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SIFY: Better Times Ahead

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VoicenData Bureau
New Update

Some companies are so personality driven that the CEOs are more

popular than the company. Sify is one such company, and was synonymous with R

Ramaraj, the charismatic former CEO of Sify who parted ways with the company a

few months back in a major top management overhaul. Ramaraj, who was credited

for many firsts like launching India's first private ISP to pioneering the

concept of iWays (Sify branded cyber cafes) to listing the company in Nasdaq

(first Internet company to do so). Strangely, Ramaraj left Sify at a time when

the company started showing profits after years of ailing bottomline. A breather

came in AMJ FY '07, with the company posting a net profit of $1.36 mn as

against a net loss of $2.14 mn in the corresponding quarter of the previous

year. But it seems the turnaround was just a silver lining as one takes a closer

look at the scheme of events leading to the management overhaul.

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The Old Order Crumbles



When Raju Vegesna of Infinity Capital Ventures bought around 40% stake in
Sify from Satyam Computers for $100 mn, in November 2005, analysts expected

organizational change. Post the buy out, Raju Vegesna was named as chairman of

the Board and in July 2006, became the company's CEO and MD. The top

management shakeup has indeed come as a surprise. Vegesna, who started

ServerWorks in 1994 with just around four people, was instrumental in making

ServerWorks a leading company in the Intel-based PC server chipsets in just

seven years. More impressive was Vegesna sold ServerWorks to Broadcom for $1.8

bn.

The

Changed Order

Raju Vegesna:



CEO and MD




Suri Venkat:
COO



Bhaskar Sayyaparaju:
CTO



V Sivaramakrishnan:
President,

Portals




Pijush Kanti Das:
President,

Access Media




Ashish Arora:
SVP, Enterprise

Solutions
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When Vegesna came on board, his expectations were very high due

to his successful entrepreneurial record. Industry watchers see this as the

starting point of friction with the existing management team headed by Ramaraj.

But when Q1 FY '07 results saw Sify recording net profits created an

impression that all is well. In July 2006, Ramaraj and some of his fellow senior

colleagues like Rustom Irani, CTO exited the company for better opportunities.

It becomes clear that Vegesna should have done some kind of due

diligence of the key people on the existing set up at Sify and the deliverables

over a period of time. Another question is that Sify's consistent top line

growth was not in sync with its bottom line. Is it lack of business focus or a

strategy? This is the bone of contention that many analysts see for the sweeping

changes.

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The New Order Charges In



Currently, the company is going through a transition. The profitability
momentum is maintained and when we look at Q2 FY 2006-07, in which Sify posted a

net profit of $1.49 mn as against a net loss of $1.34 mn in the corresponding

quarter the previous year. Both Q1 and Q2 of the ongoing fiscal have been good

for Sify and indicate its bottom line is on the threshold of better times ahead.

Reflecting on the financial performance, Raju Vegesna, MD and CEO of Sify says,

"We are beginning to see the effects of the business analysis and

structuring conducted during the first two quarters of this year in the form of

improved margins and better cost management."

The

profitability, which Vegesna and his team are pitching for, hinges on the

company's three key divisions-enterprise, access media and portals

Vegesna intends to usher in profitable growth through a unified

strategic approach that is expected to bring in greater synergies across

business lines and better-cost management. Commenting on the second quarter

results, the company's CFO, Durgesh Mehta says, "The last two quarters

have set the stage for profitable growth with better management of bandwidth and

other overheads costs. The continued focus on synergies across businesses for

better productivity and leveraging scale should also contribute towards this

objective."

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Growth & Profitability



The profitability, which Vegesna and his team are pitching for, hinges on
the company's three key divisions-enterprise, access media and portals. On

the enterprise side, hosting and Network services is expected to power Sify's

growth. For instance, the company has some significant wins for its hosting

services in Q2 of this fiscal year as it signed enterprise customers like Royal

Sundaram, NSE, SBI among others.

