Edgar Filing: SIFY TECHNOLOGIES LTD

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United States Securities and Exchange Commission

Washington, DC 20549

FORM 6-K

Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16 of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2007

Commission File Number 000-27663

SIFY TECHNOLOGIES LIMITED

(Translation of registrant’s name into English)

Tidel Park, Second Floor
No. 4, Canal Bank Road, Taramani
Chennai 600 113, India
(91) 44-2254-0770
(Address of principal executive office)

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F. Form 20F þ Form 40F o

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1). Yes o No þ

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7). Yes o No þ

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934. Yes o No þ

If “Yes” is marked, indicate below the file number assigned to registrant in connection with Rule 12g3-2(b). Not applicable.

Table of Contents

SIFY TECHNOLOGIES LIMITED

FORM 6-K

For the Quarter ended September 30, 2007

INDEX

Part I Financial Information

Item 1. Financial Statements

a) Unaudited Condensed Consolidated Balance Sheets

b) Unaudited Condensed Consolidated Statements of Income

c) Unaudited Condensed Consolidated Statements of Cash Flows

d) Unaudited Condensed Consolidated Statements of Stockholders’ Equity and Comprehensive Income

e) Notes to Unaudited Condensed Consolidated Financial Statements

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 3. Quantitative and Qualitative Disclosure About Market Risk

Item 4. Controls and Procedures

Part II Other Information

Item 1. Legal Proceedings

Item 1A. Risk Factors

Item 2. Unregistered Sale of Equity Securities and Use of Proceeds

Item 3. Defaults Upon Senior Securities

Item 4. Submission of Matters to a Vote of Security Holders

Item 5. Other Information

Item 6. Exhibits

Currency of Presentation and Certain Defined Terms

Unless the context otherwise requires, references herein to “we,” “us,” the “Company” or “Sify” are to Sify Technologies Limited, a limited liability Company organized under the laws of the Republic of India. References to “U.S.” or the “United States” are to the United States of America, its territories and its possessions. References to “India” are to the Republic of India. Until December 2002, we were a majority-owned subsidiary of Satyam Computer Services Limited (“Satyam Computer Services”), a leading Indian information technology services Company which is traded on the New York Stock Exchange and the major Indian stock exchanges. In January 2003, we changed the name of our Company from Satyam Infoway Limited to Sify Limited. In October 2007, we again changed our name from Sify Limited to Sify Technologies Limited. “Sify,” “SifyMax.in,” , “Sify iway” and “Sify online” are trademarks used by us for which we have already obtained the registration certificates in India. All other trademarks or trade names used in this quarterly report are the property of their respective owners.

In this report, references to “$,” “US$,” “Dollars” or “U.S. dollars” are to the legal currency of the United States, and references to “Rs.,” “rupees” or “Indian Rupees” are to the legal currency of India. References to a particular “fiscal” year are to our fiscal year ended March 31 of that year.

For your convenience, this report contains translations of some Indian rupee amounts into U.S. dollars which should not be construed as a representation that those Indian rupee or U.S. dollar amounts could have been, or could be, converted into U.S. dollars or Indian rupees, as the case may be, at any particular rate, the rate stated below, or at all. Except as otherwise stated in this report, all translations from Indian rupees to U.S. dollars contained in this report have been based on the noon buying rate in the City of New York on September 30, 2007 for cable transfers in Indian rupees as certified for customs purposes by the Federal Reserve Bank of New York. The noon buying rate on September 30, 2007 was Rs.39.75 per $1.00.

Our financial statements are prepared in Indian rupees and presented in accordance with United States generally accepted accounting principles, or U.S. GAAP. In this report, any discrepancies in any table between totals and the sums of the amounts listed are due to rounding.

Information contained in our websites, including our principal corporate website, www.sifycorp.com, is not part of this report.

Forward-looking Statements May Prove Inaccurate

IN ADDITION TO HISTORICAL INFORMATION, THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. THE FORWARD-LOOKING STATEMENTS CONTAINED HEREIN ARE SUBJECT TO RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE REFLECTED IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE SUCH A DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN THE SECTION ENTITLED “RISK FACTORS” AND ELSEWHERE IN THIS REPORT. YOU ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS, WHICH REFLECT MANAGEMENT’S ANALYSIS ONLY AS OF THE DATE OF THIS REPORT. IN ADDITION, YOU SHOULD CAREFULLY REVIEW THE OTHER INFORMATION IN THIS REPORT AND IN OUR PERIODIC REPORTS AND OTHER DOCUMENTS FILED WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION (THE “SEC”) FROM TIME TO TIME. OUR FILINGS WITH THE SEC ARE AVAILABLE ON ITS WEBSITE, WWW.SEC.GOV.


