| Sify Infinit Spaces Limited | ||||||
| Ratings reaffirmed at 'CRISIL AA-/Stable/CRISIL A1+'; rated amount enhanced for Bank Debt | ||||||
| Rating Action | ||||||
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| Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||||||
| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its ‘CRISIL AA-/Stable/CRISIL A1+’ ratings on the bank loan facilities of Sify Infinit Spaces Limited (SISL; part of Sify group).
The ratings factor in the company’s established operations and healthy business as well as financial risk profiles. The company has strong revenue visibility because of its long-term master service agreement (MSA) with marquee clients accounting for over two-thirds of the operating revenue. SISL also faces limited downside risks to profitability given the fixed-price terms of the contract and pass-through of the power expense, which accounts for around two-thirds of the total operating expense.
The financial risk profile too remained moderate with strong debt protection metrics as reflected in interest cover of over 8 times for fiscal 2022, aided by healthy cash accrual. Moreover, the company has demonstrated high financial flexibility by raising equity in the last fiscal, wherein Kotak Special Situations Fund (KSSF) and Sify Technologies Ltd (STL; SISL’s parent) infused ~Rs 202 crore and ~Rs 100 crore, respectively in SISL, by way of compulsorily convertible debentures (CCDs). The proceeds have supported the capital structure and the proceeds were largely utilised for capital expenditure (capex). As part of the agreement with KSSF, the company has received additional ~Rs 200 crore through CCDs in the current fiscal, which has further strengthened the capital structure towards funding of the capex.
These strengths are partially offset by the large working capital requirement and exposure to intense competition.
The operating performance of the company for the first nine months of fiscal 2023 reflected healthy growth with operating revenue expanding by 34% as compared to the corresponding period of the previous fiscal, driven by increase in capacity. |
Analytical Approach CRISIL Ratings has considered the standalone business and financial risk profiles of the company while arriving at the ratings. Furthermore, investments made by KSSF and parent, STL have been treated as equity. |
Key Rating Drivers & Detailed Description Strengths:
As one of the established players in the domestic data centre industry, SISL has 11 concurrently manageable certified data centres in key locations such as Mumbai, Chennai, Hyderabad, Delhi, Bengaluru, and Kolkata with total commissioned capacity of ~101.8 MW as of fiscal 2022. Sify group has been operating data centres since September 2000 and has been continuously expanding its capacities across key locations. SISL’s business risk profile is supported by long-term contracts with key clients and healthy relationship with them ensuring high customer stickiness. The company’s clientele include global cloud providers, large enterprises, and small and mid-sized businesses (SMBs), including marquee technology companies. SISL also benefits from the extensive experience of its promoters in the technology domain and strong management profile.
SISL’s operating revenue grew by ~35% on-year in fiscal 2022 and further by 34% during the nine months ended December 2022 in the current fiscal as compared to the same period last fiscal, aided by capacity expansion and signing of new contracts. The company plans to add 50-60 MW capacities over the next 2-3 years. Thus, revenue is likely to improve at a healthy pace over the medium term given the strong expectation of demand for additional data centre capacities amidst the launch of 5G services, surging data consumption, rapid use of cloud and digital commerce and rising internet user base.
The financial risk profile is supported by healthy cash accrual and networth. Interest coverage ratio was over 8 times while adjusted networth was ~Rs 971 crore in fiscal 2022. Gearing was less than 1 time as on March 31, 2022 and is expected to remain healthy over the medium term. Networth too should improve this fiscal, aided by further committed investments by KSSF. Though gross debt will increase over the next few years, owing to large capex plans, debt protection metrics will remain comfortable supported by healthy cash accrual from additional capacities.
Weaknesses:
Data centres require sizeable capex towards land, building, power supplies and infrastructure. SISL plans to incur capex of over Rs 2,000 crore over the next three years to expand its built capacity base to 160-165 MW. However, a large portion of project risks associated with investments on additional capacities gets mitigated because of the modular nature of capex based on visibility of contracts. Moreover, company also has the option to avail additional equity from KSSF, which could be utilised for funding these investments. Nevertheless, the ability to maintain high utilisation for new properties and its impact on overall cash accrual will be a key rating sensitivity factor.
SISL also has large working capital requirements because of elongated receivables owing to longer credit period provided to customers. The receivable days had increased to 155 in fiscal 2022 from 122 in fiscal 2021. However, the same has moderated to around 108 days as of December 2022. Maintenance of working capital cycle at current levels will continue to be monitored.
The data centre sector is competitive with few large operators dominating the market. Over the past few years, newer players have entered this space, given the favourable demand and expectation of healthy returns, which could intensify competition to existing players. SISL’s ability to maintain pricing (or realisation) for newer capacities amidst increasing competitive intensity will remain a monitorable. |
Liquidity: Strong Expected annual cash accrual of Rs 250-350 crore over the next few years will be more than sufficient to cover yearly debt obligation of Rs 100-150 crore and support liquidity. Unencumbered cash and equivalents were around Rs 184 crore as on December 31, 2022. Besides, the company also has Rs 55-60 crore of unutilised fund-based bank limits. Capex will likely be financed through a mix of cash accrual, equity infusion and external debt over the medium term. |
Outlook: Stable The business risk profile will continue to benefit from SISL’s established market position and long-term contract with key clientele while the financial risk profile will be supported by healthy cash accrual. |
Rating Sensitivity factors Upward factors
Downward factors
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About the Company SISL is a wholly owned subsidiary of STL. The company owns 11 concurrently maintainable data centres which are designed to act as reliable, secure and scalable facilities to host mission-critical applications. Its services can be grouped under two heads namely co-location and managed hosting. It offers co-location services, which allow customers to bring in their own rack-mountable servers and house them in shared racks or hire complete racks, and even secure cages at the hosting facility as per their application requirements. It also offers a wide variety of managed hosting services, such as storage, back-up and restoration, performance monitoring and reporting, hardware and software procurement and network configuration. |
Key Financial Indicators (CRISIL Ratings adjusted figures)
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Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
** - Sublimit of Letter of Credit * - Sublimit of bank guarantee |
| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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This Annexure has been updated on 08-Mar-23 in line with the lender-wise facility details as on 18-Oct-22 received from the rated entity.
** - Sublimit of Letter of Credit
* - Sublimit of bank guarantee
Criteria Details
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