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I Would Not Sell Sify

Posted on Tuesday, Jul 24th 2007

On the face of it, there is a strong similarity between Rediff (REDF) and Sify (SIFY). Both have portal sites that offer a wide gamut of online services. But in Sify’s case the portal is just a small piece in a big jigsaw puzzle that together makes up the company’s operations.

In order to understand Sify as it is today, let’s take a peek at its past.

In the early Internet era the most visible dotcom presence was inevitably a website and all that goes into getting it up and running, namely domain name registration, web design, and hosting.

Satyam Computer Services of which Sify, then Satyam Infoway was a part, incorporated in December 1995, was pretty much into virtually every Internet related service. This meant that while new companies with nimble-footed ability forged ahead offering focused and clearly identifiable services, Satyam despite first-mover advantage, chose to become bloated and burdened by a widely divergent product portfolio, outsourced services being their primary money-making business.

Sify debuted on NASDAQ in October 1999 as Satyam Infoway Limited, being the first Indian Internet company to be listed there, ahead of Satyam’s listing on NYSE in May 2001. Sify was however not profitable, and in November 2005 Satyam divested its ownership to Infinity Capital, a Silicon Valley venture capital enterprise owned by Raju Vegesna. Infinity Capital and thus Raju Vegesna owns about 40% of Sify, which it bought last year from Satyam (SAY).

After Mr. Vegesna took over the reins of Sify in June 2006, the company posted maiden profits since its inception 10 years back.

Sify’s services broadly aim 3 categories of clients, Corporate, Consumer and International. If its operations are to be told in a nutshell, here they will be.

  • Internet based virtual private networks for business/other enterprises.
  • Broadband and dialup Internet access for businesses and homes.
  • Franchised cybercafes offering public Internet access.
  • Web hosting services for business and other enterprises, and
  • Web portal,

In spite of its diverse range of products, Sify discloses in its latest SEC filing that a significant part of the company’s revenue is derived from Corporate Services, which include corporate connectivity, network and communications solutions, security, network management services, enterprise applications and hosting.

Sify’s Q1-07/08 results are due next week. As mentioned above, the company’s maiden profit came in the quarter ending December 2006 (Q3-06/07) when it made a net profit of just above a million USD (Rs.41.57 million) on total revenue of USD 34.5 million (Rs.1391 million). Expectedly, the net profit margin turned green in December quarter but with an unimpressive 2.99%.

Sify presently trades at USD 9.3 levels representing a market cap of USD 395 million.

Sify’s announced a tie-up up with Microsoft early this month to offer the latter’s products across its network targeting students, small business owners and job seekers. Most notably, it will work with Microsoft Corp. to help Indians gain access to the Internet and IT services, by offering cyber cafe subscribers the use of licensed Microsoft Office software.

Sify’s iWay cyber cafe chain has expanded to 153 cities with the addition of 58 new cities in the last one year. The company has added 836 new iWays during the year, at an average of more than two cafes a day. The Microsoft deal is a great way to leverage and monetize this asset. For those unfamiliar with India’s Consumer situation, Cyber Cafe’s are a key piece of the internet penetration equation in India, and will continue to remain so for the next decade, since PC/broadband costs are still not at a point where India’s vast population can afford them easily.

In many ways, Sify’s Cyber Cafe strategy represents a fantastic Micro Franchise opportunity that can take its iWay brand out to the thousands of smaller towns and villages in India. In so doing, Sify would position itself as a very powerful channel into these otherwise difficult-to-access markets/consumers.

While Corporate Connectivity may be the current bread-and-butter revenue generator for the company, I am far more excited about Sify’s Cyber Cafe strategy, as in the long run, Corporate Connectivity is a highly competitive, commodity business, whereas this Cyber-Cafe channel that Sify creates will become, if executed well, a supremely differentiated, high value platform, from which they can impart many applications, from Distance Learning to Tele-Medicine.

There is, meanwhile, a massive management overhaul in the company, and lots of buy-out speculation. I would not sell this company, if I were Raju Vegesna. I would, over time, streamline the operations, and focus in on the Cyber-Cafe centric Value-Added Services strategy I discussed above, and keep building it.

Sify could be a multi-billion dollar enterprise, and a great vehicle for India’s development.

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I am an existing Sify customer. They are aggressive on broadband adoption in the locality I live, but the execution and service levels are extremely poor.
In my first 20 days of, the service was down 4 days. It goes down even when there is no electricity. I called support staff twice, but they haven’t got back to me on my complaint.
The contract clearly says that they are not liable for service levels, but after paying competitive charges for broadband (vs. Reliance, Airtel and BSNL), the service disappoints me.

Further their portal is also not a worthwhile web property. Satyam did well to sell/lower their stake in this poorly run and mismanaged service provider.

Just in case you visit a Sify Infoway (cyber cafe) you will be apalled by the kind of machines they have.


Umang Saini Tuesday, July 24, 2007 at 6:53 AM PT


The “Micro Franchise opportunity” is a gloden goose if executed well in a sector. But here, I know Sify franchisees well and they are not happy. One the margins are shrinking.2) Local competition is hotting up. Many local ISPs like You Telecom are expanding fast and we have Reliance, TATA alos encroaching on the same turf eating into Sify’s margins.

Realty is different and I am personally neither bullish on the company nor expecting its stock hitting new highs

BSE Gems Tuesday, July 24, 2007 at 10:51 AM PT


This company is a turnaround. It’s not a Trading stock by any means, and if you are looking for a quick buck, this isn’t it.

Notice, I said, “I would not sell this company, if I were Raju Vegesna. I would, over time, streamline the operations, and focus in on the Cyber-Cafe centric Value-Added Services strategy I discussed above, and keep building it.”

It will take a lot of heavy-lifting to build the company operationally.

On the QOS front, what you are describing is a very Indian phenomenon. From the Banking system to everything else, QOS is of no concern to Indian companies. It is one of the primary reasons why I have not found the idea of living in India appealing.

Anyway, this too will change, but at a rather slow pace. Competition eventually changes everything.
Hopefully, some company will decide to compete on the grounds of QOS.

Can Raju Vegesna, as he takes the helm of Sify, not choose to do that? It looks like the entire executive team that created the mess is gone/departing …

I would, if I were in his shoes.

Finally, Cyber Cafe’s by themselves are not necessarily profitable ventures. However, if you look at them as channels to bring to market a whole set of value-added services, that is where the money will be.


Sramana Mitra Tuesday, July 24, 2007 at 12:15 PM PT

If wishes were horses …. & each of us would happily head sify.

Their partnership wth Microsoft is a hogwash. untill now most desktops did not had any office tools. If this partnership really means someting , they we could have been helped in buying operating systems .
creating value added service is another myth. take their deal with IRCTC for railway ticket booking. ..its very unprofitable. hence most of us are not doing much business. the people are clueless and coercive at best. maybe that is why they are looknig for an exit . But what about the franchisees . we are stuck .

annoyedFranchisee Tuesday, July 24, 2007 at 11:58 PM PT


Hope this will change your perspective on SIFY…

Kaufman Bros. Remains Bearish On Sify Following Earnings

BSE Gems Wednesday, July 25, 2007 at 4:09 AM PT

Guys, I am not bullish on Sify in the short term. Turnarounds are VERY long term plays. If you want a quick buck, get out of SIFY for sure.

My question to Vegesna is what is he trying to do with the company?

Sramana Mitra Wednesday, July 25, 2007 at 1:25 PM PT

Turnaround ? It never took off

grossview Wednesday, July 25, 2007 at 11:25 PM PT