in winning many of the integrated solution customers. We foresee competition to further intensify with the digital revolutions giving rise to many smaller companies and also due to the trend of insourcing technology services by our customers is a threat to us.

 

Intellectual Property

 

Our intellectual property rights are important to our business. We rely on a combination of copyright and trademark laws, trade secrets, confidentiality procedures and contractual provisions to protect our intellectual property. We have filed trademark and service mark applications in India for registering our product and service offerings.

 

Our efforts to protect our intellectual property may not be adequate. We hold no patents, and our competitors may independently develop similar technology or duplicate our services. Unauthorized parties may infringe upon or misappropriate our services or proprietary information. In addition, the laws of India do not protect proprietary rights to the same extent as laws in the United States, and the global nature of the Internet makes it difficult to control the ultimate destination of our services. For example, the legal processes to protect service marks in India are not as effective as those in place in the United States. The misappropriation or duplication of our intellectual property could disrupt our ongoing business, distract our management and employees, reduce our revenues and increase our expenses. In the future, litigation may be necessary to enforce our intellectual property rights or to determine the validity and scope of the proprietary rights of others. Any such litigation could be time-consuming and costly.

 

We could be subject to intellectual property infringement claims as the number of our competitors grows and the content and functionality of our websites or other service offerings overlap with competitive offerings. Defending against these claims, even if not meritorious, could be expensive and divert management’s attention from operating our Company. If we become liable to third parties for infringing their intellectual property rights, we could be required to pay a substantial damage award and forced to develop non-infringing technology, obtain a license or cease selling the applications that contain the infringing technology. We may be unable to develop non-infringing technology or obtain a license on commercially reasonable terms, or at all.

 

We also rely on a variety of technologies that are licensed from third parties. We use software developed by these and other companies to perform key functions. These third-party licenses may not be available to us on commercially reasonable terms in the future. The loss of any of these licenses could delay the introduction of software enhancements, interactive tools and other features until equivalent technology could be licensed or developed. Any such delays could materially adversely affect our business, results of operations and financial condition.

 

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Government Regulation

 

Our business is subject to comprehensive regulation by the Ministry of Communications through the Telecom Commission and the DoT, pursuant to the provisions of the Indian Telegraph Act of 1885, or Telegraph Act, the India Wireless Telegraphy Act, 1933, or Wireless Act, the Information Technology Act, 2000 or IT Act and the terms of our Internet service provider license issued by the DoT under which we operate. Pursuant to the Telegraph Act, the provision of any telecommunications services in India requires a license from the Government of India, obtained through the DoT. While the Telegraph Act sets the legal framework for regulation of the telecommunications sector and the Wireless Act regulates the possession of wireless telegraphy equipment, much of the supervision and regulation of our Company is implemented more informally through the general administrative powers of the DoT, including those reserved to the DoT and other governmental agencies under our license.

 

In March 1997, the Government of India established the TRAI, an independent regulatory authority, under the provisions of the Telecom Regulatory Authority of India Act. The TRAI is an autonomous body consisting of a chairperson and at least two and not more than four members.

 

Under the Telecom Regulatory Authority of India Act, the functions of the TRAI are to:

 

  make recommendations on (i) the need and timing for the introduction of new service providers, (ii) the terms and conditions of licenses granted to service providers, (iii) the revocation of licenses for non-compliance, (iv) measures to facilitate competition and promote efficiency in the operation of telecommunications services so as to facilitate growth in such services, (v) technological improvements in the services provided by service providers, (vi) the type of equipment to be used by service providers, (vii) measures for the development of telecommunications technology and the telecommunications industry and (viii) the efficient management of the available spectrum;

 

  discharge the following functions: (i) ensure compliance of the terms and conditions of licenses, (ii) fix the terms and conditions of interconnectivity between service providers, (iii) ensure technical compatibility and effective interconnection between service providers, (iv) regulate revenue sharing arrangements between service providers, (v) establish standards of quality of service, (vi) establish time periods for providing local and long distance telecommunications circuits between service providers, (vii) maintain and keep for public inspection a register of interconnect agreements and (viii) ensure effective compliance of universal service obligations;

 

  levy fees and other charges at such rates and in respect of such services as may be determined by regulation; and

 

  perform such other functions as may be entrusted to it by the Government of India or as may be necessary to carry out the provisions of the Telecom Regulatory Authority of India Act.

 

The TRAI also has the authority to, from time to time, set the rates at which domestic and international telecommunications services are provided in India. The TRAI does not have authority to grant licenses to service providers or renew licenses, functions that remain with the DOT. The TRAI, however, has the following powers:

 

  to call on service providers to furnish information relating to their operations;

 

  to appoint persons to make official inquiries;

 

  to inspect the books of service providers; and

 

  to issue directives to service providers to ensure their proper functioning.

 

Failure to follow TRAI directives may lead to the imposition of fines. Decisions of the TRAI may be appealed to the Telecom Disputes Settlement and Appellate Tribunal.

 

On May 31, 2012, the Union Cabinet approved the National Telecom Policy-2012 (NTP-2012) and the Cabinet also approved introduction of Unified License (UL), a new regime wherein all telecom-based government approvals are handled under one umbrella and authorized the Department of Telecommunications (DoT) to finalize the new Unified Licensing regime. DoT issued Guidelines for Grant of Unified License - vide No. 20-281/2010-AS-I (Vol.VI) dated August 19, 2013 and also notified Unified License agreement on August 2, 2013 with the Corrigendum dated August 29, 2013

 

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As per the new Guidelines, any company applying for renewal of any license under New Unified License regime, such company has to apply for all the required licenses for such company from DoT under new Unified License regime. The Company signed Unified License agreement with Government of India on June 2, 2014 valid for 20 years.

 

In 2016, TRAI announced a new VNO (Virtual Network Operator) license as a part of the Unified License regime for bringing in more players in the market through resale model. The company applied and has been allotted this license for Chennai circle.

 

Organizational Structure

 

We are not part of any group. A list of subsidiaries and relevant information about them is provided in Exhibit 8.1 to this Annual Report.

 

Property, Plant and Equipment

 

Investment in Network-centric services

 

We own approximately 100,000 square feet corporate headquarters located in Chennai (Madras), India and an approximately 20,000 square feet regional office in Mumbai (Bombay). We have leased approximately 3,500 square feet network operations center in Chennai.

 

Our 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, or POPs, to ensure a reliable Internet service. We have POPs in over 1,600 towns/cities across India. Most of our POPs are staffed 24-hours-a-day, seven-days-a-week. Our POPs average approximately 750 square feet at each location. 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. Our property, plants and equipment are pledged towards obtaining loans / working capital facilities from banks.

 

The Company is part of sub-consortium of the Europe India Gateway (EIG), undersea cable capacity between London and Mumbai. The Capacity went live during fiscal 2013 and was upgraded during fiscal 2015, 2016, 2018 and 2019. This enables significant capacity on ground leading to ability to service larger customers.

 

Investment in Data Center-centric Services

 

We have combined IT power of 71 MW across our 10 data center facilities. All our data centers are concurrently maintainable, our Rabale campus comes with an on-premise substation and our Noida DC is amongst the few green data centers in India. Our Data Centers provide high-level security features like perimeter fence, gates, fire suppression, and 24X7 security officers. All critical areas have Biometric Readers, Smart Card Access, and 24*7 CCTV surveillance. Noida and Rabale Data Centers come with a Z level security with advanced fire alarm, aspirating smoke sensors, multilevel access control, and automatic fire suppression. We continue to expand our capacity to meet the rising demands of data centers.

 

Item 4A. Unresolved Staff Comments

 

None.

 

Item 5. Operating and Financial Review and Prospects

 

The financial statements of the Company included in this Annual Report on Form 20-F have been prepared in accordance with the English version of International Financial Reporting Standards as issued by International Accounting Standards Board. The information set forth in Operating and Financial Review and Prospects is also for the Company's three most recent fiscal years. The discussion, analysis and information presented in this section should be read in conjunction with our financial statements included herein and the notes thereto. See Note Regarding Forward-Looking Statements. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including, but not limited to, those described below and elsewhere in this annual report, particularly in the risk factors described in “Part I — Item 3 Key Information - Risk Factors.”

 

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Operating Results

 

This information is set forth under the caption entitled 'Management's Discussion and Analysis of Financial Condition and Results of Operations' below. Further, information relating to any governmental, economic policies or other factors which have materially affected, or could materially affect, directly or indirectly, the company’s operations is set forth under the caption entitled ‘Risk Factors’ above.

 

Liquidity and Capital Resources

 

This information is set forth under the caption entitled 'Management's Discussion and Analysis of Financial Condition and Results of Operations' below.

 

Research and Development

 

This information is set forth under the caption entitled 'Management's Discussion and Analysis of Financial Condition and Results of Operations' below.

 

Trend Information

 

This information is set forth under the caption entitled 'Management's Discussion and Analysis of Financial Condition and Results of Operations' below.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(₹ in million, except share data and where otherwise stated)

 

Overview

 

We are 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 network also connects 49 Data Centers across India including Sify’s 10 concurrently maintainable Data Centers across the cities of Chennai, Mumbai, Delhi and Bengaluru and customer Data Centers.

 

Our mission is building a world in which our converged ICT ecosystem and our ‘bring it on’ attitude will be the competitive advantage to our customers. Our 7 core values which is called ‘The Sify way’ are 1) Put customers’ needs first, 2) Be accountable, 3) Treat others with dignity, 4) Be action oriented, 5) Have the courage to confront issues, 6) Always remember that you are a part of Sify’s team, 7) Protect Sify’s interest always.

 

Our primary geographic market are India and Rest of the world. Our revenue is derived from services to enterprise customers, comprising Network services, Data Center services, Cloud and Managed services, Technology Integration services and Applications Integration services.

 

We were incorporated on December 12, 1995 in Andhra Pradesh, India as Satyam Infoway Private Limited, a Company under the Indian Companies Act, 1956 to develop and offer connectivity-based corporate services in India. We completed our initial public offering of ADSs in the United States in October 1999. We listed our ADS on the NASDAQ Global Market on October 19, 1999. In February 2000, we completed our secondary offering of ADS in the United States.

 

Digital revolution is driving our customers and prospective customers to transformation in every aspect of their businesses, which would include the entire spectrum of ICT from network, storage, virtualization, network integration, analytics and applications on the cloud. We aim to keep our customers ahead in this journey of digital future with our innovative products and solutions.

 

Our strategy was driven by the theme “cloud@core” to further strengthen our products, capabilities and solutions. We have invested in the past and continue to invest in the future on building future proof infrastructure and technologies. We have standardized our product offering to help us achieve scale. We are continuously focused on reskilling and upskilling our employees while we continue to invest in tools and technologies like Automation, Artificial Intelligence and Machine Learning.

 

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Impact of COVID-19:

 

Global pandemic of covid-19 has resulted in uncertainty in every aspect of life and hence we are not currently unable to predict the extent to which the pandemic will disrupt our business and operations. In March 2020, as the COVID-19 pandemic rapidly spread, governments across the world announced public health measures, including complete or partial lockdowns restricting movement of people, goods and services. Economic activity was severely impacted, including disrupting the businesses of our customers.

 

As a response to Covid-19, we triggered our Business Continuity Plan. Most of our employees were quickly asked to work from home. In order to better support employees working from home, we have enhanced our cybersecurity measures by installing secure agents in our systems. In parallel to our employees working from home, we reached out to our customers, briefed them of the measures we were adopting and sought their approval. Through these efforts, we have been able to continue to support the majority of our customers.

 

The impact of Covid-19 on our businesses has not been material during the fiscal year ended March 31, 2020. With the increased adoption of working from home, the needs of customers for ICT solutions are forecasted to increase in the future. The lockdown imposed in various parts of the world, have delayed the decision-making processes of the customers, resulting in lower buoyancy in our order book. However, we expect the impact during the year to be minimal with the higher need and acceptability for our services.

 

We continue to focus on safety of our employees, infrastructure including the advent of higher cybersecurity threats and our customers. With some impact on contracted revenue and softening of discretionary spends from customer side, and higher costs of operations in the uncertain scenario due to covid-19, there will be some margin pressure in the near term. We are working to optimize cost structure. Some of the activities we have initiated are: 

·Improve liquidity and cash management with focus on working capital cycles managing collections and payments
·Reduce capital expenditure other than committed
·Cost optimization initiatives such as automation, optimal capacity utilisation, optimising sub-contractor and travel costs, deferring employee compensation revisions and promotions and delay in hiring new employees

 

There are numerous risks and challenges affecting the business. These risks and challenges are discussed in detail in the section entitled 'Risk Factors' and elsewhere in this Annual Report.

 

Adoption of IFRS 16

 

Effective April 1, 2019, the Group adopted IFRS 16 “Leases” and applied the standard to all lease contracts existing on April 1, 2019 using the modified retrospective method. Consequently, the group recorded the lease liability at the present value of the lease payments discounted at the incremental borrowing rate and the right of use asset at an amount equal to the lease liability adjusted by the amount of any prepaid or accrued lease payments relating to that lease recognized in the balance sheet immediately before the date of Initial application. Comparatives as at and for the year ended March 31, 2019 have not been retrospectively adjusted and therefore will continue to be reported under the accounting policies included as part of our Annual Report for year ended March 31, 2019

 

On transition, the adoption of the new standard resulted in recognition of “Right of Use” asset of ₹3,997 Million, and a lease liability of ₹1,787 Million. The effect of this adoption is insignificant on the operating profit, net profit for the period and earnings per share. IFRS 116 will result in an increase in cash inflows from operating activities and an increase in cash outflows from financing activities on account of lease payments. Additional disclosures on IFRS 16 is given in Note 7 of financial statements

 

Revenues

 

Network 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 services in the retail voice market in partnership with Skype Communications, S.a.r.l. The company realized revenue from the sale of voice credits and subscriptions of Skype.

 

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Data Center services

 

Revenue from Data Center services includes revenue from co-location of space and racks 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.

 

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 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 T&M.

 

Technology Integration Service (TIS)

 

Revenues from TIS comprises of DC build services 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 (Apps SI) comprises of Online Assessment, Web development, supply chain solutions, content management, sale of Digital certificates and sale, implementation and maintenance of Industry Specific applications like SAP, Oracle and Microsoft. 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

 

Network 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 annual maintenance contract 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 licenses 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 licenses in providing services, cost of billable resources in case of Infrastructure 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.

 

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Applications Integration Services

 

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

 

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, 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 groups 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.

 

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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 tax 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.

 

Stock compensation expense

 

A total of 25 million equity shares are reserved for issuance under our Associate Stock Option Plans (ASOPs). Our ASOP 2014 was adopted at the Eighteenth Annual General Meeting held on July 28, 2014. As of March 31, 2020, we had an aggregate outstanding of 11.06 million options under our ASOP with a weighted average exercise price equal to approximately ₹ 70.90 ($0.94) per equity share. Unamortized stock compensation expense as of March 31, 2020 on these options is ₹ 78.15 million ($ 1.04 million).

 

Results of Operations

 

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

 

   Fiscal 
   2020   2019   2018 
    %    %    % 
Revenues   100    100    100 
Cost of goods sold and services rendered   (62.59)   (63.13)   (64.95)
Other income/(expense)   0.42    1.01    0.92 
Selling, general  and administrative expenses   (19.67)   (22.62)   (21.25)
Depreciation and amortization expenses   (9.98)   (7.12)   (8.48)
Profit from operating activities   8.18    8.14    6.24 
Finance income   0.84    0.21    0.63 
Finance expenses   (4.59)   (3.38)   (2.41)
Net finance income/(Expenses)   (3.75)   (3.17)   (1.78)
Profit before tax   4.43    4.97    4.46 
Income tax (expense)/ benefit   (1.37)   (0.01)   0.00 
Net profit for the year   3.06    4.96    4.46 

 

Results of year ended March 31, 2020 compared to year ended March 31, 2019

 

The growth in our revenues in fiscal 2020 from fiscal 2019 is given below:

 

   2019 – 20   2018 – 19  

Increase/

(decrease)

   % Change 
                     
Revenues   22,952    21,547    1,405    7%

 

Year 2019-20 had a 7% growth with an increase in revenues of ₹ 1,405 million ($18.64 million) contributed largely by Network services with a revenue growth of ₹ 1,076 million ($14.27 million), Data Center Services with ₹679 million ($9.00 million), Cloud and Managed Services with ₹120 million ($1.59 million). The increase is offset by decrease in revenue from Technology Integration services by ₹449 million ($5.95 million) and Application Integration Services by ₹21 million ($0.27 million).