				As at September
							2007
							Convenience
							Translation
	As at March 31,						into US$
	2007			2007			(Note 2)
	Rs.			Rs.			$
ASSETS
Current assets:
Cash and cash equivalents	Rs.	3,070,157		Rs.	2,002,024		$	50,365
Investment in short term mutual funds		—			20,379			513
Accounts receivable		1,188,406			1,678,722			42,232
Due from employees		7,726			6,508			165
Inventories		28,686			36,574			920
Prepaid expenses		118,207			95,257			2,396
Net investment in leases		16,560			11,449			288
Other current assets		289,673			304,388			7,658

Total current assets		4,719,415			4,155,301			104,537
Cash restricted		1,000			1,000			25
Deferred income taxes		66,104			41,740			1,050
Net investment in leases		12,032			8,554			215
Property, plant and equipment-net		1,644,564			1,842,461			46,351
Goodwill and other intangible assets		192,390			183,552			4,618
Investments in affiliated companies		302,956			368,598			9,273
Other assets		224,491			355,069			8,933

Total assets	Rs.	7,162,952		Rs.	6,956,275		$	175,002

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Borrowings from banks		800,000			29,643			746
Current installments of capital lease obligations		2,476			3,161			80
Trade accounts payable		316,935			612,933			15,420
Accrued liabilities		737,284			873,876			21,984
Deferred revenue		450,030			549,143			13,815
Advances from customers		89,908			126,498			3,182
Other current liabilities		89,855			130,984			3,295

Total current liabilities		2,486,488			2,326,238			58,522
Capital lease obligations, Excluding current installments		3,671			4,247			107
Other liabilities		121,938			137,436			3,458

Total liabilities		2,612,097			2,467,921			62,087

Minority interest		169,765			183,951			4,628
Stockholders’ equity
Common stock, Rs 10 par value; 50,000,000 equity shares authorized (as of March 31, 2007 : 50,000,000) ; Issued and outstanding: 42,820,082 shares as of September 30, 2007 and 42,800,265 shares as of March 31, 2007		428,003			428,201			10,772
Additional paid-in capital		16,325,960			16,359,749			411,566
Accumulated deficit		(12,378,114	)		(12,489,160	)		(314,193	)
Accumulated other comprehensive income		5,241			5,613			142

Total stockholders’ equity		4,381,090			4,304,403			108,287

Total liabilities and stockholders’ equity	Rs.	7,162,952		Rs.	6,956,275		$	175,002


	Quarter ended September 30									Six Months ended September 30
							2007									2007
							Convenience									Convenience
							translation									translation
							into US $									into US $
	2006			2007			(Note 2)			2006			2007			(Note 2)
	Rs.			Rs.			$			Rs.			Rs.			$
Revenue
Products	Rs.	128,905		Rs.	167,262			4,208		Rs.	248,950		Rs.	309,879		$	7,796
Services		1,254,193			1,304,242			32,811			2,452,529			2,566,726			64,572

Total Revenue		1,383,098			1,471,504			37,019			2,701,479			2,876,605			72,368

Cost of revenue
Products		111,327			142,327			3,581			212,676			260,279			6,548
Services		594,712			688,696			17,326			1,188,679			1,323,095			33,285

		706,039			831,023			20,907			1,401,355			1,583,374			39,833

Selling, general and administrative expenses		478,794			574,067			14,442			959,574			1,113,419			28,011
Provision for doubtful receivables and advances		50,579			29,638			746			73,664			80,668			2,029
Depreciation		105,090			120,446			3,030			200,126			230,597			5,801
Amortisation of intangible assets		12,133			6,037			152			28,630			16,242			408
Employee Stock Compensation Expense		5,527			15,358			386			41,470			29,323			738
Foreign exchange (gain) / loss , net		(302	)		675			17			(44,339	)		19,980			503


Total operating expenses		1,357,860			1,577,244			39,680			2,660,480			3,073,603		$	77,323

