Kaufman Bros: Maintains ‘Buy’ rating on Sify Ltd.
Sameet Sinha, Senior Equity Research Analyst at Kaufman Bros., maintains his ‘Buy’ rating on Sify Ltd. (Nasdaq: SIFY) and left the $13 price target unchanged.
Following are excerpts from his note to clients:
- Revenues in line, but adjusted EBITDA lower than estimates.
- Sify reported fiscal 2Q07 revenue of $30.1 million (up 17.9% Y/Y and 4.9% Q/Q) versus our estimate of $30 million.
- Gross margins came in at 48.9% ahead of our estimate of 47% and up from 47.3% in the previous quarter, primarily due to cost management and better bandwidth pricing; adjusted EBITDA was $3.55 million (11.8% margin) versus our expectation of $4.2 million (14.2% margin).
- Enterprise services grew 20.8% Y/Y. – Enterprise business exhibited strong growth with revenues of $17.2 million vs. our estimate of $17.3 million.
- Access Media grew 4.2% Y/Y. Revenues came in at $10.6 million versus our estimate of $10.4 million. The company saw continued decline in consumer VOIP revenues as telcos continued to reduce call rates, reducing the differential between prices.
- Portals grew 67% Y/Y. Revenues came in at $1.52 million versus our estimate of $1.55 million.
- Our new fiscal 2007 revenue estimate is $122.1 million, down from $122.4 million and adjusted EBITDA is $17.6 million, down from our previous estimate of $17.8 million. Our fiscal 2008 revenue estimate is $144.9 million, down from $147.7 million and adjusted EBITDA is $28.8 million, down from $29.6 million.
- Bottom Line: We favor management’s strategy of creating a more streamlined and synergistic business and then working toward growing it. We would remind investors that executive departures tend to take a severe toll on business, and we would expect SIFY to exhibit tepid revenue growth over the next couple of quarters and hence expectations should be held in check. We can expect to see some margin growth due to operational efficiencies and productivity enhancement efforts, but most of this growth should be a function of top line momentum.
* I own Sify Ltd.