  

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The revenue by operating segments is as follows:

 

   Revenue   Percentage of revenue   Growth % 
   2019-20   2018-19   2019-20   2018-19     
Network services   12,677    11,601    55%   54%   9%
Data Center Services   3,824    3,145    17%   15%   22%
Cloud and Managed Services   1,594    1,474    7%   7%   8%
Technology Integration Services   3,038    3,487    13%   16%   -13%
Applications Integration Services   1,819    1,840    8%   8%   -1%
Total   22,952    21,547    100%   100%   7%

 

Revenue from Network Service increased by ₹1,076 million ($14.27 million) primarily due to (i) an increase in revenue of ₹960 million ($12.73 million) from Connectivity Services, contributed by net increase in number of links by 2,394 with existing and new customer engagements, and (ii) an increase in revenue of ₹116 million ($1.54 million) in Voice Services, which is on account of an increase by ₹621 million ($8.24 million) from Hubbing services, and partially offset by decrease of ₹461 million ($6.12 million) from ILD business, decrease of ₹6 million ($0.08 million) from VoIP services, and decrease of ₹38 million ($0.50 million) from Voice Retail services

 

Revenue from Data Center Services increased by ₹679 million ($9.00 million) due to an increase of new contracts and capacities sold.

 

Revenue from Cloud and Managed Services has increased by ₹120 million ($1.59 million), primarily on account of an increase in revenue of ₹213 million ($2.83 million) from Domestic Managed Services, which is partially offset by a decrease in revenue by ₹82 million ($1.09 million) from Cloud offerings and decrease in revenue by ₹11 million ($0.14 million) from Infrastructure Managed Services.

 

Revenue from Technology Integration Services has decreased by ₹449 million ($5.96 million), on account of an increase in revenue from Integration Services by ₹ 98 Million ($1.30 Million), which is offset by a decrease in revenue from Security Services by ₹ 547 Million ($7.26 Million) due to completion of a major customer specific Project last year.

 

Revenue from Applications Integration Services has decreased by ₹ 21 Million ($0.28 Million), represented by (i) an increase in revenue from application services by ₹ 79 Million ($ 1.04 Million) due to execution of new online examination projects, (ii) an increase in revenue from Forum business by ₹ 25 Million ($ 0.33 Million), (iii) an increase in revenue from e Learning services by ₹ 29 Million ($ 0.39 Million) and (iv) an increase in revenue from Sale of licenses by ₹82 Million ($1.09 Million). These increases in revenue is offset by (i) a decrease in revenue from web services by ₹40 Million ($0.53 Million), (ii) a decrease in revenue from digital certification services by ₹190 Million ($2.52 Million) and (iii) a decrease in revenue from Online Content business by ₹6 Million ($0.08 Million) .

 

Other income

 

The change in other income is as follows:

 

   2019 -20   2018 -19  

Increase/

(decrease)

   % Change 
Other income   97    217    (120)   -55%

 

Other income has decreased by ₹ 120 million ($1.59 Million). The decrease is primarily on account of decrease in rental income by ₹ 75 million ($1 Million) and decrease in other miscellaneous income during the period by ₹ 89 million ($1.18 Million). The above decrease has been partially offset by the increase due to write back of advances/deposits no longer payable by ₹ 44 million ($0.96 Million) compared to the same period in the previous year.

 

Cost of goods sold and services rendered (COGS)

 

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

 

   2019-20   2018-19  

Increase/

(decrease)

   % change 
Network services   8,047    7,269    778    11%
Data Center Services   1,675    1,399    276    20%
Cloud and Managed Services   828    677    151    22%
Technology Integration Services   2,575    2,937    (362)   -12%
Applications Integration Services   1,239    1,320    (81)   -6%
Total   14,364    13,602    762    6%

 

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The cost of goods sold has increased by 6% on an overall basis and the movement in COGS by nature of expense is explained in detail below:

 

   2019-20   2018-19  

Increase/

(decrease)

   % change 
Network Costs   6,486    5,790    696    12%
License fees (revenue share)   694    659    35    5%
Cost of goods sold   2,908    3,348    (440)   -13%
-   Sale of products (part of COGS)   2,017    2,119    (102)   -5%
-   Integration services (part of COGS)   891    1,229    (338)   -28%
Direct Resources costs   1,596    1,370    226    17%
Power costs   1,595    1,359    236    17%
Other direct costs   1,085    1,076    9    1%
Total   14,364    13,602    762    6%

 

Network costs comprises cost of Bandwidth leased out from TELCOS, Inter connect charges and IP termination costs payable to carriers. Increase in Network costs of ₹696 million ($9.22 million) is due to (i) ₹370 million ($4.91 million) increase in Bandwidth costs incurred on account of capacity upgrades and newer links and (ii) increase of ₹326 million ($4.31 million) of Inter connect charges.

 

License fees (Revenue share) cost comprises revenue share payable to DOT on licensed services. The increase in revenue share of ₹35 million ($0.46 million) is on account of an increase in licensed Revenues.

 

Cost of Goods sold consists of cost of Hardware and Software and integration services. Cost of Goods sold decreased by ₹440 million ($5.83 million). The same being on account of (i) decrease in Integration services by ₹338 million ($4.48 million), (ii) decrease in token and licenses Costs by ₹93 million ($1.23 million), (iii)decrease in hardware costs in Technology Integration business by ₹41 million ($0.54 million) and these are partially offset by (iii) increase in Cost of Hardware and Software in Data Center Services by ₹9 million ($0.12 million), (iv) increase in Cost of Hardware and Software in Managed Services by ₹11 million ($0.14 million) and (v) increase in Cost of Hardware and Software in Network related Services by ₹12 million ($0.16 million).

 

Direct Resource costs include the cost of resources deployed on the Network Infrastructure Delivery (Part of Network service), and resources involved in delivery of applications integration services, cost of billable resources of e Learning (Part of Applications Integration services) and Infrastructure Managed services (Part of Cloud and Managed Services). Increase in resources costs of ₹ 226 million ($3.01 million) is primarily on account of increases of (i) ₹118 million ($1.57 million) in delivery Network services, (ii) ₹16 million ($0.22 million) by Technology Integration Services, (iii) ₹11 million ($0.15 million) by DC Services resulting from an increase in number of employees, (iv) Applications Integration Services by ₹67 million ($0.89 million) and (v) Managed Services Delivery (Part of Cloud and Managed services) by ₹14 million ($0.18 million).

 

Power cost include electricity charges incurred for our Data Center operations. Power cost increased by ₹236 million ($3.13 million) due to increase in occupancy of Rabale DC and also increase in consumption in existing Data Centers and increased power tariff.

 

Other direct cost include Link implementation and maintenance charges pertaining to Network services, direct cost of Applications Integration services business containing Online Exams, digital certificate platform, content costs and subject matter experts for international businesses. There is a marginal increase in other direct costs by ₹9 million ($0.11 million) is primarily on account of (i) increase by ₹128 million ($1.69 million) on account of operating costs of cloud and managed services, (ii) increase by ₹19 million ($0.25 million) on account of Data Center Services and these increases are partially offset by decrease of (iii) ₹56 million ($0.74 million) in applications integrations services, (iv) decrease of ₹82 million ($1.09 million) in link maintenance charges.

 

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Selling, General and Administrative expenses

 

Selling, General and Administrative expenses of the Company by nature of expenses are set forth as follows:

 

   2019-20   2018-19  

Increase/

(decrease)

   % change 
Operating costs   1,010    1,264    (254)   -20%
Selling and Marketing Expenses   115    154    (39)   -25%
Associate Expenses   1,962    1,937    25    1%
Other Indirect expenses   944    924    20    2%
Allowance for doubtful receivables/advances   480    544    (64)   -12%
Forex (gain) / Loss   3    52    (49)   -94%
Total   4,514    4,875    (361)   -7%

 

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 decreased by ₹254 million ($3.37 million) primarily on account of decrease in repairs and maintenance and network operating cost.

 

Selling and Marketing expenses consist of, selling commission payable to sales partners, incentive to salesmen and, marketing and promotion costs. The Selling and Marketing expenses decreased by ₹39 million ($0.51 million).

 

Associate expenses consist of cost of the employees who are part of the Sales and marketing, Business development, General management and support services. Associate expenses increased by ₹25 million ($0.34 million) between two periods due to increase in headcounts and regular Increments.

 

Other indirect expense consists of, rental and electricity cost of office, travel cost, legal charges, professional charges, communication and others. During the year Other Indirect costs have increased by ₹20 million ($0.26 million).

 

Allowance for doubtful receivables/advances consists of the charge on account of the provisions created during the year against doubtful receivables/advances. Allowance for doubtful receivables/advances decreased by ₹64 million ($0.85 million) on account of prudent provisioning of debtors.

 

Forex(gain)/Loss incurred is ₹ 3 million ($0.04 million), which is due to the forex rate fluctuation compared to the previous year.

 

Depreciation and amortization

 

Depreciation and amortization is set forth in the table below:

 

   2019 -20   2018 -19  

Increase/

(Decrease)

   % Change 
Depreciation and amortization   2,291    1,534    757    49%
As a percentage of carrying value   14.01%   16.65%          

 

The Depreciation and amortization expenses has been increased by ₹ 757 million ($10.04 million), the increase is primarily on account of implementation of IFRS 16 Leases by ₹ 469 million ($6.22 million) and the remaining increase is on account of capitalization of new assets during the year.

 

Profit from operating activities

 

   2019 -20   2018 -19  

Increase/

(Decrease)

   % Change 
Operating profit   1,880    1,753    127    7%
As a percentage of revenue   8.19%   8.14%          

 

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

 

Finance income / (expense)

 

   2019 -20   2018 -19  

Increase/

(Decrease)

   % Change 
Finance income   193    46    147    320%
Finance expense   (1,054)   (728)   (326)   45%
Net finance income / (expense)   (861)   (682)   (179)   26%

 

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Finance income: The finance income primarily consists of interest received from bank deposits of ₹32 million ($4.26 million), and interest income on others of ₹162 million ($21.46 million). The interest received from bank increased by ₹6 million ($0.08 million) from last year, and interest income on others increased by ₹141 million ($1.87 million) on account of interest on income tax refund received during current year ₹ 146 Million ($1.94 Million). The above increase was partially offset by decrease in other interest by ₹ 5 Million ($0.07 Million)

 

Finance expense: The finance expenses is increased by ₹ 326 Million ($4.32 Million), the increase is primarily on account of implementation of IFRS 16 Leases by ₹ 172 Million ($2.28 Million), also on account increase in interest expenses on borrowings by ₹ 133 Million ($1.76 Million) due to increased borrowings demanded in increased in business operations. The above increase is also attributable to the increase in other borrowing costs by ₹ 21 Million ($0.28 Million) paid in respect of utilization of non-fund facilities from the banks and other processing charges.

 

The increase in finance expense is on account of increase in borrowings taken mainly to fund upcoming Data Centers in Rabale and Hyderabad and other working capital arrangements.

 

Net Profit

 

   2019 -20   2018-19  

Increase/

(Decrease)

   % Change 
Net Profit   705    1069    (364)   -34%
As a percentage of revenue   3.07%   4.96%          

 

Net profit as a % of revenue has decreased over the previous year primarily on account of tax expenses of ₹ 314 Million ($4.17 Million) (previous year - ₹ 2.61 Million ($0.03 Million) after set-off of carried forward losses till 2018-19).

 

Results of year ended March 31, 2019 compared to year ended March 31, 2018

 

Refer to the section ‘Results of year ended March 31, 2019 compared to year ended March 31, 2018 ’ under ‘Management's Discussion and Analysis of Financial Condition and Results of Operations’ of Item 5 in our Annual Report on Form 20-F for fiscal 2019, filed with the U.S. Securities and Exchange Commission on June 20, 2019, for analysis of our results for fiscal 2019 in comparison with fiscal 2018.

 

Foreign Exchange Fluctuations and Forwards

 

We enter into foreign exchange derivative contracts to mitigate the risk of changes in foreign exchange rates on cash flows denominated in U.S. dollars. We enter into forward contracts where the counter party is a bank. Forward contracts generally mature between one to six months. These contracts do not qualify for hedge accounting under IFRS. These contracts are marked to market as at the balance sheet date and recognized in the consolidated income statement.

 

Liquidity and capital resources

 

We have financed our operations largely through cash generated from operations, equity issuance and bank borrowings. Our liquidity requirements are for meeting working capital needs and capital expenditures required to upgrade and maintain our existing infrastructure.

 

The following table summarizes our cash flows for periods presented:

 

   2020   2019   2018   2020 
   ₹ In million   ₹ In million   ₹ In million   US $ in million 
Net cash from / (used in) operating activities   5043    1,441    2,121    67 
Net cash from / (used in) investing activities   (4,326)   (3,974)   (1,794)   (57)
Net cash from / (used in) financing activities   4    3,054    (1,048)   0 
Effect of exchange rate changes on cash and cash equivalents   0    6    (5)   0 
Net increase / (decrease) in cash and cash equivalents   720    522    (722)   9 

 

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As of March 31, 2020, 2019 and 2018 we had working capital of ₹ 1,426 million, ₹ 2,671 million, ₹ 1,851 million which includes cash and cash equivalents of ₹ 1,415 million, ₹ 695 million and ₹ 167 million. Our working capital net of cash and cash equivalents is ₹1,273 (negative) million, ₹1,976 million and ₹1,684 million (negative) as of March 31, 2020, 2019 and 2018. We believe that cash from operations and existing lines of credit is well managed and we have sufficient resources to meet our liquidity requirements.

 

Our short-term borrowings to finance working capital requirements are primarily financed by cash credit facilities with banks. Borrowings for capital expenditures are financed through capital leases and long-term loans. We have foreign currency term loans, which carry lower interest rates compared to loans in Indian currency but are subject to exchange fluctuations, due to which there could be an adverse impact on cash outflows.

 

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. Pursuant to the terms of this subscription agreement, the company issued and allotted 125,000,000 equity shares to an entity affiliated and controlled by Mr. Raju Vegesna, our CEO, Chairman and Managing Director. In accordance with Indian law, the purchase price is to be paid at such time as determined by Board of Directors of the company. During the fiscal year 2019, 2017 and 2014, the Company has received an aggregate of ₹900 million, ₹300 million and ₹300 million each year respectively, in connection with this private placement, resulting in an aggregate of ₹ 4,000 million received till date. During the year all 125,000,000 shares were fully paid. As of the date of this Report, Mr. Vegesna has paid for 100% of the shares of the subscription. See note 36 in the notes to the financial statements included in this Annual Report.

 

We have borrowings of ₹ 11,171 million (including Lease Liability on account of implementation of IFRS 16 “Leases” to the extent of ₹ 1,721 million) as of March 31, 2020 out of which ₹ 6,573 million will be repaid within a period of 12 months. Interest outflow on existing borrowings for next year is expected to be ₹ 518 million. We have utilized working capital facility of ₹ 3,186 million out of limit of ₹ 3,200 million during fiscal 2020. We have unutilized non fund limit of ₹ 1,232 million as of March 31, 2020.