Operating profit/(loss)		25,238			(105,740	)		(2,661	)		40,999			(196,998	)		(4,955	)
Other income, net		35,192			35,916			904			66,066			69,557			1,750
Equity in net profit of affiliate		8,106			42,966			1,081			23,894			65,642			1,651

Net Profit / (Loss) before income tax and minority interest		68,536			(26,858	)		(676	)		130,959			(61,799	)		(1,554	)


Income tax benefit/(expense)		—			(20,655	)		(520	)		—			(35,061	)		(882	)


Net Profit / (Loss) before minority interest		68,536			(47,513	)		(1,196	)		130,959			(96,860	)		(2,436	)


Minority interest		—			(8,508	)		(214	)		—			(14,186	)		(357	)


Net Profit / (loss) after tax	Rs.	68,536		Rs.(56,021)				(1,410	)	Rs.	130,959		Rs.(111,046)				(2,793	)


Net Profit/(loss) per share — Basic		1.60			(1.31	)		(0.03	)		3.07			(2.59	)		(0.07	)
Net Profit/(loss) per share — Diluted		1.60			(1.31	)		(0.03	)		3.06			(2.59	)		(0.07	)

Basic Weighted average Equity Shares used in computing Profit/(loss) per share		42,704,756			42,814,555			42,814,555			42,644,682			42,805,968			42,805,968
Diluted Weighted average Equity Shares used in computing Profit/(loss) per share		42,851,406			42,814,555			42,814,555			42,840,081			42,805,968			42,805,968


	Six months ended September 30,
	2006			2007			2007
	Rs.			Rs.			$

Net profit / (loss)	Rs.	130,959		Rs.	(111,046	)	$	(2,793	)
Adjustments to reconcile net loss to net cash provided by / (used in) operating activities:
Income taxes		—			35,061			882
Depreciation		200,126			230,597			5,801
Amortization of intangible assets		28,630			16,242			408
Employee stock compensation expense		41,470			29,323			738
Equity in net profit of affiliate		(23,894	)		(65,642	)		(1,651	)
(Gain) / loss on sale of property, plant and equipment		(261	)		194			5
Provision for doubtful receivables and advances		73,664			80,668			2,029
Minority interest		—			14,186			357
Unrealized Gain / (loss) on account of exchange differences		(10,470	)		(9,017	)		(226	)
Changes in assets and liabilities:
Accounts receivable		(305,570	)		(566,291	)		(14,246	)
Due from employees		20,384			1,218			31
Inventories		(341	)		(7,888	)		(198	)
Prepaid expenses		(39,619	)		22,950			577
Other assets		(76,316	)		(145,293	)		(3,655	)
Trade accounts payable and accrued liabilities		(173,591	)		435,159			10,947
Deferred revenue		29,453			99,113			2,493
Advances from customers		(3,771	)		36,590			921
Other liabilities		20,818			45,930			1,155

Net cash provided/(used) by operating activities	Rs.	(88,329	)	Rs.	142,054		$	3,575


Cash flows from investing activities:
Expenditure on property, plant and equipment		(385,908	)		(425,953	)		(10,716	)
Proceeds from sale of property, plant and equipment		1,640			97			2
Expenditure on intangible assets		(7,278	)		(7,404	)		(186	)
Business acquisition (net of cash)		(92,934	)		—			—
Receipts in respect of assets given on sale-type leases		5,305			8,589			216
Purchase of short term Investments		—			(20,316	)		(511	)

Net cash used in investing activities	Rs.	(479.175	)	Rs.	(444,987	)	$	(11,195	)


Cash flows from financing activities:
Repayments of short term borrowings from banks, net		—			(770,357	)		(19,380	)
Payment under capital lease obligation		(2,025	)		(1,572	)		(41	)
Net proceeds from issuance of common stock		51,345			4,665			117

Net cash provided/(used) by financing activities	Rs.	49,320		Rs.(767,264		)	$	(19,304	)


Effect of exchange rate changes on cash and cash equivalents		11,235			2,064			52

Net increase / (decrease) in cash and cash equivalents		(506,949	)		(1,068,133	)		(26,872	)
Cash and cash equivalents at the beginning of the period		2,822,501			3,070,157			77,237

Cash and cash equivalents at the end of the period	Rs.	2,315,552		Rs.	2,002,024		$	50,365

Supplementary Information
Cash paid towards interest		4,012			5,047			127
Cash paid / (refund received) towards income taxes		23,766			71,965			1,810
Additions to property, plant and equipment represented by capital lease obligations		1,720			2,832			71

1.		Description of business

		Sify Technologies Limited (Sify) together with its subsidiaries (India World Communications Limited, Sify Communications Limited, Sify Networks Private Limited and Sify International Inc.) (collectively referred to as the ‘Company’) is engaged in providing various services, such as Corporate Network and Data Services, Internet Access Services, Online Portal and Content Offerings and selling products related to such services.

