Data Center Value Chain in India: Investment Opportunities

Stock Opportunities
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The Indian data center market is poised for growth in the coming years.
I will keep updating this thread as I find companies venturing into this space, with brief info on the company as well as the the specific area.

1. Adani Connex
This is an unlisted company, and is jointly owned by Adani Enterprises and EdgeConnex (50:50). I am expecting the Adani Group to list the business in the near future.
Adani Group has a lot of key advantages when it comes to Data Center business. It is similar to Tata Group having the complete value chain in Electric Vehicle business.

  • Complete ownership of large land parcels across the country
  • Project management capabilities and resources availability
  • End-to-end power value chain (generation, transmission and distribution)
  • Fiber connectivity and strong network connectivity
  • Renewable Power generation to ensure sustainability

2. Reliance
They have tied up with Brookfield Infrastructure and invested $122 billion for building data centers.
https://www.reuters.com/world/india/indias-reliance-invest-brookfield-infrastructures-data-center-projects-2023-07-24/

3. Tata Power and other Renewable Energy Providers
Many companies will supply Renewable energy to power these data centers. Tata Power already has a contracts with Princeton Digital Group

4. AurionPro Solutions and other Service IT companies
Multiple small IT companies are also providing services to manage data center operations.
AurionPro is one such company for which value discovery happened this year.

5. Apar Industries (Wire and Cables provider)
Provides CATV cables for high bandwidth requirements
https://apar.com/cable-solutions/fibre-optic-cables/

6. Amara Raja Energy And Mobility
This company is a leading manufacturer of Lead Acid batteries which are a key to provide power in a Data Center. India has 150+ data centers, majorly using Lead Acid batteries for supplying power.

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Hlo sir
One company which is in this space is Anant Raj which is setting data center capacity upto 300 Megawat. The company currently started 3MW and in process to start upto 15 MW in next three four quarters. The buildings are ready they have put just 2500 lacs per Mw for setting up the capacity.

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Sounds interesting, and the company has run up a lot since the Data center profits started contributing to the bottomline.

The P/E though has been at a steady 40, and could go for a re-rating.

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I also believe that pe is high but the thing is that they are building data center business from cash generated through real estate business beside this they also have building ready for 15 Megawat capacity and also beyond that. So they have to incurr less Capex per Megawat l(only on machinery etc). Average rent they are getting per Megawat is 80,00,000/- per month for there 3 Megawat capacity. It’s a annuity business. Promoter Amit sarin also infused 50cr @ 280-285 Recently.Beside this company operate also in Delhi Ncr. Recently Oberoi Reality bought a land in Gurgaon(first venture outside Mumbai).The sole reason they ventured in Gurgaon market because from last two three years real-estate prices in this market are skyrockting. Annat Raj has huge presence in Gurgaon MARKET. If they executed well there plans they will emerge stronger.

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Agreed, if they keep showing consistent profit growth of current level, market can award and take the P/E even to 60 levels.

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Techno electric builds Data centre in EPC mode. One data centre is schedules to come online in March Fy24.

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One shud also look into Schneider infra for ancillary services n equipment. A mnc player hv presence also in electrical equipments , data centre opportunities

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Growth prospects of data center industry in India

Data center industry is promising based on following several key factors:

1. Demand Outlook:

Digital Transformation: India’s transition to a developed market economy is driven by digital transformation, accelerating economic growth and big data production. Due to Continuous expansion of e-commerce, fintech platforms, gaming & online streaming services will increase internet penetration, which is expected to reach 87% in FY29. The introduction of tech such as 5G, IoT and AI is expected to increase significantly and the demand for data will accelerate the growth of data centers industry.

Internet Penetration as on FY23:

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2. Lower Per MW Costs:

In India there is cost advantages for setting up of data centers because of relatively lower land and labor costs. The capex required to set up a data center in India is about 45% lower than the global average.

3. Government Incentives and Regulatory Measures:

Central and State Governments provide incentives such as infrastructure space, credit lines, power subsidies and regulatory support for data localization. Actions such as Draft Data Center Policy 2020 and Infrastructure focus in the Union Budget 2022-2023 will encourage investments and economic growth.

4. Growth potential and proposed investments:

Data center capacity in India is expected to double to around 2000 MW by 2026, requiring an investment of Rs. 50,000 crores over the next three years. The capacity of the industry has increased rapidly and it was predicted to reach almost 900 MW by 2023, and the growth rate is about 100-150 MW per year.