 

Our ongoing working capital requirements are significantly affected by the profitability of our operations and we continue to periodically evaluate existing and new sources of liquidity and financing. We are taking steps to improve the cash position to meet our currently known requirements at least over the next twelve months. In light of the highly dynamic nature of our business, however, we cannot assure you that our capital requirements and sources will not change significantly in the future.

 

Cash and cash equivalents:

 

Cash and cash equivalents comprise of ₹ 2,102 million, ₹ 1,801 million, ₹ 1,875, million in bank accounts and ₹ 548 million, ₹ 446 million, ₹ 413 million in the form of bank deposits as on March 31, 2020, 2019, 2018 out of which cash deposits in the form of margin money is restricted for use by us amounting to ₹ 333 million, ₹ 313 million, ₹ 296 million. Balances in foreign currency amount to ₹ 249 million, ₹ 195 million and ₹ 249 million as of March 31, 2020, 2019 and 2018.

 

Net cash generated from operating activities for the year ended March 31, 2020 was ₹ 5,043 million ($ 66.89 million). This is mainly attributable to cash generated during the year before changes in working capital of ₹ 4,759 million ($ 63.13 million) which is primarily on account of implementations of IFRS 16 “Leases” in which amounts earlier considered as rental expenses has now been regrouped to Depreciation expenses, due to which, cash flow from operating activities has increased significantly, and increases in trade and other payables by ₹235 million ($ 3.1 million), in employee benefits ₹ 18 million ($ 0.24 million) and in contract liabilities by ₹140 million ($ 1.86 million) on account of increase in advance billing in long term projects and adoption of IFRS 15, and partially offset by increase in inventories by ₹ 413 million ($ 5.48 million) and increase in trade and other receivables by ₹ 289 million ($ 3.84 million), increase in other assets by ₹ 561 million ($ 7.42 million), increase in Contract assets by ₹ 18 million ($ 0.23 million) and increase in contract costs ₹ 11 million ($ 0.15 million)

 

Net cash generated from operating activities for the year ended March 31, 2019 was ₹ 1,441 million ($ 20.83 million). This is mainly attributable to cash generated during the year before changes in working capital of ₹ 3,907 million ($ 56.49 million), and increases in trade and other payables by ₹1,204 million ($ 17.41 million), in employee benefits ₹ 26.43 million ($ 0.38 million) and in contract liabilities by ₹261 million ($ 3.78 million) on account of increase in advance billing in long term projects and adoption of IFRS 15, and partially offset by increase in inventories by ₹ 1069 million ($ 15.46 million) and increase in trade and other receivables by ₹ 2,183 million ($ 31.55 million), increase in other assets by ₹ 158 million ($ 2.29 million), increase in Contract assets by ₹ 23.92 million ($ 0.35 million) and decrease in contract costs ₹ 4.31 million ($ 0.06 million)

 

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Net cash generated from operating activities for the year ended March 31, 2018 was ₹ 2,121 million ($ 32.61 million). This is mainly attributable to cash generated during the year before changes in working capital ₹ 3,440 million ($ 52.89 million), increase in trade and other payables by ₹605 million ($ 9.30 million), increase in employee benefits ₹29 million ($ 0.45 million) and increase in deferred revenue by ₹297 million ($ 4.56 million) on account of increase in advance billing in long term projects, decrease in inventories by ₹ 536 million ($ 8.24 million) and partially offset by increase in trade and other receivables by ₹ 2,221 million ($ 34.14 million), increase in other assets by ₹ 519 million ($ 7.98 million).

 

Net cash used in investing activities for the year ended March 31, 2020 was ₹ 4,326 million ($ 57.39 million) primarily on account of additional expenditure on Data Center, upgradation of network backbone and also on account of implementation of IFRS 16 “Leases”.

 

Net cash used in investing activities for the year ended March 31, 2019 was ₹ 3,974 million ($ 57.45 million) primarily on account of additional expenditure on Data Center, upgradation of network backbone and investment in corporate debt securities.

 

Net cash used in investing activities for the year ended March 31, 2018 was ₹ 1,794 million ($ 27.58 million) primarily on account of additional expenditure on Data Center, upgradation of network backbone and investment in corporate debt securities.

 

Net cash generated from financing activities for fiscal year 2020 was ₹ 4 million ($ 0.1 million). The increase is mainly due to borrowings amounting ₹1,411 million ($ 18.72 million) and proceeds from issue of shares including share premium under ESOP ₹5 million ($ 0.07 million) received during the year. The increase was significantly offset due to implementation of IFRS 16 “Leases” by ₹220 million ($ 2.91 million) considered repayment of lease liabilities and finance expenses amounting to ₹1,047 million ($ 13.89 million). Also, dividends of ₹224 million ($ 2.97 million) were paid during the year.

 

Net cash generated from financing activities for fiscal year 2019 was ₹ 3,054 million ($ 44.16 million). The increase is mainly due to borrowings amounting ₹3,134 million ($ 45.31 million) and proceeds from issue of shares including share premium under ESOP and receipt of call money in the amount of ₹935 million ($ 13.52 million) received during the year. The increase was partially offset due to repayment of lease liabilities of ₹89 million ($ 1.29 million) and finance expenses amounting to ₹708 million ($ 10.24 million). Also, dividends of ₹218 million ($ 3.15 million) were paid during the year.

 

Net cash used in financing activities for fiscal year 2018 was ₹ 1,048 million ($ 16.11 million). The increase is mainly due to repayment of lease liabilities of ₹403 million ($ 6.20 million) and finance expenses paid amounting to ₹491 million ($ 7.55 million). Also, dividend of ₹209 million ($ 3.20 million) was paid during the year. The increase is partially offset by borrowings amounting ₹43 million ($ 0.66 million) and proceeds from issue of shares including share premium under ESOP ₹12 million ($ 0.19 million) received during the year.

 

Capital expenditure

 

We incurred 6,460 million (US$ 85.69 million) towards capital expenditure for the year ended March 31, 2020. We expect further capital expenditure to be incurred during the fiscal year 2020 to strengthen our infrastructure capabilities. The capital expenditure was funded out of internal accruals and bank borrowings. Also refer to section “Principal Capital Expenditures” under Item 4 for capital commitments as on March 31, 2020.

 

Research and development

 

The Company does not have research and development activities and has also not undertaken any sponsored research and development activities.

 

Trends

 

The information is set forth under the caption ‘Management’s Discussion and Analysis of Financial Condition and Results of Operations’ - ‘Operating and Financial review and Prospects’.

  

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Off-balance sheet arrangements

 

We have not entered into any off-balance sheet arrangements as defined by SEC Final Rule 67 (FR-67), “Disclosure in Management’s Discussion and Analysis about Off-Balance Sheet Arrangements and Aggregate Contractual Obligations”.

 

Contractual obligations

 

Set forth below are our contractual obligations as of March 31, 2020:

 

Payments due by period (₹ 000s)
Contractual Obligations  Carrying
amount
   Less than
1 year
   1-3 years   3-5 years   More
than 5
years
 
Long Term Debt Obligations   54,67,719    23,78,960    32,20,580    8,85,852    - 
Short Term Borrowings   38,78,803    39,49,227    -    -    - 
Lease Liability   18,26,211    4,64,548    6,10,652    4,08,237    14,83,830 
Purchase Obligations   61,40,770    61,40,770    -    -    - 
Total   1,73,13,502    1,29,33,505    38,31,232    12,94,089    14,83,830 

 

Recent Accounting Pronouncements

 

Amendment to IFRS 3 - Business combination

 

On October 22, 2018, the IASB issued amendments to IFRS 3, ‘Business Combinations’, in connection with clarification of business definition, which help in determining whether an acquisition made is of a business or a group of assets. The amendment added a test that makes it easier to conclude that a company has acquired a group of assets, rather than a business, if the value of the assets acquired is substantially all concentrated in a single asset or a group of similar assets. These amendments are effective for annual reporting periods beginning on or after January 1, 2020, with earlier application permitted. The adoption of amendment to IFRS 3 is not expected to have any impact on the consolidated financial statements of the Company.

 

Amendment to IFRS 9, IAS 39 and IFRS 7 – Interest Rate Benchmark Reform

 

On September 26, 2019, the IASB amended some of its requirements for hedge accounting. The amendments provide relief from potential effects of the uncertainty caused by the IBOR reform. In addition, the amendments require companies to provide additional information to investors about their hedging relationships that are directly affected by these uncertainties. These amendments are effective for annual reporting periods beginning on or after January 1, 2020, with earlier application permitted. The Company does not expect the amendment to have any significant impact on its consolidated financial statements.

 

Amendment to IAS 1 and IAS 8 – Definition of Material

 

On October 30, 2018, the IASB issued Amendment to IAS 1 Presentation of Financial Statements and IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors to update a new definition of material in IAS 1. The amendments clarify the definition of “material” and how it should be applied by including in the definition guidance that until now has featured elsewhere in IFRS Standards. The new definition clarifies that, information is considered material if omitting, misstating, or obscuring such information, could reasonably be expected to influence the decisions that the primary users of general-purpose financial statements make on the basis of those financial statements. The definition of material in IAS 8 has been replaced by a reference to the definition of material in IAS 1. In addition, the IASB amended other Standards and the Conceptual Framework that contain a definition of material or refer to the term ‘material’ to ensure consistency. These amendments are effective prospectively for annual reporting periods beginning on or after January 1, 2020, with earlier application permitted. The Company does not expect the amendment to have any material impact on its evaluation of materiality in relation to its consolidated financial statements.

 

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Amendment to IAS 1 – Presentation of Financial Statements

 

On January 23, 2020, the IASB has issued “Classification of liabilities as Current or Non-Current (Amendments to IAS 1)” providing a more general approach to the classification of liabilities under IAS 1 based on the contractual arrangement in place at the reporting date. The amendments aim to promote consistency in applying the requirements by helping companies to determine whether, in the statement of financial position, debt and other liabilities with an uncertain settlement date should be classified as current (due or potentially due to be settled within one year) or non-current. The amendments also clarified the classification requirements for debt a company might settle by converting it into equity. These amendments are effective for annual reporting periods beginning on or after January 1, 2022 and are to be applied retrospectively, with earlier application permitted. The Company is currently evaluating the impact of amendment to IAS 1 on its consolidated financial statements.

 

Amendment to IAS 37 – Onerous Contracts – Cost of Fulfilling a Contract

 

On May 14, 2020, the IASB issued “Onerous Contracts — Cost of Fulfilling a Contract (Amendments to IAS 37)”, amending the standard regarding costs a company should include as the cost of fulfilling a contract when assessing whether a contract is onerous. The amendment specifies that the “cost of fulfilling” a contract comprises the “costs that relate directly to the contract”. Costs that relate directly to a contract can either be incremental costs of fulfilling that contract or an allocation of other costs that relate directly to fulfilling contracts. These amendments are effective for annual reporting periods beginning on or after January 1, 2022, with earlier application is permitted. The Company is currently evaluating the impact of amendment to IAS 37 on its consolidated financial statements.

 

Amendment to IFRS 16 – Leases

 

On May 15, 2020, the IASB issued amendments to IFRS 16, “Leases”, provide lessees with an exemption from assessing whether a Covid-19-related rent concession is a lease modification. The amendments allowed the expedient to be applied to Covid-19-related rent concessions to payments originally due on or before 30 June 2021 and also require disclosure of the amount recognized in profit or loss to reflect changes in lease payments that arise from Covid-19-related rent concessions. The reporting period in which a lessee first applies the amendment, it is not required to disclose certain quantitative information required under IAS 8. These amendments are effective for periods beginning on or after June 1, 2020, with earlier application is permitted. The Company is currently evaluating the impact of amendment to IFRS 16 on its consolidated financial statements.

 

Critical Accounting Policies

 

Our accounting policies affecting our financial condition and results of operations are more fully described in Note 3 to our Consolidated Financial Statements included in Item 18 of this Annual Report on Form 20-F. Certain of our accounting policies require the application of judgment by management in selecting appropriate assumptions for calculating financial estimates, which inherently contain some degree of uncertainty. Management bases its estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the reported carrying values of assets and liabilities and the reported amounts of revenues and expenses that may not be readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

 

We believe the following are the critical accounting policies and related judgments and estimates used in the preparation of the company’s Consolidated Financial Statements. Management has discussed the application of these critical accounting estimates with our Board of Directors and Audit Committee.

 

Revenue Recognition

 

The Group derives revenue from converged ICT solutions comprised of Network-centric services*, Data Center-centric IT services which includes Data Center services, Cloud and managed services, Technology integration services and Applications integration services.

 

The Group has adopted IFRS 15 Revenue from Contracts with Customers with effect from 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 ₹ 3,821.5 Million 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. Refer to note 3 (o) Significant accounting policies in the 2018 Annual Report in Form 20F for the previous revenue recognition policies.

 

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* The word telecom was largely understood as providing telecommunication services to consumers and also mobility services. Since the company services were not relating to either consumer services or mobility services and that company services were limited to enterprise data network, and services on the data network that spawns multiple services around network, the said Telecom services will henceforth be referred for appropriate representation of the substance, as Network services and all businesses dependent on the Network infrastructure will be collectively referred to as Network Centric Services

 

The revenue recognition in respect of the various streams of revenue is described below:

 

(i) Network Services:

 

Revenue from Network services includes Data network services and Voice services. Network 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 Network services are series of distinct services. The performance obligations are satisfied overtime.

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 equipment are accounted as separate performance obligations if they are distinct and its related revenues are recognized 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 Group’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 recognized when the services are provided based upon the usage (eg: metered call units of voice traffic terminated on the Group’s network).

 

(ii) Data Center 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 overtime. Service revenue is recognized as the related services are performed. Sale of equipment, such as servers, switches, networking equipment, cable infrastructure and racks, are accounted as separate performance obligations if they are distinct and its related revenues are recognized at a point in time when the control is passed on to the customer.

 

(iii) 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 overtime. 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 recognizes 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.

 

(iv) 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 recognized 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.

 

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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.

 

(v) Applications Integration Services:

 

Revenue from Applications Integration services include online assessment, document management services, web development, 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 recognized 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 recognized ratably 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 recognized when the transactions are completed.

 

Digital Certification revenues include income received on account of Web certification. Generally the Group does not hold after sale service commitments after the activation of the Digital Certificates sold and accordingly, revenue is recognized 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 group would sell a promised good or service separately to the customer.

 

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

 

Contract Cost

 

Costs to fulfil customer contracts, i.e the costs relating directly to a contract or to an anticipated contract that the Group can specifically identify or the costs 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 recognized as asset and amortized over the contract period.

 

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

 

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

 

Income from operating leases:

 

Lease rentals arising on assets given on operating leases are recognized over the period of the lease term on a straight line basis.

 

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Indefeasible Right of Use (IRU)

 

The Company has entered into IRU arrangements through which it entitles its customers to right of use of specified bandwidth capacity for a specified period of time. The upfront payment received towards right of use of bandwidth capacities under such agreements have been treated as deferred revenue and is recognized on a straight line basis over the term of the arrangement.

 

Accounting Estimates

 

While preparing financial statements we make estimates and assumptions that affect the reported amount of assets, liabilities, disclosure of contingent liabilities at the date of financial statements and the reported amount of revenues and expenses for the reporting period.

 

Our estimate of liability relating to pending litigation is based on currently available facts and our assessment of the probability of an unfavorable outcome. Considering the uncertainties about the ultimate outcome and the amount of losses, we re-assess our estimates as additional information becomes available. Such revisions in our estimates could materially impact our results of operations and our financial position. Management believes that the estimates used in the preparation of the Consolidated Financial Statements are prudent and reasonable. The actual results could differ from these estimates.

 

Business Combinations, Goodwill and Intangible Assets

 

Business combinations are accounted for using IFRS 3 (Revised), Business Combinations. IFRS 3 requires the identifiable intangible assets and contingent consideration to be fair valued in order to ascertain the net fair value of identifiable assets, liabilities and contingent liabilities of the acquiree. Significant estimates are required to be made in determining the value of contingent consideration and intangible assets. These valuations are conducted by independent valuation experts.