2.		Summary of significant accounting policies

		a. Basis of preparation of financials statements

		The accompanying unaudited condensed financial statements have been prepared in accordance with U.S GAAP in Indian Rupees (Rs.), the national currency of India. Solely for the convenience of the reader, the financial statements as of and for the six months ended September 30, 2007 have been translated into United States dollars at the noon buying rate in New York City on September 30, 2007 for cable transfers in Indian rupees, as certified for customs purposes by the Federal Reserve Bank of New York of U.S. $1 = Rs.39.75. No representation is made that the Indian rupee amounts have been, could have been or could be converted into United States dollars at such a rate or at any other rate on, September 30, 2007 or at any other date.

		b. Interim Information

		Interim information presented in the condensed consolidated financial statements has been prepared by the management without audit and, in the opinion of management, includes all adjustments of a normal recurring nature that are necessary for the fair presentation of the financial position, results of operations, and cash flows for the periods shown, is in accordance with US GAAP. These financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company’s annual report on Form 20-F for the fiscal year ended March 31, 2007.

		c. Investment securities.

		The Company classifies its debt and equity securities in one of the three categories: trading, held-to-maturity or available-for-sale, at the time of purchase and re-evaluates such classifications as of each balance sheet date. Trading and available-for-sale securities are recorded at fair value. Held-to-maturity securities are recorded at amortized cost, adjusted for the amortization or accretion of premiums or discounts. Unrealized holding gains and losses on trading securities are included in income. Temporary unrealized holding gains and losses, net of the related tax effect, on available-for-sale securities are excluded from income and are reported as a part of other comprehensive income in stockholders’ equity until realized. Realized gains and losses from the sale of trading and available-for-sale securities are determined on a first-in-first out basis and are included in income. A decline in the fair value of any available-for-sale or held-to-maturity security below cost that is deemed to be other than temporary results in a reduction in carrying amount to fair value with a charge to the income statement. Fair value for mutual fund units is based on published per unit value, which is the basis for current transactions. Non-readily marketable equity securities for which there is no readily determinable fair value are recorded at cost, subject to an impairment charge to the income statement for any other than temporary decline in value.

		d. Recent accounting pronouncement

		*SFAS No. 157:*

		In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements SFAS No. 157 defines ‘fair value’ as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. SFAS No. 157 provides guidance on determination of fair value and lays down the fair value hierarchy to classify the source of information used in fair value measurement. The Company is currently evaluating the impact of SFAS No. 157 on its financial statements and will adopt the provisions of SFAS No. 157 for the fiscal year beginning April 1, 2008.

3.		Acquisition of Globe Travel Business

		During the quarter ended June 2006, the Company acquired the business of Globe Travels which operates an online travel agency. Management believes that this acquisition marks Sify’s entry into the fast growing online travel business, particularly e-ticketing, the category with highest revenues and fastest growth in online e-commerce today. The management also believes that the addition of a travel portal is in line with the Company’s strategy of providing end-to-end services to Sify users. Price paid / payable amounting to Rs. 116,219 (USD 2,571,303) in respect of the acquisition was allocated based on a preliminary allocation of estimated fair value (determined by the management) of the assets, properties and rights on the date of acquisition.

		During the half year ended September 30, 2007, the Company has finalised the purchase price allocation resulting in an increase in recorded goodwill from Rs 26,921 to Rs 36,200.

4.		Income taxes

		Effective April 1, 2007, the Company adopted Financial Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in Income taxes — An interpretation of Statement of Financial Accounting Standards No.109 (FIN 48). The interpretation prescribes a comprehensive model for the financial statement recognition, measurement, presentation and disclosure of uncertain tax positions considered or to be considered in income tax returns. Historically, the Company has not incurred any penalties or interest relating to unrecognized tax benefits. Upon adoption the Company did not have any liability for income tax relating to uncertain tax positions. The adoption of FIN 48 did not have any impact on the retained earnings or provision for taxation as of April 1, 2007.

