Contrarian view on Data centres (and AI) and their potential to generate profits (as against returns on stock price)
PS: Have a small position in Anant Raj
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Amazon Web Services, Google etc are giants in data centres and AI/ML space. AWS in particular makes lots of money from it and funds their D2C (loss making?) business from that money.
So the success of AWS and others doesn’t align well with this contrarian view on data centres.
as per Anant Raj’s management, the main cost is land which they already have at low cost. They have the building ready which needs to be reinforced to handle bulky servers at 26cr/mw. this is for colocation capacity. each MW would generate 1.1 cr rs/month and 15L opex(electricity, manpower etc) so 95L/month/mw profit. thats 95 *12 = 11cr/mw/year profit. assume 5year depreciation of servers which i dont think is that expensive for colocation and 30 year life for building,I think this is highly profitable. For the cloud business. they need to do upfront 100cr capex and their revenue would be 150cr/mw/year and opex would be 26cr/year/mw so thats 124cr/mw/year profit for cloud business…easily beating depreciation in any case. these numbers still bamboozle me and management hasnt spoken anything about these numbers after a few initial concalls but they seem fairly confident of 1200cr revenue and opex is less and i dont think depre would be that high so profits. Lets see if management delivers.
desc: small part of portfolio in anant raj
They are not data center specialists. They are cloud specialists. They build data centers as cloud service needs that. If there is data center glut in market, they would rather rent that cheaply or buy that outright.
Someone like Equinix is pure data center company. One should be looking at their biz model and economics for comparison and not that of AWS or Google.
Disclaimer: I don’t trust companies easily which tend to catch fad of each biz cycle. Anantraj was a great Infra player in 2007-08. Now they are DC play. They have barely crossed 2008 peak price.
If owning land is a competitive advantage in DC biz, every builder with land assets would have that advantage and DLF should lead the way.
Not that they CAN NOT, but probability is slim. DC colocation is another matter. But that is just a premium warehouse and not DC biz.
Going by what you are saying, having cloud based services and renting out the premises on long lease seems like a more profitable way to do this business? Also, there seem to be 2 types of companies, one AnantRaj and Adani’s who are investing into hardware of it (houses for servers?) and then there seem to be AWS type players, E2E or Tata Comm? type players who are focussing on cloud based AI/ML services, am i correct? Is E2E more like AWS than Anant Raj?
Three types
AWS - In their own league. Build software for cloud. No competition in India. Only Miscrosoft, Google, IBM, Oracle types are competitors. Read about Oracle failing to compete. Large layoffs.
E2E - Managed Servers in DC.
Anantraj - Basically a builder with cabling and AC for DC types buildings. Trying to have servers like E2E in their DC beyond renting space.
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