 

Business combinations have been accounted for using the acquisition method under the provisions of IFRS 3 (Revised). The cost of acquisition is measured at the fair value of the assets transferred, equity instruments issued and liabilities incurred or assumed at the date of acquisition. The cost of acquisition also includes the fair value of any contingent consideration. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair value on the date of acquisition.

 

Transactions costs that the group incurs in connection with a business combination such as finder’s fees, legal fees, due diligence fees, and other professional and consulting fees are expensed as incurred.

 

We amortize intangible assets on straight line basis over their respective individual estimated useful lives. Our estimates of the useful lives of identified intangible assets are based on a number of factors including the effects of obsolescence, demand, competition, and other economic factors (such as the stability of the industry, and known technological advances), and the level of maintenance expenditures required to obtain the expected future cash flows from the asset.

 

Estimated Useful Lives of Property, Plant and Equipment

 

In accordance with IAS 16, Property, Plant and Equipment, we estimate the useful lives of plant and equipment in order to determine the amount of depreciation expense to be recorded during any reporting period. If technological changes were to occur more rapidly than anticipated or in a different form than anticipated, the useful lives assigned to these assets may need to be shortened, resulting in the recognition of increased depreciation expense in future periods. Likewise, if the anticipated technological or other changes occur more slowly than expected, the useful lives could be extended. This could result in a reduction of depreciation expense in future periods.

 

Impairment

Financial assets

 

Trade receivables, contract assets, lease receivables under IFRS 9, investments in debt instruments that are carried at amortised cost, investments in debt instruments that are carried at FVTOCI are tested for impairment based on the expected credit losses for the respective financial asset.

 

Trade receivables

 

An impairment analysis is performed at each reporting date. The expected credit losses over lifetime of the asset are estimated by adopting the simplified approach using a provision matrix which is based on historical loss rates reflecting current condition and forecasts of future economic conditions. In this approach assets are grouped on the basis of similar credit characteristics such as industry, customer segment and other factors which are relevant to estimate the expected cash loss from these assets.

 

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Other financial assets

 

Other financial assets are tested for impairment based on significant change in credit risk since initial recognition and impairment is measured based on probability of default over the lifetime when there is significant increase in credit risk.

 

Non-financial assets:

 

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 31 December.

 

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 groups 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.

 

Reversal of impairment loss:

 

An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognized in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized.

 

Income taxes:

 

Income tax expense comprises current and deferred tax. Income tax expense is recognized in profit or loss except to the extent that it relates to items recognized directly in equity, in which case it is recognized in other comprehensive income.

 

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date. Minimum Alternate Tax (MAT) is accounted as current tax when the company is subjected to such provisions of the Income Tax Act.

 

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. Credit of MAT paid is available when the company is subjected to tax as per normal provisions in the future. Credit on account of MAT is recognized as a deferred tax asset based on the management’s estimate of its recoverability in the future.

 

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A deferred tax asset is recognized to the extent that it is probable that future taxable profits will be available against which the temporary difference can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.

 

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 tax 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.

 

Item 6. Directors, Senior Management and Employees

 

Directors and Executive Officers

 

The following table sets forth the name, age and position of each director and senior management of our Company as of March 31, 2020:

 

Name   Age   Designation
Raju Vegesna (4)     60   CEO, Chairman & Managing Director
Ananda Raju Vegesna (4)   60   Executive Director
C B Mouli (1) (2) (5)   73   Director, Chairman & Financial Expert of Audit Committee
         
T H Chowdary (2) (3) (5)   88   Director & Chairman of Compensation & Nominating Committees
Vegesna Bala Saraswathi   56   Director
C E S Azariah  (1) (2) (3) (4) (5)   72   Director
Arun Seth (1)   69   Director
Kamal Nath   55   Chief Executive Officer - Sify Technologies Limited, India
M P Vijay Kumar   50   Chief Financial Officer
C R Rao   60   Chief Operating Officer

 

(1)Member of the Audit Committee.

 

(2)Member of the Compensation Committee.

 

(3)Member of the Nominating Committee.

 

(4)Member of the Corporate Social Responsibility Committee.

 

(5)Member of Nomination and Remuneration Committee.

 

Raju Vegesna, CEO, Chairman and Managing Director, has served as a Director of our Company since November 2005. He was appointed as the Chief Executive Officer and Managing Director of the Company effective July 18, 2006. Mr. Raju Vegesna is a Silicon Valley entrepreneur who founded several leading edge technology companies, including Server Works Corporation, acquired by Broadcom in 2001. After that acquisition he had a brief stint with Broadcom. He holds a BS in Electrical Engineering from the University of Bangalore and holds an MS in Computer Engineering from Wayne State University, USA, and holds several patents in Microprocessor and Multiprocessor technology. He is also a Director of Raju Vegesna Infotech & Industries Private Limited.

 

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Ananda Raju Vegesna, brother of Mr. Raju Vegesna, CEO, Chairman and Managing Director, has served as an Executive Director of our Company since June 2007. He is the Director of Infinity Satcom Universal Private Limited, Raju Vegesna Infotech and Industries Limited, Ramanand Core Investment Company Private Limited.

 

C.B. Mouli has served as a Director of our Company since July 2005. Mr. Mouli is a member of the Institute of Chartered Accountants of India and also holds a Bachelor of Law Degree. Mr. Mouli, a partner of C.B. Mouli & Associates, a Chartered Accountants firm. He is a Director of Ammana Equity Fund Private Limited.

 

T.H. Chowdary has served as a Director of our Company since February 1996. Dr. Chowdary retired as the Chief Executive Officer of VSNL. He has held key positions in the ITU, Intelsat and other international telecommunications organizations during the course of his career and was involved in the establishment of the Center for Telecommunications Management Studies (CTMS) at Hyderabad. Dr. Chowdary is also a director in Softsol India Limited and Tera Software Limited.

 

Ms. Vegesna Bala Saraswathi, spouse of Mr. Raju Vegesna, CEO, Chairman and Managing Director, served as Director of our Company since July 2015. Ms. Vegesna Bala Saraswathi is a Commerce Graduate, Associate Course Work in Computer Skills (US) and Associate Course Work in US Federal and State Taxes (US).

 

C E S Azariah has served as a Director of our Company since March 2013. Prior to joining the Company, he served as CEO of Fixed Income Money Market and Derivatives Association of India (FIMMDA). He has vast experience of more than 35 years in different segments of operations in State Bank of India and retired as Chief General Manager.

 

Arun Seth an alumni of the prestigious La Martiniere school, Indian Institute of Technology, Kanpur and Indian Institute of Management, Calcutta, Mr. Arun Seth is recognized as among the earliest Indian Telecom leaders. He has been a founding Charter Member of TiE Delhi and Indian Angel Network and advises/mentors a number of start-ups in the tech space in India and USA. An active evangelist of the Software product eco-system, he co-chairs the NASSCOM Product Conclave and the NASSCOM Product Council. He had earlier served on the Executive Council of NASSCOM for 10+ years when in British Telecom and Alcatel.

 

Kamal Nath has served as the Chief Executive Officer of Sify Technologies Limited, India, since August 2012. He is a Graduate in Electronics & Communications from BIT, Sindri. He has an overall experience of close to three decades in reputed organizations. Prior to joining Sify, he was with HCL Technologies Limited, a major IT company, responsible for the Infrastructure Services Division. He was with Larsen & Toubro Limited and Uptron India Limited in the early part of his career. He is responsible for the business operations in India.

 

M P Vijay Kumar has served as Chief Financial Officer since October 2007 and has over two decades of experience in corporate audits, financial/management consulting, legal advisory services, management audit and investment banking. He is a Chartered Accountant and a Fellow Member of the Institute of Chartered Accountants of India, Fellow Member of the Institute of Company Secretaries of India and Associate member of the Institute of Cost and Works Accountants of India.

 

C R Rao, the Chief Operating Officer, has served as Vice President - Head HR & Administration since March 2009. He is a Graduate in Commerce and Law and also holds an MBA.  He comes with an overall experience of close to three decades in Strategic Planning and Operations Management.  Prior to joining Sify, he was with GSA Lufthansa as Vice President, responsible for Tamil Nadu and Andhra Pradesh.  His key responsibilities included Strategic Planning, Business Development, Sales and Marketing for the Cargo division.

 

Infinity Capital Ventures, LP beneficially owned 7.76 % of our equity shares as of March 31, 2020. This shareholder is a party to the Subscription Agreement dated November 10, 2005 with our Company. The Subscription Agreement provides that, among other things, the Company shall appoint Mr. Raju Vegesna as the Chairman of the Board of Directors, Infinity Capital shall also nominate another person to the Board of Directors and so long as Infinity Capital continues to own at least 10% of the Company’s outstanding Equity Shares, the Company shall not enter into any agreement pursuant to which it would provide a third party with registration rights for Company securities, without the consent of Infinity Capital. In November 2005, Mr. Raju Vegesna, a nominee of Infinity Capital Ventures, LP, was appointed as Chairman of our Board of Directors. In February 2006, the Company also appointed Mr. P S Raju as the second nominee of Infinity Capital to the Board of Directors. Consequent to the resignation of Mr. P S Raju, as a Director effective May 31, 2015, Ms. Vegesna Bala Saraswathi was appointed as an additional Director effective July 22, 2015 of our Company as a Nominee. Further, she was elected by shareholders as a Director at the Annual General Meeting held on July 4, 2016. She got re-elected as a director in Annual General Meeting held on July 6, 2017.

 

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Infinity Satcom Universal Private Limited beneficially owned 8.11% of our equity shares as of March 31, 2020. Mr. Ananda Raju Vegesna, Executive Director of the Company and brother of Mr. Raju Vegesna, is the Director of Infinity Satcom. Infinity Satcom is presently controlled by Mr. Raju Vegesna.

 

Director Compensation

 

Our Articles of Association provide that each of our directors may receive a sitting fee not exceeding the maximum limits prescribed under the provisions of the Indian Companies Act, 2013. Accordingly, our Directors, other than the Chairman and Managing Director and Executive Director, have been receiving ₹ 20,000 for each committee meeting and ₹ 50,000 for each Board meeting attended by them.

 

Mr. Raju Vegesna, who is our CEO, Chairman and Managing Director, does not receive any compensation for his service on our Board of Directors. Similarly, Mr. Ananda Raju Vegesna, who is employed as our Executive Director, also does not receive any compensation for his service on our Board of Directors. Directors are reimbursed for travel and out-of-pocket expenses in connection with their attendance at Board and Committee meetings. T. H. Chowdary, a Director of our Company, has been receiving ₹ 25,000 per month for the technical services rendered by him.

 

Officer Compensation

 

The following table sets forth all compensation paid by us during the fiscal year ended March 31, 2020 to our executive officers:

 

  

Summary Compensation Table

(in million)

 
Name  Salary(1)   Bonus 
       (Performance
based incentive)
 
Kamal Nath   13.92    2.20 
M P Vijay Kumar   11.82    1.38 
C R Rao   12.37    1.48 

 

(1)Includes provident fund contributions.

 

As per the service contracts entered into with the employees (including executive officers), the Company provides the following retirement benefits: (a) Provident fund contributions and (b) Gratuity.

 

Provident fund contribution is a defined contribution plan governed by a statute in India. Under this, both employer and employee make monthly contributions (determined in relation to the basic salary of the respective employees) to a fund administered by the Government of India.

 

Gratuity is a defined benefit retirement plan covering all employees and provides for lump sum payment to employees at retirement or termination (computed based on the respective employees last drawn basic salary and years of employment with the Company). Liability for gratuity is accrued based on an actuarial valuation on an overall Company basis.

 

The Directors (who are not executive officers) are not entitled for any remuneration including any pension, retirement or similar benefit schemes.

 

The details of our contribution to provident fund in respect of the executive officers are set out below:

 

Name  ₹  in million 
Kamal Nath   0.68 
M P Vijay Kumar   0.52 
C R Rao   0.50 

 

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Gratuity expense is determined at an overall Company level based on an actuarial valuation performed by an independent actuary. Thus, the cost for the year ended March 31, 2020 in respect of gratuity and compensated absences towards executive officers of the Company was not separately determined. Gratuity cost relating to such executive officers is not estimated to be material.

 

We make bonus payments to employees including executive officers upon satisfactory achievement of the following two performance criteria.

 

(i) Performance of the Company: Represents bonus payable on achievement of overall revenue and net profit targets for the Company.

 

(ii) Performance of the individual: Represents bonus payable on achievement of the individual’s Key Responsibility Areas (KRA) and Key Performance Indicators (KPI). These KRAs and KPIs vary in relation to each employee including executive officers and include both financial and non-financial parameters.

 

We have provided for ₹ 166.57 million ($2.21 million) towards bonus payable for the year ended March 31, 2020 to employees including executive officers who have achieved the KRAs and KPIs.

 

Total of 1.65 million options were allotted to executive officers as part of ASOP 2014 plan during fiscal 2015. Further 1.35 million options were allotted to executive officers during the fiscal 2020. Related charge for the fiscal 2019 amounted to ₹ 9.09 million ($ 0.12 million)

 

Board Composition

 

Our Articles of Association sets the minimum number of directors at three and the maximum number of directors at twelve. We currently have seven directors on the Board. The Indian Companies Act and our Articles of Association require the following:

 

at least two-thirds of our directors shall be subject to re-election by our shareholders; and

 

at least one-third of our directors who are subject to re-election shall be up for re-election at each annual meeting of our shareholders.

 

However Independent Directors are not liable to retire by rotation.

 

On July 15, 2005, we appointed Messrs. S.K. Rao and C.B. Mouli as independent Directors of the Board to comply with the applicable NASDAQ rules. Dr. S.K Rao resigned effective June 4, 2018.

 

Mr. C E S Azariah was appointed as an independent Director effective March 25, 2013.

 

Dr T H Chowdary is also an independent Director of the Board.

 

Mr Arun Seth was appointed as an Independent Director effective October 22, 2018.

 

Each of these Directors (Mr. C B Mouli, Mr. C E S Azariah and, Dr T H Chowdary and, Mr. Arun Seth) continue to remain independent in accordance with NASDAQ rules.

 

In addition, based on the recommendation of the Board of Directors, (Mr. C B Mouli, Mr. C E S Azariah and Dr T H Chowdary) were appointed by the shareholders as the Independent Directors of the Board for a term of five consecutive years from the conclusion of the Twenty Third Annual General Meeting held on July 5, 2019 and their terms expires in July 2024. As per the provision of the Indian Companies Act, 2013 they are eligible for reappointment for a further term of Five consecutive years from the conclusion of the ensuing Annual General Meeting subject to the approval of Shareholders by way Special Resolution.

 

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Term of Directors

 

Mr. Raju Vegesna, CEO, Chairman & Managing Director

Appointed as Chairman & Managing Director for a period of five years effective July 18, 2009, Mr. Raju Vegesna was subsequently appointed as the Chairman & Managing Director of the Company at the Annual General Meeting of the Company under Section 203 of the Companies Act, 2013 for a period of five years, effective from July 18, 2014, without any remuneration from the Company. His appointment was also approved by the Central Government. His present term expires on July 17, 2019, upon which he will become eligible for reappointment.

 

Pursuant to the recommendation of the Nomination & Remuneration Committee, the Board of Directors have reappointed Mr. Raju Vegesna as the Chairman & Managing Director of the Company for a further period of Five years effective July 18, 2019 without any remuneration from the Company.

 

In terms of Section 196 of the Companies Act, 2013, the above reappointment is subject to the approval of the shareholders at the Annual General Meeting. Further, as Mr. Raju Vegesna is a Non-Resident Indian, his reappointment as the Chairman & Managing Director of the Company is also subject to the approval of the Central Government under Part I of the Schedule V of the Companies Act, 2013. As per Articles of Association of the Company, he is not required to retire by rotation and hence shall hold office for the full term.

