TCC Concept Ltd.- An Unexplored Data Center Play

Stock Opportunities Untested - but worth a good look
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History & Restructuring

The company was a textile company and has undergone restructuring after acquisition by the current promoters. The promoters want to enter into the data center business. The company has acquired Natural Environment Solutions Private Limited (‘NES’) via share swap for the said purpose. Their plan is to establish a capacity of 100MW over a period of time. They’re starting with 5 MW.

Comparison with Peers and Probable Valuation

There aren’t a lot of listed players in the data center space right now. One of them is Anant Raj Ltd. As per their concall from April 2024, it earns about 75 lakh INR EBITDA per MW per month.

Thus, trying to value TCC in the future: the EBITDA run rate can be 900 crore in 4-5 years (if everything is perfectly executed) (75,00,000 p.m./MW * 100 MW * 12 months) The business is valued at 1900 crore right now.

Promoters of the Business

Another thing you can understand about the promoter, Mr. Umesh Kumar Sahay, who is also a promoter at another listed company called EFC Ltd. He understands cost much better than his peers. For the co-working space business also, he could backward integrate and start furniture manufacturing to reduce rental costs and he is trying to get the same mentality in place for TCC Concept, wherein he has indicated that he cost of setting up a MW of the data center capacity will be around 15-20 crore. As per Anant Raj’s concall, they estimated it to be around 26 crore, which they claimed to be ‘cheaper’ than other competitors who are doing it at twice that price also. [The difference is to be looked out for in the numbers]

Source about these forward looking comments: https://www.youtube.com/watch?v=NvcWqvhA8dU [Can skip to the TCC part, also thank you Kushal for the podcast]

The frugal nature + big ambition + experience in an IT business (at the start of his career) make him a really good leader, in my opinion, to be at the helm and that gives any investor confidence to back it up. He has already made a successful business at EFC. The return ratios should likely turn out to be higher than its peers, similar to that of EFC, probably giving a higher valuation to the company.

SageOne - Flagship Growth 2 Fund, managed by the marquee investor, Mr. Samit Vartak, also has a 3.5% stake in the company.

Financials

The company has other smaller verticals as well. However, moving forward, as an investor not expecting them to scale up massively. They are in their nascent stage. FY23-24 was the first year of the company in operation.

  • Revenue: 77 cr.
  • EBITDA: 34 cr.
  • Net Profit: 20 cr.

The data center business will become operational from October (as per the interview) so results awaited.

Valuations

Bull case: The company gets a higher multiple because of its efficiency, the multiple accorded is 20x EV/EBITDA and the EBITDA is actually 900 crore, the EV can be 18,000 crore.

Bear case: The company faces intense competition, rentals reduce to half and they’re able to execute only half of their capacity. The multiple thus accorded remains at a low 6-7x, putting the EV of the company at 225* 6 = 1500 crore.

The actual outcome, in my opinion is likely to end up somewhere in the middle.

Risk Analysis:

  1. Intense competition driving down rentals.
  2. Overcapacity from multiple players, resulting in lower utilization.
  3. Preference for data centers like Yotta with AI capabilities.
  4. Technological obsolescence of data centers.
  5. Fire hazards and security breaches.

Disc: Invested, would love to know the community’s outlook and opinion.

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Do they have already established infrastructure or are they building it from scratch? Because if they don’t have ready infrastructure it is not possible to set up data center at a cost of 15-20 cr/MW.
Anant raj is setting up data center in their already established IT parks which is the reason for such cost efficiency. Otherwise, un-listed players setting up data centers from scratch at avg. cost of 75 cr/MW.

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Listen to the podcast from 32:00, he explains it pretty well and quite satisfactorily. You’ll find your answer there. He has walked the talk. It’s like a concall before a concall, to be honest, with the management.

NES had the infrastructure. They have the background with their experience in executing office projects. Cost minimization is where they are focusing on, esp. the “low-side” which he mentions, i.e. the ancillary expenditure like wiring, pipes, etc. Made sense to me. Rest, the numbers will only show.