		FIN 48 also requires that changes in judgment that result in subsequent recognition, de-recognition or change in a measurement of a tax position taken in a prior annual period (including any related interest and penalties) be recognized as a discrete item in the period in which the change occurs. This change will not impact the manner in which the Company recorded income taxes on an annual basis and did not impact its recorded income tax provision in the quarter ended September 30, 2007.

		A listing of open tax years is given below:

5.		Cash and cash equivalents

		Cash and cash equivalents as at September 30,2007 amounted to Rs. 2,002,024 (Rs. 3,070,157 as at March 31, 2007). This excludes cash-restricted included in non-current assets of Rs. 1,000 (Rs. 1,000 as at March 31, 2007), representing deposits held under lien against bank guarantees given by the Company towards future performance obligations.


	As at		As at
	March 31, 2007		September 30, 2007

Against future performance obligation	Rs.	1,000	Rs.	1,000

	Rs.	1,000	Rs.	1,000

		The fair values of cash and cash equivalents approximate their carrying values.

6.		Accounts receivable

		Account receivable as of March 31, 2007 and September 30, 2007 are stated net of allowance for doubtful receivables. The Company maintains an allowance for doubtful receivables based on its age and collectability. Accounts receivable are not collateralised except to the extent of refundable deposits received from cybercafe’s franchisees and from cable television operatoRs.

		Accounts receivables consist of:

8.		Investment securities

		Investment in securities consist of the following:

9.		Investments in affiliates

		In March 2006, MF Global Overseas Limited (MFG), a Company incorporated in United Kingdom acquired 70.15% of equity share capital of MF Global Sify Securities Private Limited, formerly Man Financial-Sify Securities India Private Limited (‘MF Global) from Refco Group Inc., USA (‘Refco’). Thereby, MFG holds 70.15% of MF Global and the balance, 29.85% of MF Global equity shares, is held by Sify Limited. MFG is a subsidiary of Man Group plc, a Company incorporated in United Kingdom.


Jurisdiction		Open tax years

India		1997-98 to 2006-2007


	As at		As at
	March 31, 2007		September 30, 2007
	Rs.		Rs.

Current assets		4,097,993		7,723,228
Non-current assets		280,079		214,999

Total Assets		4,378,072		7,938,227

Current liabilities		3,363,146		6,703,394
Shareholders’ equity		1,014,926		1,234,833

Total Liabilities and Shareholders’ equity		4,378,072		7,938,227


			As at March 31, 2007				As at September 30, 2007
	Weighted						Gross
	average		Gross carrying		Accumulated		carrying		Accumulated
	life		Amount		Amortization		Amount		Amortization
Technical know-how fees		—		82,753		82,753		82,753		82,753
Portals and web content		—		52,730		52,711		52,730		52,730
Customer contracts and others		4.04		141,881		60,252		128,770		67,915
Systems software		2.87		239,846		219,714		251,030		226,973
ILD / NLD License fee		20.00		50,000		907		50,000		2,156

			Rs.	567,210	Rs.	416,337		565,283		432,527


For the year ended March 31,	Rs
2007-08		25,927
2008-09		23,988
2009-10		20,110
2010-11		17,601
2011-12		2,500


	For the quarter ended September 30,
	2006		2007
	Rs.		Rs.

Revenues		196,965		487,019
Net Profit		27,158		143,940

10.		Goodwill and other intangible assets, net

		As at September 30, 2007, the Company’s goodwill and other intangible assets amounted to Rs. 50,796 and Rs. 132,756 respectively (Rs 41,517 and Rs 150,873, as at March 31, 2007 respectively). The following are the details of other intangible assets:

		In accordance with SFAS No. 142, Goodwill and Other Intangible Assets, the Company does not amortize goodwill but tests it for impairment on an annual basis. The Company has not recognized any impairment of goodwill during the year ended March 31, 2007 and for six months ended September 30, 2007.

11.		Other assets

		Other assets consist of:

		Witholding taxes represent taxes deducted at source by the customer and paid to the Government, which is refundable to the Company. Deposit with Department of Income Tax represents tax demands paid to the authorities under protest. Refer to note 20 (a).

