Sify Technologies Earnings Call Highlights Data Center Momentum

Sify Technologies Limited ((SIFY)) has held its Q3 earnings call. Read on for the main highlights of the call.

Sify Technologies Balances Strong Growth With Funding and Profitability Risks

Sify Technologies’ latest earnings call painted a broadly optimistic picture of growth and operating strength, led by its data center and infrastructure businesses, while candidly acknowledging persistent net losses, a still-loss-making Digital Services arm, and heavy capital needs. Management emphasized double-digit revenue growth, even faster EBITDA expansion, near-full monetization of existing data center capacity, and robust unit economics, but also highlighted the company’s dependence on a planned IPO to fund its aggressive expansion and support rising AI-driven infrastructure requirements.

Revenue and EBITDA Growth Signal Strong Operating Leverage

Sify reported Q3 FY25-26 revenue of INR 11,596 million, up 11% year-over-year, with EBITDA jumping 29% to INR 2,470 million. This divergence between revenue and EBITDA growth underscores improving operating leverage and the scaling benefits of its infrastructure-heavy model. The mix of recurring, contracted data center and network revenues appears to be driving better margin capture, even as certain segments, notably Digital Services and parts of the Network business, remain under profitability pressure.

Data Center Sales Near Full Monetization of Installed Capacity

The quarter saw 9.1 MW of additional data center co-location capacity sold, bringing sales since June 2025 to 12.16 MW. Against a design capacity of 188 MW and ready-for-service installed capacity of 130 MW, roughly 127 MW has already been sold. This implies that nearly all currently deployed capacity has been monetized, reflecting strong underlying demand from hyperscalers and enterprises. The high sold-to-installed ratio supports revenue visibility and reinforces the strategic importance of expanding capacity to avoid hitting a growth ceiling.

Robust Expansion Pipeline Backed by AI-Driven Demand

Looking ahead, Sify has four data center facilities in its pipeline with an aggregate capacity of about 125 MW, spread across additional towers in the Rabale campus and greenfield projects. These builds are underpinned by contracted customers, suggesting that much of the capacity is pre-committed rather than speculative. Management highlighted AI workloads as a key demand driver, noting the potential to push higher densities per rack and per MW, which could expand revenue per unit of capacity over time if managed efficiently.

Attractive Data Center Margins and Returns

Data center economics remain a core pillar of Sify’s investment case. EBITDA margins for the data center business are running in the 44–45% range, with normal quarterly movement of 100–200 basis points as facilities ramp. For stabilized sites, management cited returns on capital employed in the “high teens,” a level that is appealing in a capital-intensive sector. These margins and returns help offset the drag from other segments and justify continued heavy investment in new capacity, assuming funding remains available on acceptable terms.

Scaling Network and Infrastructure Footprint

Beyond data centers, Sify continued to scale its network and infrastructure footprint. The company now operates 1,214 fiber nodes, a 9% year-on-year increase, and has deployed 9,695 SD-WAN service points across India. Additionally, a strategic subsea cable landing partnership with a major global technology player in Visakhapatnam positions Sify as a regional edge and cable landing partner. This network build-out supports both the data center value proposition and the company’s broader ambition to serve as a key digital infrastructure provider in the region.

Capital Allocation and IPO Plan to Fund Growth

Capital expenditure for the quarter was INR 3,452 million, underscoring the intensity of Sify’s investment cycle. To fund data center expansion and refinance higher-cost debt, the company has filed a draft prospectus for the Sify Infinit Spaces IPO, targeting a total issue size of INR 3,700 crore, including a primary raise of INR 2,500 crore and a secondary offer for sale of INR 1,200 crore. This capital allocation strategy is designed to sustain the build-out of the data center pipeline while easing balance sheet pressure, but it also introduces execution risk around market conditions and regulatory timelines.

Long-Term Contracts Enhance Revenue Visibility

Sify’s co-location business benefits from long-dated contracts that provide multi-year revenue visibility. Hyperscaler customers typically sign contracts with tenors of around seven years, often with renewal options, while enterprise clients commit to roughly five-year terms. This contract structure smooths cash flows and supports financing for large capital projects, which is particularly important given the scale and duration of the company’s data center investment program.