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Great work… if we are saying say 20cr per MW, and ebitda is almost 9cr per annum translating to 45% returns… is it reasonable?
Is there any place which shows how much is operational now and whats in CWIP and future plans?
many thanks for the fantastic work you are doing, keep it up…

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From what I have found out, they first intend to do 5 MW data center. I find this quite small compared to what anant raj is doing. They are planning for 300 MW. No doubt that Umesh is moving amazingly with EFC though.

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This doesn’t seem correct as mgmt clarified in the AGM that it will cost around 60-70cr /mw.
Another thing that mgmt clarified that when the talk abt 5mw DC, around 3mw of data will be up for rental and utilization. So we have to adjust our overall calculation for 100mw operational capacity in 3 years to approx 60mw utilization potential.
5mw Datacenter revenues will start from Q4.
Revenue x datacenter this year should be around 100crs.

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Thanks for pointing it out, I didn’t know about the AGM discussion. It’s available here:

https://tccltd.in/wp-content/uploads/2024/10/Transcript.pdf [I think they have gotten the numbers a bit misplaced because of typos]

Takeaways:

  1. My assumptions about the non-data centre revenues were wrong. I didn’t have the data and assumed the current run-rate. The management has. indeed, guided for 100 crore of top-line from these businesses, so the growth in the next 2 quarters should be really good or they should ideally be doing around 60-70 crore worth of topline. Either way, seems good with the current margins.

  2. The management guided that there are 3 verticals in the business: 1. Data Center through NES; 2. The Real Estate broking business (which also has an asset renting business); 3. Real Estate Database services (it is in the beta stage, also expected to kick in in Q4 of current FY).
    Note: [In any future concall, I think questions about these verticals can also be put up: what are these assets for renting, what is the exact model for the database vertical, key customers, etc; Also, I would want to be cautious of related party transactions with EFC about the asset rentals business.]

  3. However, the management has clarified that they have utilized 50 crore for an actual net capacity of 3 MW of their data center, the guidance being one of 5MW. That is, I think, still comes out to be 16-17 crore/MW, which is within the 15-20 crore range that Umesh mentioned. Or am I looking at it wrong? The difference between 5MW and net 3MW emerges as a result of the difference between the power consumption required vs the actual capacity available to be given out in rentals.

  4. Now, one thing if you could help me understand: when Anant Raj’s management says that they will generate revenue of 3300 crore from 307MW, is that the gross MW power capacity or the net rental capacity? This difference is going beyond my circle of competence, at least.
    https://www.bseindia.com/xml-data/corpfiling/AttachHis/e5e45961-b63c-4120-a5bc-2366e641e73e.pdf

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So, as per my estimation, he said in the podcast they are going to give out the rentals for a 42 RU [RU = Rack Units] for 30-40,000. Thus, one has to calculate an average of rental yield of 1 rack unit INR 35,000/42 RU = INR 833/RU. There are racks with different intensities. 1 MW can be used to accommodate 100 racks at 10 kW per rack (10 kW is considered as medium density) [assumption that they have medium density racks]. Therefore, the number of RUs are 100 racks x 42 units/servers = 4200. Total revenue estimation, therefore, can be INR 833/RU x 4200 RUs/ MW x 5 MW x 12 months = INR 21 crore. [with capacity of 420 crore run rate in the future], which I don’t think includes power actuals, as the electricity bill will be borne by the client.

Note: I have taken lots of assumptions. However, as per market rates, estimations, public data, that’s the best I could come up with. I may be way off as the power requirements, storage solutions, rentals are extremely varied and without knowing what they are actually installing, it’s difficult to estimate.

The rental yields I feel should definitely get normalized in the long term. I agree there are capex barriers. However, in the immediate future, the firms should enjoy supernormal profits. As competition scales up, it might reduce. There are lots of players entering the market. How much it might reduce by, I don’t know frankly.

The CWIP seems to be of 50 crore only on books right now, which is what the management has guided for also as capex for setting up the center.

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Anant Raj will only have 28 MW operational by December 2024. Check their concall.

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