12.		Employee stock options

		Compensation cost in respect of the stock option plans is accounted under FASB Statement No.123 (revised 2004), Share Based Payment. Accordingly, the Company has recorded stock compensation expense of Rs. 15,358 and Rs. 29,323 for the quarter and half year ended September 30, 2007.


	Quarter			Half year
	Ended			ended
	September 30,			September 30,
	2007			2007
Dividend yield		—			—

Assumed Volatility		54.3% - 95.45	%		54.3% - 95.45	%

Risk Free interest rate		4.5% - 4.84	%		4.5% - 4.84	%

Expected Term	18-40 months			18 – 40 months

		Associate Stock Option Plan 2007 (ASOP 2007)

		In September 2007, the Shareholders of the Company approved a new scheme for allotment of shares to employees i.e. Associate Stock Option Plan 2007. Consequently 797,600 unissued options available under the earlier Associate Stock Option Plan 2005 are no longer available for issuance..

13.		Earnings per share

		In accordance with SFAS No. 128, Earnings per Share, basic earnings per share are computed using the weighted average number of common shares outstanding during the period. Diluted income / (loss) is computed by considering the impact of the potential issuance of ordinary shares on the weighted average number of shares outstanding.

		A reconciliation of equity shares used in the computation of basic and diluted earnings per equity share is set out below:


	Quarter ended					Six months ended
	September 30,					September 30,
	2006		2007			2006		2007

Earnings
Net Profit / (loss)		68,536		(56,021	)		130,959		(111,046	)
Equity shares
Weighted average number of equity shares outstanding		42,704,756		42,814,555			42,644,682		42,805,968
Effect of dilutive equivalent shares-stock options		146,650		—			195,399		—
Weighted average number of equity shares and equivalent shares outstanding		42,851,406		42,814,555			42,840,081		42,805,968

		As the Company was in a loss position for the quarter and half year ended September 30, 2007, the potential ordinary shares were excluded from the calculation of diluted income/loss per share as the shares would have had an antidiluive effect. The Company’s outstanding shares include shares held with a depositary to represent equity shares underlying the Company’s ADSs.

14.		Gratuity

		The Company provides for gratuity, a defined benefit retirement plan (the Gratuity Plan) covering all employees. The Gratuity Plan commenced on April 1, 1997. The plan provides a lump sum payment to vested employees at retirement or termination of employment of an amount based on the respective employee’s salary and the years of employment with the Company. The Company provides the gratuity benefit through annual contributions to a fund managed by the Life Insurance Corporation of India (LIC). Under this scheme, the settlement obligation remains with the Company, although the LIC administers the scheme and determines the contribution premium required to be paid by the Company.

		Net gratuity costs for the quarter and half year ended September 30, 2006 and 2007 included:


	Quarter ended						Half year ended
	September 30,						September 30,
	2006			2007			2006			2007

Discount rate		8	%		9.55	%		8	%		9.55	%
Long-term rate of compensation increase		6	%		6	%		6	%		6	%
Rate of return on plan assets		7.5	%		7.5	%		7.5	%		7.5	%


For the year ended March 31,
2008			1,321
2009			1,898
2010			3,100
2011			5,099
2012			8,048
2013 to 2018			46,957

15.		Deferred revenue

		Deferred revenue includes the following amounts of unearned income:

	•		For the Company’s corporate network / data services division, revenue relating to the connectivity / hosting charges and from provision of digital certificates;

	•		For the Company’s Internet access services and online portal services divisions, revenue relating to the internet access charges and the advertisement charges respectively; and

	•		For the Company’s other service division, revenue relating to development of e-learning software.

16.		Borrowings

		The Company has short term borrowings of Rs. 29,643 as at September 30, 2007 (Rs. 800,000 as at March 31, 2007), from its bankers for working capital requirements. The borrowings are secured by fixed deposits held by the Company. The borrowings bear interest ranging from 8 to 9.75% and are repayable within one year from the balance sheet date.

17.		Products and services

		Breakup of revenues against products and services are as follows:


	Quarter ended September 30,				Six months ended September 30,
	2006		2007		2006		2007
	Rs.		Rs.		Rs.		Rs.