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Revenue growth of data center operator was approximately 24% CAGR from FY17 to FY23. Now, it is expected to continue at a CAGR of 32% from 2024-2026. EBITDA margins was stable at around 43% in FY 2022-23, and they should remain stable for the next 2-3 years as well.

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Key Capex Metrics:

1. Land & construction:

About 40% allocation of the capex is required for land acquisition and building construction, including fit-outs.

2. Power system:

Another 40% of investment is required to be allocated to the power system, including power infrastructure, distribution systems and backup energy sources such as generators and UPS systems (uninterruptible power supply).

3. Heating, Ventilation and Cooling (HVAC):

The remaining 20% ​​of the cost is spent on the heating, ventilation and cooling system, which is critical to maintaining the optimal operating temperature of the data center. In addition, the cost of setting up a data center will also be affected by regulations regarding scalability, design and location.

Key operating cost metrics:

  • Energy consumption: represents approximately 65% ​​of total operating costs, including electricity used in IT equipment and cooling systems.

  • Cooling system costs: necessary to maintain the optimal operating temperature of the data center.

  • IT equipment maintenance costs: includes maintenance and service costs for servers, network equipment and storage systems.

  • Personnel Costs: The cost of hiring and maintaining personnel, including network engineers, system administrators, and security personnel.

  • Security and compliance costs: includes implementing and maintaining security measures and ensuring regulatory compliance.

  • Property and Facility Maintenance Costs: Includes renting or owning a facility, maintenance and repairs.

  • Network Connection Costs: The cost of network connection services for data center operations.

  • Insurance and Taxes: Equipment and equipment insurance costs and property taxes.

  • Environment and Sustainability Initiatives: Investments in green technologies and sustainability to reduce environmental impact, including renewable energy sources and energy-efficient appliances…

Reference:

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good webinar on the data center ecosystem by industry experts organized by the Care Edge team.

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A to Z of data centre by Ameya & Dinesh

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Its Millian and not billion.

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Thanks for the correction.

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kindly post something related to cooling solutions provided to data centers.

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Please do not invest in Adani Enterprises for the Adani Connex data center business. Adani ENT major revenue is from commodity trading.

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Great call. I expected PE to re-rate to 60 but due to insane market movement it is now above 80.

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Very good analysis … At couple.of instances you have referred orient electric . Shouldn’t it be orient technogies?

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yes its orient technologies is if said orient electric instead in the video.

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Data Centre Opportunity: Based on the Sterlite Tech Q3 FY25 earnings call

STL’s Positioning and Opportunities:
• Data center and enterprise suite products accounted for 22% of the company’s revenue in the reported quarter.
• STL is focusing on driving rapid product development and significant revenue growth from AI data centers and the enterprise ecosystem.
• The company is developing a comprehensive data center product suite to tap into the market’s vast potential.
• STL’s AI data center portfolio, featuring high-density Celeste ribbon cables, advanced MPO panels, LC panels, patch panels, and copper connectivity systems, is tailored for GPU-dense data centers requiring high bandwidth and low latency.
• STL is closely evaluating opportunities in the data center space globally and particularly in India.
• The company aims to provide end-to-end solutions to data center players and is building its portfolio of products in both copper and fiber optics.
• STL believes that more and more data centers in India will seek “Make in India” solutions which presents a large opportunity for them.
• STL sees a large opportunity in India as data center capacity is expected to grow from around 1 gigawatt now to 2-3 gigawatts in the next few years.
• The company recognizes the need to build a full portfolio of products and their own intellectual property (IP) to cater to the data center market.
• STL is seeing increased demand for its copper connectivity products that go to various enterprises.
• Management stated that they are seeing more connections of fiber optics up to the servers.
• The company expects its data center and enterprise revenue to continue to grow going forward.
• STL expects the market to have a healthy pricing and margin for data center solutions due to fewer players having full solutions.

STL’s Competitive Advantage:
• STL has deep technology expertise across the optical fiber value chain.
• STL offers industry-first innovations such as India’s first multi-core fiber “Multiverse” and ultra-slim fibers.
• The company’s “Make in India” solutions are tailored for GPU-dense data centers.
• STL is working to develop its own IP
• The company is positioning itself to be a key supplier for the data center market by providing end-to-end solutions.

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