Mr. Ananda Raju Vegesna, Executive Director

Appointed as Executive Director for a period of five years effective June 22, 2010 and subsequently reappointed for a further period of five effective June 22, 2015.

 

Pursuant to the recommendation of the Nomination & Remuneration Committee and the Board on May 5, 2020, Mr. Ananda Raju Vegesna was reappointed as the Executive Director for a further period of five years effective June 22, 2020 which is subject to the approval of shareholders at the Annual General Meeting to be held before September 30, 2020.

 

Further, as per the Act, he retired by rotation at the ensuing Annual General Meeting scheduled on July 6, 2018 and got re-elected.

 

The Board of Directors on May 5, 2020, have also appointed Mr Ananda Raju Vegesna as an Additional Director under Section 161 of the Companies Act, 2013 and he shall hold office up to the date of the ensuing Annual General Meeting and is eligible for election as a Director by the shareholders at the AGM since the term of office expires on June 21, 2020.

Dr T H Chowdary, Chairman of Compensation and Nominating Committees Appointed as a Director in February 1996.  As per the Indian Companies Act, 2013, he was appointed as an Independent Director for a term of five consecutive years from the conclusion of the Eighteenth Annual General Meeting held on July 28, 2014. He was re-appointed for a further period of five years by the Shareholders at the Twenty Third Annual General Meeting held on July 5, 2019
Ms. Vegesna Bala Saraswathi Appointed as an Additional Director in July 2015.  As per the Indian Companies Act, 2013, she was elected by the shareholders at the Annual General Meeting held on July 4, 2016. Further, as per the Act, she will retire by rotation and be eligible for re-election at the ensuing Annual General Meeting.
Mr. C B Mouli, Chairman and Financial Expert of Audit Committee Appointed as a Director in July 2005.  As per the Indian Companies Act, 2013, he was appointed as an Independent Director for a term of five consecutive years from the conclusion of the Eighteenth Annual General Meeting held on July 28, 2014. He was re-appointed for a further period of five years by the Shareholders at the Twenty Third Annual General Meeting held on July 5, 2019
Mr. C E S Azariah Appointed as a Director by the Board of Directors in March 2013.  As per the Indian Companies Act, 2013, he was appointed as an Independent Director for a term of five consecutive years from the conclusion of the Eighteenth Annual General Meeting held on July 28, 2014. He was re-appointed for a further period of five years by the Shareholders at the Twenty Third Annual General Meeting held on July 5, 2019
Mr. Arun Seth

Appointed as an Additional Director (Independent) in October 2018.  As per the Indian Companies Act, 2013, he was elected by the shareholders at the Twenty Third Annual General Meeting held on July 5, 2019 and appointed as an Independent Director of the Company for a period of five years effective July 5, 2019.

 

He shall be eligible for re appointment for a further period of five years subject to the approval of Shareholders. 

 

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The Company has service contracts with Mr. Raju Vegesna, CEO, Chairman and Managing Director. The service contracts with Mr. Raju Vegesna do not provide for any remuneration or benefits either during or upon termination of employment.

 

For other non-executive Directors, the Company does not have any service contract and such directors’ term is governed by the Indian Companies Act, 2013.

 

The Company does not have any service contract with the other Senior Executives of its administrative, supervisory or management bodies. Such senior executives’ appointment does not have any specific term and can be terminated by either party based on the terms of the appointment.

 

Board Committees

 

Details relating to Audit, Compensation, Corporate Social Responsibility and Nominating Committees of our board are provided below:

 

Audit Committee

 

Our Audit Committee is comprised of three independent directors, as determined under applicable NASDAQ rules. They are:

 

Mr. C B Mouli;

 

Mr. C E S Azariah

 

and

 

Mr. Arun Seth

 

The primary objective of the Audit Committee is to monitor and provide effective supervision of our financial reporting process with a view towards ensuring accurate, timely and proper disclosures and the transparency, integrity and quality of financial reporting. Our Audit Committee oversees the work carried out in the financial reporting process by our management, including the internal auditors and the independent auditor and reviews the processes and safeguards employed by each. In addition, our Audit Committee has the responsibility of oversight and supervision over our system of internal control over financial reporting, audit process, and process for monitoring the compliance with related laws and regulations. The Audit Committee recommends to our Board the appointment of our independent registered auditors and approves the scope of both audit and non-audit services. All members of the Audit Committee meet the independence requirements and majority of them meet financial literacy requirements as defined by applicable NASDAQ and SEC rules.

 

The Audit Committee held five meetings in person during fiscal year 2019-20.

 

The Audit Committee has adopted a Charter and it is reviewed annually.

 

Compensation Committee

 

Our Compensation Committee consists of three independent directors as determined under applicable NASDAQ rules, and consists of:

 

(i)Dr T H Chowdary;

 

(ii)Mr. C E S Azariah and

 

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(iii)Mr. C B Mouli

 

The Compensation Committee of the Board of Directors determines the salaries, benefits and stock option grants for our employees, consultants, directors and other individuals compensated by our Company. The Compensation Committee also administers our compensation plans. The Compensation Committee has adopted a Charter, which is reviewed annually.

 

The Compensation Committee held four meetings in person during fiscal 2019-20.

 

Corporate Social Responsibility Committee

 

As per Section 135 of the Indian Companies Act, 2013, the Company is required to spend 2% of the average net profits from the three preceding financial years to Corporate Social Responsibility (CSR) activities. For this purpose, the Board has constituted the

 

Corporate Social Responsibility Committee (CSR).

 

The CSR Committee of the board consists of the following Directors:

 

Mr. Raju Vegesna

 

Mr. Ananda Raju Vegesna

 

Mr. C E S Azariah

 

The purpose of the CSR Committee is to monitor the implementation of the CSR projects or programs or activities undertaken by the Company. A responsibility statement shall be signed by the CSR Committee confirming compliance with the CSR objectives and Policy of the Company. The Committee shall submit its report to the Board and the Board shall report the same in its report to the shareholders annually.

 

The Corporate Social Responsibility (CSR) is displayed on the Company’s website at http://sifytechnologies.com/investors/company-profile/csr-policy/.

 

For the financial year 2019-20, the company has spent ₹ 17.20 million in pursuance of its Corporate Social Responsibility Policy in the following manner:

 

  1. Contribution to the Hospital for the Disabled: The Company has contributed 15.00 million to Sri Venkateswara Institute of Research and Rehabilitation for the Disabled Trust.   

 

  2. Contribution towards promoting Education: The Company has contributed 0.50 million towards promotion of education.

 

  3. Contribution towards Health: The Company has contributed 1.70 million towards promotion of Health.

 

Nominating Committee

 

The Nominating Committee of the board consists exclusively of the following non-executive, independent directors as determined under applicable NASDAQ rules:

 

Dr T H Chowdary

 

Mr. C B Mouli

 

and

 

Mr. C E S Azariah

 

The purpose of Nominating Committee is to oversee nomination process for top level management and specifically to identify, screen and review individuals qualified to serve as our Executive Directors, Non-Executive Directors and Independent Directors consistent with criteria approved by our board and to recommend, for approval by our board, nominees for election at our annual general meeting of shareholders.

 

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On July 22, 2015, the Nominating Committee has reviewed and recommended the appointment of Ms. Vegesna Bala Saraswathi as an additional Director of the Company who holds office up to the Annual General Meeting. Further, she was elected by shareholders as a Director at the Annual General Meeting held on July 4, 2016, Further, as per the Act, she retires by rotation and eligible for re-election. She was re-elected at the Annual General Meeting held on July 6, 2017. The Nominations Committee has adopted a charter.

 

On October 22, 2018, the Nominating Committee reviewed and recommended the appointment of Mr. Arun Seth as an additional Director of the Company who shall hold office up to the ensuing Annual General Meeting scheduled on July 5, 2019. After election, he will be appointed as an Independent Director of the Company for a period of five years effective July 5, 2019.

 

On May 5, 2020, the Nominating Committee reviewed and recommended the reappointment of Mr. Ananda Raju Vegesna as an Executive Director and also approved for appointment as an additional Director of the Company who shall hold office up to the ensuing Annual General Meeting to be held before September 30, 2020.

 

Employees

 

As of March 31, 2020, we had 2,794 employees, compared with 2,655 as of March 31, 2019. Of our current employees, 136 are administrative, 378 form our sales and marketing, 121 are in product and content development, 2,114 are dedicated to technology and technical support, and 45 are in business process and customer care. None of our employees are represented by a union. We believe that our relationship with our employees is good.

 

Stock Ownership

 

The following table sets forth information with respect to the beneficial ownership of our equity shares as of May 31, 2020 by each director and our senior management executives. Beneficial ownership is determined in accordance with the rules of the SEC and includes voting and investment power with respect to equity shares. Unless otherwise indicated, the persons named in the table have sole voting and sole investment control with respect to all equity shares beneficially owned.

 

  

Equity Shares

Beneficially Owned

 
Beneficial Owner  Number   Percent 
Raju Vegesna *   154,053,326    85.96%
Ananda Raju Vegesna   -    - 
Vegesna Bala Saraswathi   -    - 
T. H. Chowdary   -    - 
C B Mouli   -    - 
Arun Seth   -    - 
C E S Azariah   -    - 

 

* Other than the above, none of the Directors or Executive Officers of the Company holds any shares in the Company.

 

The following options were granted to our senior management executives as part of our ASOP plan described below:

 

Total options outstanding (Shares)   2,980,000 
Weighted average exercise price (INR)   83.77 
Weighted average exercise period (years)   3.31 

 

Associate Stock Option Plan

 

We have an Associate Stock Option Plan, or ASOP, which provides for the grant of options to employees of our Company.

 

The Company introduced a new Stock Option Plan under Associate Stock Option Plan 2014 (ASOP 2014) for granting ESOPs as Equity Shares and/or ADSs linked warrants to the eligible Associates of the Company and its Holding/Subsidiaries/Associates. This was in addition to the earlier ASOP Plans of 2000, 2002, 2005 and 2007. For this purpose, the Company allocated 25 million Equity Shares of ₹ 10/- each under ASOP 2014. The proposal was approved by the Board of Directors and the shareholders of the Company at the Eighteenth Annual General Meeting held on July 28, 2014 and 25,000,000 shares were reserved for issuance under the plan. The Company also filed Form S-8 on December 21, 2015 with SEC for the options issued under the plan. As of March 31, 2020, we had outstanding options of 11.06 million under our ASOP Plans with a weighted average exercise price equal to approximately ₹ 70.90 ($0.94) per equity share.

 

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The Board at their meeting held on January 20, 2015 approved to grant of 5,870,800 options to 85 Associates and issued Grant Letters. The vesting of options commenced in January 2016. During the year ended 2020, 3 associates have exercised 78,900 vested options.

 

Further during fiscal 2016, 2017, 2018, 2019 and 2020, the Company granted 184,300, 525,000, 150,000, 335,000 and 7,220,000 options to eligible Associates.

 

The ASOP Plans are administered by the Compensation Committee of our Board of Directors. On the recommendation of the Compensation Committee, we issue option letters to identified employees, with the right to convert the issued options into our equity shares at the rates indicated in the options.

 

An employee holding options may apply for exercise of the options on a date specified therein which is referred to as the conversion date. The options are not transferable by an employee. The options lapse in the event of cessation of employment due to reasons of non-performance or otherwise. The equity shares transferred to the employee after conversion from options is the absolute property of the employee and will be held by the employee.

 

Item 7. Major Shareholders and Related Party Transactions

 

Principal Shareholders

 

The following table sets forth information with respect to the beneficial ownership of our equity shares as of March 31, 2020 by each person or group of affiliated persons who is known by us based on our review of public filings to beneficially own 5% or more of our equity shares. The table gives effect to equity shares issuable within sixty days upon the exercise of all options and other rights beneficially owned by the indicated shareholders on that date. Beneficial ownership is determined in accordance with the rules of the SEC and includes voting and investment power with respect to equity shares as well as the power to receive the economic benefits of ownership of securities. Unless otherwise indicated, the persons named in the table have sole voting and sole investment control with respect to all equity shares beneficially owned. The information below is based on a review of filings made by such persons with the SEC.

 

Mr. Raju Vegesna, the Co-Trustee of the Vegesna Family Trust, which is the owner of Infinity Capital Venture Management LLC, which is the general partner of Infinity Capital Ventures, LP, exercise voting control and dispositive power over the equity shares owned by Infinity Capital Ventures, LP. Mr. Raju Vegesna, CEO, Chairman and Managing Director of our Company, is affiliated with Infinity Capital Ventures, LP.

 

Infinity Satcom Universal Private Limited is owned and controlled by Mr. Raju Vegesna, CEO, Chairman and Managing Director of the Company.

 

Ramanand Core Investment Company Private Limited is a wholly owned subsidiary company of Raju Vegesna Infotech and Industries Private Limited which is owned and controlled by Infinity Satcom Universal Private Limited, which in turn is owned and controlled by Mr. Raju Vegesna, CEO, Chairman and Managing Director of the Company.

 

As of March 31, 2020, entities affiliated with our CEO, Chairman and Managing Director, Mr. Raju Vegesna, beneficially owned approximately 85.96% of our outstanding equity shares, which includes the 125,000,000 shares fully paid during the current year (partly paid with proportionate voting rights until previous year) issued in connection with the private placement described below.

 

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Equity Shares

Beneficially owned

 
Shareholder  Number   Percent 
Infinity Capital Ventures, LP, 11601 Wilshire Boulevard, Suite 1900, Los Angeles, CA 90025   13,902,860    7.76 
Vegesna Family Trust, LP, 11601 Wilshire Boulevard, Suite 1900, Los Angeles, CA, 90025   620,466    0.35 
Infinity Satcom Universal Private Limited, Visakhapatnam   14,530,000    8.11 
Ramanand Core Investment Company Private Limited, Visakhapatnam*   125,000,000    69.74 

 

* Ramanand Core Investment Company Private Limited is controlled by Raju Vegesna Infotech and Industries Private Limited, which is in turn, controlled by Infinity Satcom Universal Private Limited and therefore Infinity Satcom Universal Private Limited holds the beneficial interest in Ramanand Core Investment Company Private Limited.

 

Details of significant change in the percentage ownership held by the major shareholders:

 

Name of the shareholder  2017-18   2018-19   2019-20 
   No. of shares   %   No. of shares   %   No. of shares   % 
Infinity Capital Ventures, LP, USA   13,902,860    7.78    13,902,860    7.76    13,902,860    7.76 
Vegesna Family Trust, USA   620,466    0.35    620,466    0.35    620,466    0.35 
Infinity Satcom Universal Private Limited   14,530,000    8.13    14,530,000    8.11    14,530,000    8.11 
*  Raju Vegesna Infotech and Industries Private Limited   -    -    -    -    -    - 
**  Ramanand Core Investment Company Private Ltd.   125,000,000    69.96    125,000,000    69.77    125,000,000    69.74 

 

* 125,000,000 shares were issued to Raju Vegesna Infotech and Industries Private Limited at a discount of 50% to the prevailing American Depositary Share market price since the allotment of shares was for unlisted Indian equity shares. The shareholders of the Company approved the unregistered offering through voting in a general meeting where the promoter group beneficially owned 85.96% of the equity shares eligible to vote in the meeting.

 

** Raju Vegesna Infotech and Industries Private Limited transferred its entire 125,000,000 shares to Ramanand Core Investment Company Private Ltd., its wholly owned subsidiary company.

 

Reference is made to note 36 to the Consolidated Financial Statement as regards the shareholding of Ramanand Core Investment Company Private Limited. As of such date, these shares are fully paid up of the face value and hence carry entire voting rights of these shares.

 

The Company has not issued any shares having differential voting rights and hence the Company’s major shareholders do not have differential voting rights.