'People chose to move on

in a market that is exploding... I did not initiate any changes in

management'

-Raju

Vegesna
,



CEO and MD, Sify

A well know

Silicon Valley entrepreneur, Raju Vegesna is currently Sify's CEO and

MD. His investment company, Infinity Capital Ventures, picked up 40% stake

in Sify for about $100 mn in November 2005 and subsequently Vegesna was

named as chairman of the Board. In July 2006, he became MD and CEO of Sify

after a major top management overhaul. Six months have elapsed since

Vegesna took control of Sify; how did things pan out during this time and

what's in store for Sify? In an exclusive interview to Voice&Data,

Raju Vegesna puts things in perspective. Excerpts:

On the

company




Sify is a great company, started and built over the years by its
management with many pioneering as well as industry leading standards and

services. I invested in the company as a strategic investor interested in

contributing to its growth and success, and brought many new ideas to the

table. With about a 40% ownership, my interest lay in helping steer the

company to further growth and profitability by direct involvement.

On the

priorities




Now that we have grown Sify to a certain size, scale and spread, our
priorities are to expand and grow profitably while continuing to invest in

technology capabilities and infrastructure such as our network reach,

capacity and data centers.

The first priority is profitable

growth. The second is to grow with greater synergies across businesses.

The focus was more on growth in the past, but now we intend to ensure

greater synergies to unlock the full potential of Sify's integrated

business model. The third priority is to take Sify's business

international. We have businesses and capabilities across corporate and

consumer services that can be offered internationally and which is

something we will actively explore.

On the last

six months




Over the last six months or so, we have worked to synergize teams in
enterprise, engineering support and customer care to better serve our

customers across consumer and enterprise. This has also brought a new

focus on the market with better cross-selling capabilities. We have also

taken some hard decisions to clean up the books financially so that we

have a clean slate going forward. We have a very capable chief operating

officer, CVS Suri and a CTO with international experience, S Bhaskar. I

believe that we will complete this process by the end of this financial

year and will then focus on accelerating our growth and expansion.

On the

challenges




The Indian market continues to be hot, expanding at a very robust rate
across manufacturing and services. So, attracting and retaining the right

kind of talent will continue to be a challenge going forward for some time

to come. The second challenge will be to scale fast, as this is a time of

rapid growth, and I believe size will matter. The last is the regulatory

challenge for I do not think the government has done enough to unleash the

full potential of the Internet for India and Indians, despite its strides

in fostering e-Governance.

On global

expansion plans





We have also accelerated our international offerings in infrastructure

management services and will continue to focus on increasing our revenues

and customer base from this business. We are also looking at how we can

take the iWay chain to other countries with a similar low PC penetration

profile as well as how we can contribute to the development of

e-Governance services, both in India and other countries.

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Meanwhile, its iWay branded cyber cafes (3,559 cafes) are spread

across 154 Indian cities. The company is also working towards making iWays as an

e-commerce hub. For instance, the company has tied up with IRCTC to facilitate

iWay users to book railway e-tickets on cash payments in iWays. On the high

speed Internet space, Sify's broadband users crossed two lakh subscribers

during the JAS quarter of this fiscal. Company sources claim a healthy growth on

the portals' side.

While the results were good and indicate the company is on the

growth path, much depends on the company's continued acceleration in areas

like enterprise and broadband access. It also needs to counter the growing

competition looming from competitors like BSNL and Airtel in the broadband

space. Looking at the Sify's profitability patterns in the first two quarters

of FY 2006-07, it indicates the new management's continued focus on the

existing business lines. Analysts expect more defined changes after the end of

this fiscal and if Sify was able to post a net profit for the whole year, then

it means all these changes have worked in the company's favor. With lots of

expectation, Sify is all set to graduate to the next orbit full of challenges

and new growth opportunities.

Shrikanth G





shrikanthg@cybermedia.co.in

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