Net Loss Persists Despite Strong EBITDA

Despite solid EBITDA, Sify reported a loss before tax of INR 257 million and a loss after tax of INR 329 million for the quarter. The gap between EBITDA and net profit reflects non-operating costs such as depreciation and amortization on large capital investments, as well as financing costs. For investors, this means the underlying operations appear healthy and growing, but bottom-line profitability remains constrained in the near term by the capital-intensive nature of the business and its funding structure.

Digital Services Segment Continues to Drag on Profitability

Digital Services accounted for 23% of revenue but remains loss-making. Management indicated that this segment is not expected to reach breakeven until the latter part of FY26-27, implying several more quarters of margin drag. While Digital Services may be strategically important for cross-selling and solution depth, its current economics contrast with the more attractive data center and network segments, and the timeline to profitability will be an important watchpoint for shareholders.

Flat Network Revenue and Pricing Pressure

Network Services, comprising 37% of revenue, were largely flat year-on-year. The stagnation is attributed to price corrections for existing customers and migration from legacy MPLS to lower-priced Internet, SD-WAN, and SASE solutions. While these newer offerings likely support volume growth and are strategically relevant, they dilute price realization. For the Network business to resume meaningful topline growth, volume and value-added services will need to more than offset ongoing pricing pressure.

Revenue Recognition Lag From Newly Sold Capacity

Although Sify has sold 12.16 MW of data center capacity since June 2025, only about 4 MW contributed to revenue during the quarter, primarily because many deals were booked in December. This highlights a structural lag between bookings and revenue recognition, as customers take time to ramp up usage. Investors should therefore expect a delay between reported sales success and its full reflection in the income statement, particularly during periods of rapid capacity take-up.

High Capex and Dependence on External Funding

Sify’s expansion requires continued heavy spending, with quarterly capex at INR 3,452 million against a cash balance of INR 3,627 million at the end of December 2025. This leaves limited room for self-funding and makes the company reliant on external capital, particularly the planned Sify Infinit Spaces IPO, to sustain its build-out. Any delay or shortfall in raising funds would force tough choices on the pace of expansion, balance sheet leverage, or both, introducing a key risk factor despite strong operational momentum.

AI and Liquid-Cooling Raise Capital Intensity

The shift toward AI workloads brings the need for higher-density infrastructure and liquid-cooling solutions. Management indicated that liquid-cooling can add around USD 1.3 million per MW of incremental capex. While some of these costs may be funded directly by customers, the trend points to rising capital intensity and more complex contract negotiations. For Sify, the challenge will be to maintain or improve returns while accommodating these higher-spec workloads and ensuring that pricing adequately compensates for the additional investment.

Related-Party Structures Add Analytical Complexity

The company’s structure includes related-party transactions and long-term leases of assets from its parent, as well as revenue and expense transfers tied to legacy contracts. These arrangements introduce complexity into Sify’s financial reporting, and investors assessing the data center subsidiary on a standalone basis must adjust for these items to get a clear view of underlying performance. Transparency and consistency in handling related-party flows will be important for building investor confidence, particularly as Sify moves toward an IPO of its data center business.

Forward-Looking Guidance and Key Milestones

Management reiterated expectations for continued revenue and EBITDA growth, anchored by the data center business and supported by the current near-full utilization of installed capacity. Additional capacity from four pipeline facilities totaling about 125 MW is scheduled to phase in over the next two years, with two new towers at the Rabale campus expected to go live this calendar year and two greenfield sites targeted for mid-2026 and mid-2027. Data center EBITDA margins are guided to remain around 44–45%, with high-teen returns on stabilized sites. The company expects recent data center bookings, particularly from December, to start contributing to revenue in the next quarter. On funding, management is working toward completing the Sify Infinit Spaces IPO after regulatory approvals, with proceeds earmarked for expansion and debt refinancing. Digital Services are guided to reach breakeven in the second half of FY26-27, marking a medium-term milestone for improving consolidated profitability.

In sum, Sify Technologies’ earnings call presented a compelling growth narrative centered on high-margin data centers and expanding digital infrastructure, tempered by ongoing net losses, heavy capex and funding dependencies, and a slow path to profitability for Digital Services. For investors, the story hinges on the company’s ability to execute its expansion pipeline, secure IPO funding on favorable terms, and manage rising AI-related capital demands, all while preserving the attractive economics of its core infrastructure businesses.