 

United States Shareholders

 

As of March 31, 2020, 39,692,595 of our ADSs were held in the United States and we had approximately 10,032 shareholders in the United States. Each ADS represents one equity share.

 

Host country Shareholders

 

As on March 31, 2020, 139,530,652 of our equity shares were held in India and we had 24 shareholders on record in India. Each equity share has a par value of ₹ 10/- each.

 

Control of Registrant

 

Based on our review of filings made with the SEC, Infinity Capital Ventures, LP beneficially owned 7.76% of our equity shares as of March 31, 2020. This shareholder is a party to the Subscription Agreement dated November 10, 2005 with our Company. The Subscription Agreement provides that, among other things, the Company shall appoint Mr. Raju Vegesna as the Chairman of the Board of Directors, Infinity Capital shall also nominate another person to the Board of Directors and for so long as Infinity Capital continues to own at least 10% of the Company’s outstanding Equity Shares, the Company shall not enter into any agreement pursuant to which it would provide a third party with registration rights for Company securities, without the consent of Infinity Capital. In November 2005, Mr. Raju Vegesna, a nominee of Infinity Capital Ventures, LP, was appointed as Chairman of our Board of Directors. In February 2006, the Company also appointed Mr. P S Raju as the second nominee of Infinity Capital to the Board of Directors. Consequent to the resignation of Mr. P S Raju, as a Director effective May 31, 2015, Ms. Vegesna Bala Saraswathi was appointed as an additional Director of our Company effective July 22, 2015, as a Nominee. Further, as per the Act, she retires by rotation and is eligible for re-election. She was re-elected at the Annual General Meeting held on July 6, 2017.

 

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Infinity Satcom Universal Private Limited, India also beneficially owned 8.11% of our equity shares as of March 31, 2020.

 

As of March 31, 2020, entities affiliated with our CEO, Chairman and Managing Director, Mr. Raju Vegesna, beneficially owned approximately 85.96% of our outstanding equity shares, which includes the 125,000,000 shares issued in connection with the private placement described below.

 

These shareholders are presently able to exercise control over many matters requiring approval by our shareholders, including the election of directors and approval of significant corporate transactions. Under Indian law, a simple majority is sufficient to control all shareholder actions except for those items, which require approval by a special resolution. If a special resolution is required, the number of votes cast in favor of the resolution must be not less than three times the number of votes cast against it. Examples of actions that require a special resolution include:

 

altering our Articles of Association;

 

issuing additional shares of capital stock, except for pro rata issuances to existing shareholders;

 

commencing any new line of business; and

 

commencing a liquidation.

 

Circumstances may arise in which the interests of Infinity Capital Ventures, LP or Infinity Satcom Universal Private Limited or a subsequent purchaser of their shares could conflict with the interest of our other shareholders or holders of our ADSs. These shareholders could prevent or delay a change in control of our Company even if a transaction of that sort would be beneficial to our other shareholders, including the holders of our ADSs.

 

On October 30, 2010, we consummated the issuance and sale of 125,000,000 of our equity shares in a private placement with our promoter group, including an entity affiliated with our CEO, Chairman and Managing Director, Mr. Raju Vegesna. See note 36 in the notes to the financial statements in this Annual Report.

 

Forfeiture of equity shares issued in a private placement

 

During the year ended March 31, 2008, Sify proposed a scheme of amalgamation to merge Sify Communications Limited (erstwhile subsidiary) with the Company and made applications to the appropriate authorities in India for approval of the proposed scheme of amalgamation to take over the IP-VPN services from Sify Communications Limited ( erstwhile subsidiary) upon the consummation of the merger. Under the provisions of the local telecom regulations, a Company engaged in the business of providing IP-VPN services was required to maintain Indian shareholding at least 26% of the total paid up share capital of the Company. In order to maintain the Indian shareholding at 26% in Sify consequent to the approval of the proposed scheme of amalgamation, Sify and Infinity Satcom Universal, an Indian entity (the Purchaser) entered into a Subscription Agreement (effective March 24, 2008), whereby the Company agreed to sell, and Infinity agreed to purchase, 12,817,000 equity shares of the Company (herein after referred to as ‘the Share Purchase’), at a per share purchase price of USD $4.46/ - per share (referred to as ‘the Purchased Shares’), equivalent to ₹ 175/- per share in Indian Rupees.

 

In connection with the private placement of shares to Infinity Satcom Universal, the independent directors of the Board of the Directors waived the provision of the Standstill Agreement dated November 10, 2005 prohibiting Infinity Capital Ventures, Raju Vegesna and any Affiliate from acquiring additional shares of the Company. Each of Messrs. Raju Vegesna and Ananda Raju Vegesna abstained from voting on the waiver.

 

The Company received a sum of ₹ 112,149 (comprising of ₹ 12,817 towards face value and ₹ 99,332 towards securities premium) and called up a sum of ₹ 448,595 (comprising of ₹ 25,634 towards face value and ₹ 422,961 towards securities premium). Subsequent to fiscal 2008, the Company withdrew its applications made to appropriate authorities for the approval of the proposed scheme of amalgamation with Sify Communications Limited (erstwhile subsidiary). Consequent upon the withdrawal of the merger, Infinity Satcom Universal communicated to Sify that they would not contribute to calls already made and any balance monies which would become payable under the Subscription Agreement. Hence, the Board of Directors forfeited the shares allotted and the monies collected (₹ 112,149 including sums towards capital and premium) at the meeting held on August 29, 2008.

 

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Sale of shares in a private transaction

 

Pursuant to a Share Purchase Agreement dated May 31, 2009 between Infinity Capital Venture Management and Infinity Satcom Universal Private Limited, a Company owned and controlled by Ananda Raju Vegesna, Executive Director of the Company and brother of Raju Vegesna, CEO, Chairman and Managing Director of the Company, Raju Vegesna has sold 4,000,000 Equity Shares of ₹ 10/- each of the Company to Infinity Satcom for a consideration of $ 3,000,000 in a private transaction.

 

Issuance of Equity Shares in private placement to the promoter group:

 

On October 30, 2010, we consummated the issuance and sale of 125,000,000 of our equity shares in a private placement with our promoter group, including an entity affiliated with our CEO, Chairman and Managing Director, Mr. Raju Vegesna. See note 36 in the notes to the consolidated financial statements in this Annual Report.

 

The proceeds from the said issue have been utilized towards capital expenditure and expansion plans of the Company. During the fiscal 2019 the shares have become fully paid up.

 

Related Party Transactions

 

Refer to Note 33 ‘Related Parties’ in Item 18 of this Annual report for the list of related parties and their relationships as on March 31, 2019 and March 31, 2020.

 

Related party transactions & balances with subsidiaries on standalone basis

 

₹ in million

Particulars  Sify
Technologies
(Singapore) Pte.
Limited
   Sify
Technologies
North America
Corporation
   Sify Data and
Managed
Services Limited
   Sify Infinit
Spaces Limited
   Total 
Transactions during the year
Advances Paid   -    -    129    -    129 
Receipt of Services   63    -    -    -    63 
Rendering of Services   6    287    1    2    296 
Outstanding balances as at 31 March 2020
Advance Receivable   -    -    131    2    133 
Trade Payables   98    -    -    -    98 
Trade Receivables   33    102    -    2    137 

 

All transactions between Sify Technologies Limited and its subsidiaries till the date of this Annual Report have been in the ordinary course of business

 

Refer to Note 33 ‘Related Parties’ for details of transactions with KMP

 

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Loans to employees

 

We provide salary advances to our employees in India who are not executive officers or directors. The annual rate of interest for these loans is 0 %. As of March 31, 2020, the loan outstanding from employees is ₹ 12.40 million.

 

Item 8. Financial Information

 

Financial Statements

 

The following financial statements and auditors’ report appear under Item 18 in this Annual Report on Form 20-F and are incorporated herein by reference:

 

·Report of Independent Registered Public Accounting Firm
·Consolidated Balance Sheet as of March 31, 2020 and 2019
·Consolidated Statements of comprehensive income for the years ended March 31, 2020, 2019 and 2018
·Consolidated Statements of changes in equity for the years ended March 31, 2020, 2019 and 2018
·Consolidated Statements of cash flows for the years ended March 31, 2020, 2019 and 2018
·Notes to the consolidated financial statements

 

Legal Proceedings

 

a)Proceedings before Department of Telecommunications

 

(i)License fees

 

DoT had issued separate licenses to Sify Technologies Ltd (Sify) for providing Internet, National Long Distance & International Long Distance services.. The license fee was payable to the DoT on the Adjusted Gross Revenue (AGR) as per the terms of each license. Sify has been regularly paying license fee on the revenue arising out of services as per the license conditions.

 

DoT has raised demands on service providers providing Internet, NLD, ILD services etc. demanding license fee on the revenue made by the service providers from other business income such as Data Centre, Cloud, application services, power, Gas, etc. DoT contended that all the income of the company irrespective of the business was required to be considered as part of 'income' for the purpose of calculation of the license fee. The Internet Service Providers through its association ISPAI challenged DoT's demand by way of separate petitions. The company filed a Writ Petition before Hon’ble Madras High Court challenging the demand made by DoT on the Income accruing from other business units which is still pending. Meanwhile TDSAT passed a separate order in favor of Access Telecom service providers & Internet Service Providers.

 

"DoT subsequently challenged the order of TDSAT passed in favor of Access Telecom Service Providers before Hon’ble Supreme Court of India. The Hon’ble Supreme Court by its order dated 24.10.2019 set aside the order of the TDSAT & held that Access Telecom Service Providers should pay the license fee as per its license conditions.

 

DoT attempted to apply the judgement of the Hon’ble Supreme Court on the Service Providers providing ISP, NLD, ILD services. These Service providers which had different license conditions and having revenue from other business units approached the Hon’ble Supreme Court stating that Hon’ble Supreme Court judgement dated 24.10.2019 on the access Telecom Service Providers is not applicable to other services providers as license conditions were different from the Access Telecom Service Providers. The Hon’ble Supreme Court chose not to hear the petitions and directed the other service providers to approach the appropriate forum.

 

The Company which had approached Hon’ble High Court of Madras (Court) in 2013 by filing a writ petition prohibiting Department of Telecommunications (DOT) from levying a license fee on non-licensed activities obtained stay of the demands. The Hon’ble Court restrained DoT from recovering the license fee in respect of non- telecom activities and the case is pending for hearing. The Company believes that it has adequate legal defenses against the demand raised by DoT and that the ultimate outcome of these actions will not have a material adverse effect on the Company's financial position and result of operations. ISPAI, association representing the internet service providers including the company issued a letter to DoT stating that the Hon’ble Supreme Court judgement dated 24.10.2019 is not applicable to Internet Service Providers and the license conditions are different.

 

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The Company which had received notices for earlier years from DoT claiming License fee on the total Income (including income from Non Licensed activities) has already responded to these notices stating that license fees are not payable on income from non-licensed activities. The Company believes that it has adequate legal defenses against these notices and that the ultimate outcome of these actions may not have a material adverse effect on the Company's financial position and result of operations.""

 

DoT in its written submission made before the Hon’ble Supreme Court had clearly mentioned that non telecom revenue would stand excluded from the purview of the gross revenue . In 2017, the Hon’ble Tripura High Court held that Service Providers are not liable to pay license fee on the income accruing from other businesses."

 

(ii) The present license for ISP under Unified License issued by DOT on June 2, 2014 provides for payment of License fee on pure internet services. However, the Company through Internet Service Providers Association of India (ISPAI) challenged the said clause before TDSAT and has not made payment in this regard. TDSAT passed a stay order on DOT from charging the License fee on pure internet services. The Company has appropriately accounted for any adverse effect that may arise in this regard in the books of account. However TDSAT by its order dated 18.10.2019 held that license fee is not chargeable on the Internet Service Providers.

 

b)The Group is party to additional legal actions arising in the ordinary course of business. Based on the available information as at March 31, 2020, the Group believes that it has adequate legal defenses for these actions and that the ultimate outcome of these actions will not have a material adverse effect [the maximum financial exposure would be ₹ 88.3 million (March 31, 2019: ₹ 91.6 million)] on the Group's financial position and results of operations.

 

c)The Company has received an order passed under section 7A of the Employees Provident Fund & Miscellaneous Provisions Act, 1952 from Employees Provident Fund Organization (EPFO) claiming provident fund contribution aggregating to ₹ 6.4 million on special allowances paid to employees. The company has filed a writ petition before High court of Madras and obtained the stay of demand. In Feb 2019, the Supreme Court held, in a similar case, that Special allowances paid by the employer to its employee will be included in the scope of basic wages and subject to provident fund contribution. However, the Supreme Court has not fixed the effective date of order.

 

d)During the year, Directorate General of Goods and Services Tax Intelligence (DGGI) did an inspection based on the analysis of service tax returns filed by the Group in the past. The Group has been categorizing services relating to e-Learning and Infrastructure Management Services provided to foreign customers billed in convertible foreign currency under OIDAR services while filing its half-yearly service tax return. However, based on the Place of Provision of Services Rules then applicable under the Finance Act, 1994, Service Tax has to be paid for OIDAR services provided to foreign customers even if the conditions for qualifying as export of services are met. Hence, the DGGI contended that Service Tax should be paid on the services classified as OIDAR services in the returns. The total contended during the period April 2014 to November 2016 of Service Tax was ₹ 161.8 million and the Interest & Penalty as applicable. The Group believes that the services relating to e-learning and infrastructure management services will not fall under OIDAR services and also the activities covered under E-learning and IMS does not meet the conditions for taxation under the provisions applicable as OIDAR and hence there is no liability. However, during the investigation, the Group has paid ₹ 64.6 million under protest to continue the proceeding with the relevant adjudicating authorities. Thereafter, the DGGI has issued Show Cause Notice and the Group has replied on the same. The matter is pending with the Adjudicating Authority. The Group believes that no provision is required to be made against this demand.

 

Dividends

 

Under Indian law, a Company may pay dividends upon recommendation by its Board of Directors and approval by a majority of its shareholders. Any future cash dividends on our equity shares represented by ADSs will be paid to the depository in rupees and will generally be converted into dollars by the depository and distributed to holders of ADSs, net of the depository’s fees and expenses.

 

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However, the dividend payment policy of the Company is not certain and is contingent upon each year’s profits of the Company. Investors seeking cash dividends should consider this at the time of purchase of our ADRs.

 

In view of the unexpected outbreak of pandemic COVID 19 and the consequent lockdown and reduced economic activities, compounded by uncertainty of timing of return to normalcy, your Directors consider it appropriate to conserve resources within the company to stay liquid and use prudently for expansion. Hence, the Board of Directors did not recommend any dividend for the year 2019-20.

 

Significant changes

 

None

 

Item 9. The Offer and Listing

 

Trading Markets

 

There is no public market for our equity shares in India, the United States or any other market. Our ADSs evidenced by American Depository Receipts, or ADRs, are traded in the United States only on the NASDAQ Capital Market under the symbol “SIFY”. Each ADS represents one equity share. The ADRs evidencing ADSs were issued by our depository, Citibank, N.A., pursuant to a Deposit Agreement.

 

Item 10. Additional Information

 

Our Authorized capital stood at ₹ 2,040,000,000, divided into 204,000,000 Equity Shares, having a par value ₹ 10 per share. As of March 31, 2020, 179,223,247 Equity Shares were issued and fully paid. There are no partly paid up shares. The equity shares are our only class of share capital. We have 11,056,100 options outstanding to purchase equity shares as of March 31, 2020.

 

Some of the share capital, 39,692,595 shares, is represented by American Depository Shares issued by our Company in accordance with applicable laws and regulations. Our Articles of Association and the Indian Companies Act permit us to issue classes of securities in addition to the equity shares. For the purposes of this annual report, “shareholder” means a shareholder who is registered as a member in the register of members of our Company. The term shareholders and ADSs holders have the same meaning in this annual report since the Indian Companies Act only defines a shareholder.

