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The Rise of Data Centres in India

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The Rise of Data Centres in India

Kotak Insights | Date 15/06/2024

When one company does something, it is a dot.

When two do something, it’s a line.

And when three companies do something, it’s a trend.

At least five conventional companies are dipping their toes in the data centre industry.

This is on top of the many data centre companies already in the market.

Anticipation of a booming artificial intelligence (AI) environment, increasing demand for power, adoption of 5G, and escalating electricity usage are all acting as a tailwind for the industry.

With so many major catalysts in favour, is data centre something to get exposure to?

Let’s find out…

In today's ever-changing world with rapid technological advancements, data centres have become the core of the digital revolution.

Take, for example, Instagram or X (formerly Twitter). These social media platforms collect and analyse vast user data, including demographics, behaviours, general interests, and other information, to personalise user experiences and deliver targeted advertisements.

As technological innovation unravels, the demand for data centres will likely boom.

In the past two years, the Indian government has greatly pushed the data centre industry.

The centre plans to boost industry investment by introducing a new policy and recognising data centres as a key sector. This recognition can make it easier for data centre players to get loans and funding.

Moreover, India has the advantage of lower cost and under-penetration of the internet industry.

For example, if you set up a data centre, around 40% of your cost would go for land, while another 40% would go for electrical systems. The rest 20% will be for heating, ventilation, and cooling systems, among other things.

In India, there is always a price benefit. Due to lower land and labour costs, global companies could set up their bases here for less than 40% of the cost they are currently paying!

No wonder analysts are gung-ho about data centres, with forecasts of doubling their capacity to 2,000 MW by 2026.

The industry could also see massive investments of over Rs 50,000 crore in three years.

According to CRISIL Ratings, the Indian data centre industry could attract investments exceeding Rs 450 billion by 2027.

Data centres, from small company servers to massive global facilities, are highly scalable. Through modular designs and cloud technologies, they can easily expand to meet increasing data demands.

This scalability enables them to efficiently support everything from local start-ups to international enterprises.

Many modern data centres use a modular design, which allows for the rapid addition of capacity without disrupting existing operations.

Given the multiple tailwinds, investors should keep some good players in the data centre space on their watchlist.

Right now, the key players in the industry include Reliance, Adani Enterprises, and L&T.

Siemens is another big player in the data centre arena.

The global company’s Indian subsidiary Siemens India has increasingly gained a foothold in India's nascent data centre industry. The company’s smart infrastructure segment, including data centres, generates the largest revenue.

Then there is Bharti Airtel, a subsidiary called Nxtra, a big player in the Indian data centre market owing to its large network.

Apart from these bigger players, many emerging players have even brighter prospects than established ones.

E2E Networks is a hyperscaler like global behemoths Google, Amazon, and Microsoft. It focuses on advanced Cloud GPU infrastructure and has third-party data centres in Noida, Mumbai, and Vellore.

Finally, as mentioned above, let’s not forget the land advantage and how realty players can capitalise on the opportunity.

Right now, realty player Anant Raj is betting big on data centres. The company is investing about Rs 10000 crores for a 300-megawatt data centre.

Techno Electric and Aurionpro Solutions are two other small players that have entered the data centre industry.

In conclusion

Not every company will invest in data centres, but many more companies will pursue this strategy in the coming months.

Data centres have shown themselves to be a superior asset to store actual data and deliver value over the long run.

The slow and steady adoption, government support, and necessary regulatory approval will only encourage even more companies to enter this space.

Also, the rise of data centres will have a multiplier effect across industries. Battery demand may significantly go up. Exide Industries is already making high-end direct current batteries specifically designed for data centre applications.

The air conditioner industry also has a critical role to play. Data centres require a precisely controlled environment, and a cool temperature is needed to operate seamlessly.

As we embrace this data-driven future, data centres are expected to propel us toward a more connected and progressive world.

What do you think?

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Sources and References:

  1. Crisil
  2. Express Computer

This article is for informational purposes only and does not constitute financial advice. It is not produced by the desk of the Kotak Securities Research Team, nor is it a report published by the Kotak Securities Research Team. The information presented is compiled from several secondary sources available on the internet and may change over time. Investors should conduct their own research and consult with financial professionals before making any investment decisions. Read the full disclaimer here.

Investments in securities market are subject to market risks, read all the related documents carefully before investing. Brokerage will not exceed SEBI prescribed limit. The securities are quoted as an example and not as a recommendation. SEBI Registration No-INZ000200137 Member Id NSE-08081; BSE-673; MSE-1024, MCX-56285, NCDEX-1262.

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