Revenue
Service revenue	Rs.	1,170,081		1,213,676	Rs.	2,331,971		2,390,806
Initial franchise fee		19,578		13,048		35,578		26,327
Installation service revenue		64,534		77,518		84,980		149,593

		1,254,193		1,304,242		2,452,529		2,566,726
Product revenue		128,905		167,262		248,950		309,879

	Rs.	1,383,098		1,471,504	Rs.	2,701,479		2,876,605

18.		Segment reporting

		SFAS No 131, “Disclosures about Segments of an Enterprise and Related Information,” establishes standards for the way that public business enterprises report information about operating segments and related disclosures about products and services, geographic areas and major customeRs. The Company’s operations predominantly relate to connectivity to enterprises and providing Internet access to retail subscribers (both home access and public access). The Company also operates portals, “Sify.com”, “Samachar.com” and “SifyMax.in” that provide a variety of India-related content to audiences both in India and abroad, and which generates revenue from advertisements and other value added services.

		The primary operating segments of the Company are:

	•		Corporate network/data services, which provides Internet, connectivity, security and consulting, hosting and managed service solutions;

	•		Retail Internet access services, from homes and through cybercafés;

	•		Online portal and content offerings; and

	•		Other services, such as development of e-learning software.

		The Chief Operating Decision Maker (“CODM”) evaluates the Company’s performance and allocates resources to various strategic business units that are identified based on the products and services that they offer and on the basis of the market served. Revenue in relation to segments is categorized based on items that are individually identifiable to that segment. Bandwidth costs, which form a significant part of the total expenses, are allocated primarily between the corporate network/data services and Internet access services businesses as described below:

		International bandwidth refers to bandwidth that is required for access to sites and offices outside the country. For all these businesses, bandwidth is allocated based on actual utilization captured by monitoring traffic per IP pool assigned at the egress points. The Company has packet shapers in the main locations to monitor bandwidth use by each of the above categories of useRs. This information is used in determining norms like bandwidth per port and bandwidth per PC. The actual utilization is cross validated against assumptions / norms for each business.

		National bandwidth refers to the inter-city link bandwidth implemented within the country. Inter-city link bandwidth was allocated based on the number of subscribers or iway cybercafés at “non gateway” points and the bandwidth sold to and used by business enterprises (determined using packet shapers). However, in order to

		strengthen its corporate business, the Company enhanced its national backbone to carry Internet traffic to the international fibre gateways, shifting from hybrid satellite and fibre gateways to fibre only gateways for international bandwidth. National bandwidth costs are now allocated based on international bandwidth allocation ratios because most of the traffic carried on the national backbone is directed towards the international gateways. The Company believes that the resulting allocations are reasonable.

		Last mile costs related to dial-up access that can be directly identified to businesses are allocated directly. Spectrum charges that are paid for the license that has been provided to enable Sify to operate on the 5.7 GHz wireless spectrum are allocated based on the bandwidth that is used by the various businesses that use this spectrum. Certain expenses, such as depreciation, technology and administrative overheads, which form a significant component of total expenses, are not allocable to specific segments as the underlying services are used interchangeably. Management believes that it is not practical to provide segment disclosure of these expenses and, accordingly, they are separately disclosed as “unallocated” and adjusted only against the total income of the Company.

		A significant part of the fixed assets used in the Company’s business are not identifiable to any of the reportable segments and can be used interchangeably between segments. Management believes that it is not practicable to provide segment disclosures relating to total assets since a meaningful segregation of the available data is onerous.

		The Company operating segment information for the quarters ended September 30, 2006 and September 30, 2007 and for the six months ended September 30,2006 and 2007 is given below:


Quarter ended September 30, 2006
	Corporate
	Network / Data			Internet Access			Online Portal
	Services			Services			Services			Other Services			Total

Revenues	Rs.	802,294		Rs.	472,676		Rs.	69,828		Rs.	38,300		Rs.	1,383,098
Allocated expenses		(490,763	)		(454,971	)		(54,701	)		(32,806	)		(1,033,241	)

Segment operating income / (loss)	Rs.	311,531		Rs.	17,705		Rs.	15,127		Rs.	5,494		Rs.	349,857
Unallocated corporate expenses														(205,246	)
Foreign exchange gain / (loss), net														302
Other income / (expense), net														451
Depreciation and amortization														(122,750	)
Interest income, net														37,816
Equity in profits of affiliates														8,106
Income Taxes														—

Net Profit / (Loss)													Rs.	68,536