 

There have no significant changes in the share capital of the company during the fiscal 2020 and 2018 except for exercise of stock options by eligible employees. In addition to exercise of stock options during the fiscal 2019, the partly paid shares as part of the subscription agreement entered into with Mr. Ananda Raju Vegesna, dated October 22, 2010 were converted to fully paid up after receiving the balance money of ₹900 million towards the 125,000,000 equity shares.

 

Memorandum and Articles of Association

 

Set forth below is the material information concerning our share capital and a brief summary of the material provisions of our Articles of Association, Memorandum of Association and the Indian Companies Act, all as currently in effect. The following description of our equity shares and the material provisions of our Articles of Association and Memorandum of Association does not purport to be complete and is qualified in its entirety by our Memorandum of Association and Articles of Association that are incorporated by reference to this Annual Report on Form 20-F.

 

Objects of Memorandum of Association

 

The following is a summary of our Objects as set forth in Section 3 of our Memorandum of Association:

 

1.To develop and provide Internet service, Internet Telephony, Infrastructure based services, Virtual Private Network and other related data, voice and video services, wide area communication network, value added services on the network, lease or other transfers of network, software, peripherals and related products, and to provide marketing services.

 

2.To provide security products for corporate, carry on the business of consulting, software and hardware, integrated platform(s) for the e-commerce solutions, applications, information technology, security and all other kinds of technology solutions or services, and to acquire, maintain, operate, manage and undertake technology and infrastructure for this purpose.

 

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3To develop, service & sell/lease data based through direct or electronic media, to develop a wide area communication network of sell / lease the network or provide value added services on the network to develop, service, buy / sell computers, software, peripherals and related products to provide marketing services rising direct as well as electronic media;

 

4To undertake the designing and development of systems and applications software either for its own use or for sale in India or for export outside India and to design and develop such systems and application software for or on behalf of manufacturers, owners and users of computer systems and digital / electronic equipment's in India or elsewhere in the world;

 

5To set up and run electronic data processing centers and to carry on the business of data processing, word processing, software consultancy, system studies, management consultancy, techno-economic feasibility studies of projects, design and development of management information systems, share / debenture issues management and / or registration and share/debenture transfer agency;

 

6.To undertake and execute feasibility studies for Computerization, setting up of all kind of computer systems and digital/electronic equipment's and the selection, acquisition and installation thereof whether for the Company or its customers or other users;

 

7To conduct, sponsor or otherwise participate in training programs, courses, seminar conferences in respect of any of the objects of the Company and for spreading or imparting the knowledge and use of computers and computer programming languages including the publication of books, journals, bulletins, study / course materials, circulars and news-letters; and to undertake the business as agents, stockist, distributors, franchise holders or otherwise for trading or dealing in computer systems, peripherals, accessories, parts and computer consumables, continuous and non-continuous stationery, ribbons and other allied products and things and standard software packages.

 

8To conduct e-commerce for sale of all kinds of products and services through direct or electronic media as well as on and off line e-commerce including travel related services, buying and selling of products and services / merchandise, software, data information etc., in India and abroad.

 

Our Articles of Association provide that the minimum number of directors shall be 3 and the maximum number of directors shall be 12. Presently, we have 7 directors. Our Articles of Association provide that at least two-thirds of our directors shall be subject to re-election by our shareholders; and. at least one-third of our directors who are subject to re-election shall be up for re-election at each Annual General Meeting of the shareholders.

 

Our Articles of Association do not require that our directors have to hold shares of our Company in order to serve on our board of directors.

 

Our Articles of Association provide that any director who has a personal interest in a transaction must disclose such interest, must abstain from voting on such a transaction and may not be counted for the purposes of determining whether a quorum is present at the meeting. Such director's interest in any such transaction shall be reported at the next meeting of shareholders. The remuneration payable to our directors may be fixed by the board of directors in accordance with provisions prescribed by the Government of India. Our Articles of Association provide that our board of directors may generally borrow or secure the payment of any sum of money for our business purposes, provided, however, where any amounts are to be borrowed, that when combined with any already outstanding debt, exceed the aggregate of our paid-up capital and free reserves, we cannot borrow such amounts without the consent of our shareholders.

 

Board of Directors

 

In terms of the provisions of the Articles of Association of the Company and the Indian Companies Act 2013:

 

(a)no director of the Company can vote on a proposal, arrangement or contract in which he is materially interested;

 

(b)the directors of the Company cannot vote on a proposal in the absence of an independent quorum for compensation to themselves or their body;

 

(c)each of our directors is entitled to receive a sitting fee not exceeding ₹ 100,000 for every meeting of the Board of Directors and each meeting of a Committee of the Board of Directors, as well as all traveling and out-of-pocket expenses incurred in attending such meetings; however, effective May 2014, the Company has been paying ₹ 50,000 to the directors for each Board Meeting attended by them. However, there is no increase in the sitting fee for the Committee meetings, which is Rs.20,000 for each Meeting.

 

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(d)the directors are empowered to borrow moneys through board meetings up to the prescribed limit and beyond that with the approval of the shareholders through a General Meeting;

 

(e)retirement of directors are determined by rotation and not based on age limit; and

 

(f)no director is required to hold any qualification shares.

 

For additional information, please see “Item 6. Director, Senior Management and Employees – Board Composition,” “-Board Committees” and “-Director Compensation,” and “-Officer Compensation” of this Annual Report on Form 20-F.

 

Dividends

 

Under the Indian Companies Act, our Board of Directors recommends the payment of a dividend which is then declared by our shareholders in a general meeting. However, the board is not obliged to recommend a dividend. Similarly, under our Articles of Association and the Indian Companies Act, although the shareholders may, at the annual general meeting, approve a dividend by an amount less than that recommended by the Board of Directors, they cannot increase the amount of the dividend. In India, dividends generally are declared as a percentage of the par value of a Company’s equity shares. The dividend recommended by the Board of Directors, and thereafter declared by the shareholders in the annual general meeting and subject to the limitations described above, is required to be distributed and paid to shareholders in proportion to the paid up value of their shares within 30 days of the declaration by the shareholders at the annual general meeting. Pursuant to our Articles, our Board of Directors has the discretion to declare and pay interim dividends without shareholder approval. Under the Indian Companies Act, dividends can only be paid in cash to the registered shareholder, the shareholder's order or the shareholder's banker's order, at a record date fixed on or prior to the date of the Annual General Meeting. We must inform the stock exchanges on which our equity shares and ADSs are listed on the record date for determining the shareholders who are entitled to receive dividends.

 

The Indian Companies Act provides that any dividends that remain unpaid or unclaimed after the 30-day period from the date of declaration of a dividend are to be transferred to a special bank account opened by the Company at an approved bank. We have to transfer any dividends that remain unclaimed for seven years from the date of the transfer to an Investor Education and Protection Fund established by the Government of India under the provisions of the Indian Companies Act. Under the Companies Act, 2013, after the transfer to this fund, such unclaimed dividends may be claimed by the shareholders on submission of such documents and in accordance with the procedures as may be prescribed by the Government.

 

With respect to equity shares issued during a particular fiscal year (including any equity shares underlying ADSs issued to the depository), cash dividends declared and paid for such fiscal year generally will be prorated from the date of issuance to the end of such fiscal year.

 

The Indian Companies Act, 2013 further provides that, in the event of an inadequacy or absence of profits in any year, a dividend may be declared for such year out of the Company’s accumulated profits subject to the fulfillment of the following conditions:

 

·the rate of dividend to be declared may not exceed the average of the rate at which dividends were declared by it in the three years immediately preceding that year provided that this sub-rule shall not apply to a company, which has not declared any dividend in each of the three preceding financial years.

 

·the total amount to be drawn from the accumulated profits shall not exceed one-tenth of the such sum of its paid up capital and free reserves as appearing in the last audited financial statement,

 

·the amount so drawn shall first be utilized to set off the losses incurred in the financial year in which a dividend is declared before any dividend in respect of equity shares is declared.

 

·the balance of reserves after such withdrawal shall not fall below fifteen per cent of its paid up share capital as appearing in the latest audited financial statement.

 

·No company shall declare dividends unless carried over previous losses and depreciation not provided in previous year or years are set off against profit of the company of the current year.

 

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Voting Rights

 

At any general meeting, voting is by show of hands unless a poll is demanded by a shareholder or shareholders present in person or by proxy holding (a) not less than one-tenth of the total voting power entitled to vote on a resolution or (b) shares with an aggregate paid up capital of at least ₹ 500,000. Upon a show of hands, every shareholder entitled to vote and present in person has one vote and, on a poll, every shareholder entitled to vote and present in person or by proxy has voting rights in proportion to the paid up capital held by such shareholders. The Chairperson has a casting vote in the case of any tie.

 

Any shareholder of the Company entitled to attend and vote at a meeting of the Company may appoint a proxy. The instrument appointing a proxy must be delivered to us at least 48 hours prior to the meeting. Unless the articles of association otherwise provide, a proxy may not vote except on a poll. A corporate shareholder may appoint an authorized representative who can vote on behalf of the shareholder, both upon a show of hands and upon a poll. An authorized representative is also entitled to appoint a proxy.

 

Ordinary resolutions may be passed by simple majority of those present and voting at any general meeting for which the required period of notice has been given. However, specified resolutions such as amendments to our Articles and the Memorandum of Association, commencement of a new line of business, the waiver of pre-emptive rights for the issuance of any new shares and a reduction of share capital, require that votes cast in favor of the resolution (whether by show of hands or on a poll) are not less than three times the number of votes, if any, cast against the resolution by members so entitled and voting. As per the Indian Companies Act, unless the articles of association of a Company provide for all directors to retire at every annual general meeting, not less than two-third of the directors of a public Company must retire by rotation, while the remaining one-third may remain on the board until they resign or are removed. Our Articles of Association require two thirds of our Directors to retire by rotation. One-third of the directors who are subject to retirement by rotation must retire at each Annual General Meeting. Further, the Indian Companies Act requires certain resolutions such as those listed below to be voted on only by a postal ballot:

 

(a) alteration of the objects clause of the memorandum and in the case of the company in existence immediately before the commencement of the Act, alteration of the main objects of the memorandum;

 

(b) alteration of articles of association in relation to insertion or removal of provisions which, under sub-section (68) of section 2, are required to be included in the articles of a company in order to constitute it a private company;

 

(c) change in place of registered office outside the local limits of any city, town or village as specified in sub-section (5) of section 12;

 

(d) change in objects for which a company has raised money from public through prospectus and still has any unutilized amount out of the money so raised under sub-section (8) of section 13;

 

(e) issue of shares with differential rights as to voting or dividend or otherwise under sub-clause (ii) of clause (a) of section 43;

 

(f) variation in the rights attached to a class of shares or debentures or other securities as specified under section 48;

 

(g) buy-back of shares by a company under sub-section (1) of section 68;

 

(h) election of a director under section 151 of the Act;

 

(i) sale of the whole or substantially the whole of an undertaking of a company as specified under sub-clause (a) of sub-section (1) of section 180;

 

(j) giving loans or extending guarantee or providing security in excess of the limit specified under sub-section (3) of section 186.

 

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Bonus Shares

 

In addition to permitting dividends to be paid out of current or retained earnings as described above, the Indian Companies Act permits us to distribute an amount transferred from the reserve or surplus in our profit and loss account to our shareholders in the form of bonus shares, which are similar to a stock dividend. The Indian Companies Act also permits the issuance of bonus shares from a share premium account. Bonus shares are distributed to shareholders in the proportion recommended by the Board. Shareholders of record on a fixed record date are entitled to receive such bonus shares.

 

Consolidation and Subdivision of Shares

 

The Indian Companies Act permits a Company to split or combine the par value of its shares, provided such split or combination is not made in fractions. Shareholders of record on a fixed record date are entitled to receive the split or combination.

 

Pre-emptive Rights and Issue of Additional Shares

 

The Indian Companies Act gives shareholders the right to subscribe for new shares in proportion to their respective existing shareholdings unless otherwise determined by a special resolution passed by a General Meeting of the shareholders. Under the Indian Companies Act, in the event of an issuance of securities, subject to the limitations set forth above, a Company must first offer the new shares to the shareholders on a fixed record date. The offer must include: (i) the right, exercisable by the shareholders of record, to renounce the shares offered in favor of any other person; and (ii) the number of shares offered and the period of the offer, which may not be less than 15 days from the date of offer. If the offer is not accepted it is deemed to have been declined and thereafter the board of directors is authorized under the Indian Companies Act to distribute any new shares not purchased by the pre-emptive rights holders in the manner that it deems most beneficial to the Company.

 

Annual General Meetings of Shareholders

 

We must convene an annual general meeting of shareholders each year within 15 months of the previous annual general meeting or within six months of the end of previous fiscal year, whichever is earlier and may convene an extraordinary general meeting of shareholders when necessary or at the request of a shareholder or shareholders holding not less than one-tenth of our paid up capital carrying voting rights. In certain circumstances a three month extension may be granted by the Registrar of Companies to hold the Annual General Meeting. The Annual General Meeting of the shareholders is generally convened by our Company Secretary pursuant to a resolution of the board of directors. In addition, the Board may convene an Extraordinary General Meeting of shareholders when necessary or at the request of a shareholder or shareholders holding not less than one-tenth of our paid up capital carrying voting rights. Written notice setting out the agenda of any meeting must be given at least 21 days prior to the date of the General Meeting to the shareholders of record, excluding the days of mailing and date of the meeting. Shareholders who are registered as shareholders on the date of the General Meeting are entitled to attend or vote at such meeting. The Annual General Meeting of shareholders must be held at our registered office or at such other place within the city in which the registered office is located, and meetings other than the Annual General Meeting may be held at any other place if so determined by the board of directors.

 

Our Articles provide that a quorum for a general meeting is the presence of at least five shareholders in person.

 

2019 Annual General Meeting

 

Our Annual General Meeting for the fiscal year 2019 was held on July 5, 2019 as decided by the Board of Directors at the registered office of our Company, 2nd Floor, TIDEL Park, 4 Rajiv Gandhi Salai, Taramani, Chennai 600 113, India.

 

At the Annual General Meeting, the shareholders approved the following items:

 

·Adoption of audited financials for the fiscal year ended March 31, 2019 as per Indian GAAP.
·Declaration of Dividend for the year ended March 31, 2019.
·Appoint a Director in place of Ms. Vegesna Bala Saraswathi(DIN 07237117), who retires by rotation and being eligible, offers himself for reappointment.
·Reappointment of Dr T H Chowdary as an Independent Director of the Company for a further period of Five years
·Reappointment of Mr C B Mouli as an Independent Director of the Company for a further period of Five years
·Reappointment of Mr C E S Azariah as an Independent Director of the Company for a further period of Five years
·Appointment of Mr Arun Seth as an Independent Director of the Company for a period of Five years
·Reappointment of Mr Raju Vegesna as Chairman & Managing Director of the Company for a further period of Five years
·To enhance borrowing powers of the Company
·Creation of security on the assets of the Company
·Ratification of Remuneration payable to Mr. S Ramachandran, Cost Auditor.

 

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Limitations on the Rights to Own Securities

 

The limitations on the rights to own securities of Indian companies, including the rights of non-resident or foreign shareholders to hold securities, are discussed in the section entitled “Ownership Restrictions” below.

 

Register of Shareholders; Record Dates; Transfer of Shares

 

We maintain a register of shareholders as required under the Indian Companies Act, 2013. For the purpose of determining the shares entitled to annual dividends, the register is closed for a specified period prior to the annual general meeting. The date on which this period begins is the record date.

 

To determine which shareholders are entitled to specified shareholder rights such as dividend, we may close the register of shareholders. The Indian Companies Act requires us to give at least seven days’ prior notice to the public before such closure. We may not close the register of shareholders for more than thirty consecutive days, and in no event for more than forty-five days in a year.

 

Following the introduction of the Depositories Act, 1996, and the repeal of Section 22A of the Securities Contracts (Regulation) Act, 1956, which enabled companies to refuse to register transfers of shares in some circumstances, the equity shares of a public Company are freely transferable, subject only to the provisions of Section 58 of the Indian Companies Act, 2013 and the listing agreement entered into between the Company and relevant stock exchange on which the shares of the Company are listed. Since we are a public Company under Indian law, the provisions of Section 58 will apply to us. Our Articles currently contain provisions that give our directors discretion to refuse to register a transfer of shares in some circumstances. According to our Articles, our directors are required to exercise this right in the best interests of our Company. While our directors are not required to provide a reason for any such refusal in writing, they must give notice of the refusal to the transferee within 30 days after receipt of the application for registration of transfer by our Company. In accordance with the provisions of Section 58 of the Indian Companies Act, our directors may exercise this discretion if they have sufficient cause to do so. If our directors refuse to register a transfer of shares, the shareholder wishing to transfer his, her or its shares may file a civil suit or an appeal with the National Company Law Tribunal.

 

Pursuant to Section 58, if a transfer of shares contravenes any of the provisions of the Indian Companies Act and Securities and Exchange Board of India Act, 1992 or the regulations issued there under or the Sick Industrial Companies (Special Provisions) Act, 1985 or any other Indian laws, the Tribunal may, on application made by the relevant Company, a depository incorporated in India, an investor, a participant, or the Securities and Exchange Board of India or other parties, direct the rectification of the register, record of members and/or beneficial owners. Pursuant to Section 58, the CLB/Tribunal may, in its discretion, issue an interim order suspending the voting rights attached to the relevant shares before making or completing its investigation into the alleged contravention. Notwithstanding such investigation, the rights of a shareholder to transfer the shares will not be restricted.

 

Under the Indian Companies Act, unless the shares of a Company are held in a dematerialized form, a transfer of shares is effected by an instrument of transfer in the form prescribed by the Indian Companies Act and the rules there under together with delivery of the share certificates. Our transfer agent is GNSA Infotech Limited, Chennai.

 

Disclosure of Ownership Interest

 

Section 89 of the Indian Companies Act 2013 requires holders on record who do not hold beneficial interests in shares of Indian companies to declare to the Company certain details, including the nature of the holder's interest and details of the beneficial owner. Any person who fails to make the required declaration within 30 days may be liable for a fine which may extend to ₹50 and where the failure is a continuing one with a further fine which may extend to ₹ 1 for every day after the first during which the failure continues.

 

Disclosure of Significant Beneficial Ownership

 

Section 90 of the Indian Companies Act, 2013 read with Companies (Significant Beneficial Owners) Rule, 2018, as amended from time to time a significant beneficial owner to submit necessary declarations to the company regarding the details of ownership interests held in that company. Further, every company shall take necessary steps to identify an individual who is a significant beneficial owner in relation to the company and require such individual to comply with the applicable provisions

 

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A significant beneficial owner means every individual who, acting alone or together, or through one or more persons or trust, possesses one or more of the following rights or entitlements in such reporting company: a) holds indirectly, or together with any direct holdings, not less than 10% of the shares; b) holds indirectly, or together with any direct holdings, not less than 10% of the voting rights in the shares; c) has the right to receive or participate in not less than 10% of the total distributable dividend or any other distribution, in a financial year through indirect holdings alone, or together with any direct holdings; or d) has the right to exercise, or actually exercises, significant influence or control, in any manner other than through direct holdings alone, over the company.

 

As per the SBO Rules, a reporting company shall send notice to all its non-individual members who hold more than 10% of shares, voting rights or right to receive or participate in dividends or any other distribution in order to identify the individual SBO and cause such individual to make the required reporting to the company. On receipt of such declaration, the company shall intimate the same to the Ministry of Corporate Affairs.

 

Any person failing to submit the required disclosures is punishable with imprisonment for a term which may extend to one year or a minimum fine of one lakh rupees, but which may extend to ten lakh rupees or both imprisonment and fine. Where the failure is a continuing one, the individual will be levied a further fine which may extend to one thousand rupees for every day after the first during which the failure continues.

 

Independent Director Databank

 

On October 22, 2019, the MCA introduced the Companies (Creation and Maintenance of databank of Independent Directors) Rules, 2019 and amended the Companies (Appointment and Qualification of Directors) Rules, 2014, effective December 1, 2019. The amendments prescribe new requirements for independent directors to register themselves on an online databank and mandatorily undergo an online proficiency self-assessment test.

 

The Companies (Creation and Maintenance of Databank of Independent Directors) Rules, 2019 has authorized the Indian Institute of Corporate Affairs (“IICA”) as the institute responsible for the creation and maintenance of the online databank, empanelment of existing and aspiring independent directors and for providing a platform for them to acquire knowledge, develop new skills, assess their understanding and apply best practices.

 

The amendment to the Companies (Appointment and Qualification of Directors) Rules, 2014 mandated that existing Independent Directors as well as the every individual who intends to get appointed as an independent directors, apply online to IICA for inclusion of their name in the Independent Directors Databank.

 

The individuals registered with IICA are required to pass an online proficiency self-assessment test within a period of one year from the date of inclusion of his/her name in the databank. Exemption from passing the test has been granted to individuals who have served for a period of not less than 10 years as a director or key managerial personnel in a listed public company in India or in an unlisted public company in India having a paid-up share capital of 10 crores or more.. However, registration with the online databank will remain compulsory even for exempted individuals.

 

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Income Tax Amendments

 

Finance Bill, 2020, passed by the Lower House of the Parliament on 23rd March 2020, received Presidential assent on 27th March 2020. The following were the key amendments in the Budget presented in Feb 2020 regarding income tax proposals for FY 2020-21:

 

ØDividends no longer exempt in the hands of shareholders:
oEffective 1-Apr-20, dividends will be taxable in the hands of shareholders under the head “Income from Other Sources”.
oIntercorporate dividends: Accordingly, dividends received by holding company from its subsidiary will be taxable in the hands of holding company. Nevertheless, to remove cascading effect, deduction is allowed for dividends paid from such dividends received.

 

ØAmendments in withholding tax provisions:
oWithholding tax on technical services reduced to 2% from 10%. However, withholding tax on professional services continues to be at 10%.
oSince dividends have become taxable in the hands of shareholders, corresponding provisions introduced in withholding taxes wherein mutual funds (deductors) will have to apply TDS @ 10% on dividend income (if more than Rs.5,000/-) paid to shareholders.
oConcessional TDS rate of 5% is applicable on interest to Non-residents on specified borrowings under existing provisions. The time limit for such borrowings is extended to 1-Jul-23 from 1-Jul-20.
oTime limit for receipt of investments extended to 1-Jul-23 from 1-Jul-20 for TDS @ 5% on interest to FPIs
oFPIs are now permitted by SEBI & RBI to invest in municipal debt securities under limits applicable to State Development Loans. Above concession granted to interest on such securities
oTDS @ 1% to be applied by E-commerce operators on payments to E-commerce participants (i.e. sellers); (5% if PAN/Aadhaar not available). TDS to be applied even if customer pays directly to e-commerce participant. However, TDS is not applicable if sales through e-commerce operator is less than Rs.0.5 Million & E-commerce participant furnishes PAN / Aadhaar.
oTax Collected at Source (TCS) @ 5% introduced on remittances under ‘liberalized remittance scheme’ of the Reserve Bank of India if aggregate receipts exceed Rs.0.7 Million from a buyer.
oTCS @ 5% introduced on sale of overseas tour package
oIn the above cases, if PAN / Aadhaar of the deductee is not available, TCS is to be applied @ 10%
oSimilarly, TCS @ 0.1% introduced on amount received on sale of goods exceeding Rs. 5 Million (TCS @ 1% if PAN / Aadhaar not available)

 

ØThe following services have also been brought under tax net. If income from these services accrue or arise due to business connection in India, such income is taxable in India:
oIncome from such advertisement which targets a customer who resides in India or a customer who accesses the advertisement through internet protocol address located in India;
oIncome from sale of data collected from a person who resides in India or from a person who uses internet protocol address located in India; and
oIncome from sale of goods or services using data collected from a person who resides in India or from a person who uses internet protocol address located in India

 

ØResidential Status:
oA person is said to be resident in India if:
·A person of Indian Origin becomes resident if stay in India > 120 days (currently, 182 days) & stays for 1 out of 4 preceding years
·If a resident who is not an ordinary resident stays in India for 7 out of 10 preceding years (currently, 9 out of 10)
·Deemed to be resident if an Indian citizen is not liable to tax in any other country due to any reason.
§CBDT clarified that Indian citizens who are bonafide workers in other countries are not included and their foreign income is not taxable in India

 

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ØFiling of Return of Income (ROI) by Non-residents: As per earlier provisions, Non-Residents / foreign companies need not file ROI if their income includes dividend & interest income. Now, royalty & Fees for Technical Services have also been included in this exception. However, corresponding Transfer Pricing provisions have not been amended and hence Transfer Pricing compliances are still to be adhered to. Further, if withholding taxes were applied on such royalty / fee for technical services under the provisions of Double Taxation Avoidance Agreement, above concession is not applicable.

 

ØNew tax regime introduced for individuals:
oA new tax regime has been introduced which can be exercised at the option of individuals. The details are as follows:

 

Income slabs 

New tax regime
(if prescribed deductions /
exemptions not claimed)

OPTIONAL

   Current tax regime
(with deductions /
exemptions)
 
Upto INR 0.25 Mn  0%   0% 
INR 0.25 Mn to INR 0.50 Mn  5% (Nil after tax rebate)   5% (Nil after tax rebate) 
INR 0.50 Mn to INR 0.75 Mn  10%   20% 
INR 0.75 Mn to INR 1 Mn  15%   20% 
INR 1 Mn to INR 1.25 Mn  20%   30% 
INR 1.25 Mn to INR 1.50 Mn  25%   30% 
Above INR 1.50 Mn  30%   30% 

 

oThe new tax regime is at the option of the individuals which if once exercised by individuals having business income applies to subsequent AYs as well; The option can be withdrawn only once. For other individuals, this option can be exercised every year separately.
oAlternate Minimum Tax (similar to MAT for corporates) for individuals is withdrawn & existing AMT credit can’t be carried forward
oTo avail the option, individuals need to forego certain deductions / exemptions such as exemption for Leave Travel Allowance, House Rent Allowance, standard deduction, interest on house property loans, deductions for investments, etc. Further, losses pertaining to such deductions & losses under the head house property cannot be claimed.

 

ØFaceless assessments by Income Tax Department & disposal of appeals introduced wherein returns filed by corporates can be scrutinised and orders issued through an online process. Relevant directives

 

On 20th Sep 2019, Hon’ble Finance Minister announced various fiscal measures with the aim of promoting “Make in India” and with a view to attract foreign investments into India. These amendments were brought into effect by way of Tax Laws Amendment Ordinance, 2019. A new corporate tax regime was introduced vide the aforesaid Ordinance.

 

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1.INTRODUCTION OF SEC 115BAA

 

ØIndian companies can now opt for a lower corporate tax rate of 22%
ØConditions for availing this lower rate - If the following are not claimed in the computation of taxable income:
oExemption of profits of units in SEZ - Section 10AA
oAdditional Depreciation of 20% (for P&M of manufacturing companies) – Sec 32(1)(iia)
o15% allowance for investment in P&M in backward areas – Sec 32AD
oDeposit in development accounts, site restoration fund – Sec 33AB & 33ABA
oDeduction for expenditure on scientific research – Sec 35(2AA) & 35(2AB)
oCapex deduction for specified business – Sec 35AD
oExpenditure on agricultural extension projects & skill devt projects – Sec 35CCC & 35CCD
oChap VIA deductions under Heading C (except deduction u/s 80JJAA on additional employee costs) i.e deductions u/s 80H, 80HH, 80I, 80IA, etc. for profits of industrial undertakings
oIf brought forward losses not set off to the extent attributable to aforesaid deductions, such loss will not be allowed to be carried forward
ØRegular Income Tax Depn (excluding addl depn) allowed
ØOption to be exercised before due date of filing return for FY 2019-20 (AY 2020-21)
ØOption once exercised can’t be withdrawn

 

2.INTRODUCTION OF SEC 115BAB

 

ØNewly incorporated Indian manufacturing companies can opt for a lower corporate tax rate of 15%
ØConditions for availing the lower rate:
oCompany set-up & registered after 1-Oct-2019 and manufacturing commenced before 31-Mar-2023
oCompany not formed by splitting up / reconstruction of business already in existence
oCompany doesn’t use P&M previously used for any purpose
oCompany doesn’t use any building previously used as hotel or convention centre
oCompany is not engaged in any business other than its business of manufacture / production & research / distribution of article / thing produced by it
ØConditions specified in Sec 115BAA in regard to computation of total income & exercise of this option apply to this Section as well
ØBusiness transacted between new manufacturing companies opting for lower tax regime treated as Specified Domestic Transaction from Transfer Pricing perspective and Transfer Pricing regulations would apply.

 

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3.OTHER AMENDMENTS

 

ØMAT rate reduced to 15% from 18.5%
ØFurther, MAT not applicable to companies exercising the options for reduced rates of 25% or 15% under sections 115BAA / 115BAB
ØAmendment of Sec 115QA: No tax on buy-back of shares announced before 5-Jul-2019
ØSurcharge on CG on sale of security by FIIs restricted to 15% (where total income > Rs 2 Crores)
ØSurcharge on reduced Corp tax rates under Sec 115BAA & 115BAB will be @ 10%

 

Surcharge on CG on sale of equity shares of a company / units of an equity-oriented fund / units of a business trust restricted to 15% (10% on total income between Rs 50 Lakhs & Rs 1 Crore and 15% where total income > Rs 2 Crores)

 

Compliances under COVID-19

 

Government of India and various departments of the Government have given few relaxations for compliances due to COVID-19 pandemic. We have listed relevant relaxations and measures announced whether or not we have utilized those relaxations.

 

Relaxations given by Ministry of Corporate Affairs (MCA):

 

Due to COVID-19 pandemic, the MCA has given the following relaxations on the compliances with applicable laws under the Companies Act, 2013 vide its circular dated March 19, 2020.

 

·Conducting board meetings through video conferencing:

 

Matters pertaining to approval of financial statements, board’s report, mergers, demergers, amalgamations, among others are permitted to be taken up at board and committee meetings held through video-conferencing or other audiovisual means, for meetings held up to June 30, 2020.

 

·Time gap between board meetings:

 

The maximum time gap for holding consecutive meetings of the board has been extended by a period of 60 days, i.e., from the existing 120 days to 180 days until September 30, 2020.

 

·Introduction of Company Affirmation of Readiness towards COVID-19 Form (Form CAR) to ascertain companies’ compliance with COVID-19 related measures and guidelines.

 

·No requirement for payment of additional fees for late filings under the Companies Act, 2013 during the period from April 1, 2020 to September 30, 2020.

 

·Introduction of Companies Fresh Start Scheme, 2020:

 

The scheme aims to provide an opportunity to companies to make good any filing related defaults and make a fresh start as a fully compliant entity.

  

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·Requirement of Resident Director:

 

The requirement for companies to have at least one director who stays in India for a total period of not less than 182 days during the financial year has been relaxed for fiscal year 2020 and shall not be treated as a non-compliance.

 

·Conducting General meeting through video conferencing:

 

The MCA through its circular No. 14/2020 dated April 8, 2020, Circular No. 17/2020 dated April 13, 2020 and Circular No. 20/2020 dated May 5, 2020, permitted to hold extra ordinary general meetings and Annual General Meeting through video conferencing or other audio-visual means, subject to compliance of various conditions mentioned therein.

 

Income Taxes: