Is Data Center The Next Multibagger Space? | NDTV Profit
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00:00We are going to speak with Mr. Prateek Jawahar, who is the MD and head of Infra and Real Estate
00:07Assets at Avendis Capital, to talk to us about, of course, the big theme, which is the other
00:13new-age tech theme which is at play with regard to data centers. Prateek, just for viewer context,
00:20if you can help us with how large is this opportunity? How quickly will India try to
00:28tap into it and scale, especially on the Indian player front? Very interesting. Thank you,
00:34guys, for inviting. Harsh and Puneet, good morning. This is one of the plays within,
00:41I would say, the folds of infrastructure, real assets, which we are seeing kind of
00:45becoming larger by the day. We have seen almost India today is around 800 megawatt capacity,
00:52and we expect this to double in next three to five years. A lot of suppliers coming in.
00:57In the number terms, if I have to kind of quantify, we see almost close to around $5
01:00billion of investments which will go in, which includes building out of data centers and also
01:08the servers and racks. So, the investment is expected to be around $5 billion in the next
01:13three to five years. And if I take a 10-year view, probably around $25 billion investment
01:19can really go in data centers in India. And from a customer or a sector-centric standpoint,
01:25what's really driving this growth? Because you're essentially looking at nearly a 25%
01:31CAGR over the next three years, if this were to double in the next three years,
01:36is what you're suggesting. I think there are three or four drivers. If you look at
01:40everything that's getting digitized, all your payments, processes, online shopping, internet,
01:48entertainment, a lot is going online, all requires data. And we're practically kind of doubling data
01:54usage every year, year on year. The thing is that we have always been serviced by hyperscalers.
02:01And a lot of that being done, I think 80% of the processing was done in US and other geographies,
02:07which is getting localized. So, government is coming out with norms of kind of storing data
02:11and processing it in India. That is one big driver of shift of our creation of this infrastructure
02:17within the country. So, hyperscalers continues to remain a big tenant who are moving their
02:22data storage to India. Then we have big, large enterprise clients who have their own data storage
02:27requirements. Plus, we have obviously kind of seeing newer segments like e-commerce and
02:32entertainment, which is driving this growth. So, in a way, it is a bedrock of all the digital
02:37transactions and digital interface, which you see where the processing gets carried out.
02:43Most of our businesses are kind of moving to one cloud and that's where the backend data centers
02:49plays a role. All right, Pratik. Hi, Anushi, joining in. I want to understand the CAPEX
02:54requirements now. What are the current CAPEX size of the industry at? Where should this
02:59CAPEX number be heading towards in the next four to five years? Do we see a significant
03:04shift for the players involved in the field over here? Yeah, interesting question. See,
03:10we had been mostly being serviced by telcos. There was a captive requirement with the STTs,
03:17entities of the world. Very few limited players were kind of meeting the requirement. There were
03:22smaller Indian players who are meeting the requirement of local enterprises.
03:26But given the size and the potential of opportunity, which we're talking about, say,
03:3025 billion equivalent, we're seeing large institutional investors as well as large
03:36operators who are working globally are getting interested in India. So, last five or six years,
03:42we have seen almost eight to 10 international players entering India and kind of have logged in
03:47very early stage positions in India where they are creating their first data centers. We have
03:55seen announcement with large groups like Adanis and Reliances who have partnered with Brookfield
04:00to kind of set up large scale data centers. So, potentially, there is going to be a surge
04:06of institutional capital and institutional players who will come in and we'll see the
04:09sector getting, it is in a way, I would say, dominant by the institutional players any which
04:14ways. But increasingly, over a period of time, you will see more and more institutional capital
04:19coming in here. Right. And in terms of players leveraging on this opportunity, what's the
04:29profile like? What do you see as some of the key two, three largest players in India who are
04:34leveraging this opportunity? Yeah, I think there is intrinsic advantage or I'd say benefit with
04:42the hyperscalers who are ultimately the operators and biggest consumer of data center capacity
04:49who are putting up their own captive centers as well as obviously kind of being the biggest
04:54tenants for the real estate developers. There is a lot of buzz with players in India who are
05:01into infrastructure businesses, players who are into real estate businesses to kind of really
05:06dovetail and see if they can kind of take a pie of this opportunity. So, we will see
05:12few of the real estate developers, large institutional size real estate developers
05:17getting into data center. Large conglomerates are looking at it given the size of the opportunity.
05:22So, we'll see some conglomerates joining in the play. There are pension funds and institutional
05:28investors like we spoke about Blackstone and Brookfield. Warburg has a platform in the
05:33region which has also started playing in Bain. That platform on bridge data centers had created
05:39a data center in India five years back. So, practically I would say it's a wide field open
05:47which is pretty much to be taken and we're seeing an interest from across board
05:54to kind of create data centers and operators are also kind of coming in and playing into it.
05:59So, Pratik, the one aspect that you mentioned was on the real estate developers which will
06:04continue to gain traction from year on onwards. But I also want to understand what about the
06:10capital good industries even they are making strides in data centers be it a company like
06:14Cummins or ABB. They're all wanting to capture and have highlighted the importance over here.
06:20What's the growth aspect coming in from the companies like ABB or Cummins going forward
06:24for in India? And do you think the power requirements that are currently there,
06:28is it sufficient for the kind of data center requirements that are presently needed for the
06:34road ahead? Yeah. So, I think you raised two points. One on the vendor supply chain for data
06:40centers. Yes. A lot of vendors are obviously going to get benefited when you're going to kind of
06:44create or invest around $25 billion of CapEx, which is predominantly, I would say, one-third
06:51go into real estate, two-third go into equipment. So, equipment suppliers are obviously going to
06:55benefit immensely from the supply. It's a new segment which is opening up for them. And
07:01suppliers like ABB which were earlier focusing only on power equipments would look at more
07:05specific requirement which is coming from this space. So, the vendor ecosystem is certainly
07:10going to benefit. Another question which you raised was about the investment opportunities
07:15which are coming in from the real estate investor side. So, that I covered in the earlier point
07:21which you mentioned. Right. And Prateek, just from a vendor perspective, I want to cap this off.
07:27You've got ABB and Siemens, of course, but any of the finer, nicer vendors in terms of product or
07:33service which will benefit from some of these large CapEx setups that are going to be
07:42coming through over the next three years? Frankly, I don't want to name specific companies here.
07:48They're listed stocks and we're not going to kind of take a view. But broadly, if anyone in the
07:53ecosystem which was supplying to being suppliers of equipments primarily on the electronic equipment
07:59side and anyone who's in the power equipment side is being covered here. The power requirement
08:04point which you mentioned earlier, right now the data centers are consuming around one and a half
08:09percent of the power which India is generating. The data center consumes almost 9% of power
08:17requirement. So, yes, it is going to be extremely power hungry segment and there is going to be a
08:23benefit which the power companies can also kind of take from data center. They are
08:28large consumers of power. We believe if we maintain the growth momentum which we are talking about,
08:34we still have like almost the power requirement of data centers will go on all the way around say
08:39three to four percent of overall power generation is expected by 2030. So, green power generators
08:47and the companies which are focusing on renewable energies does look at or do look at
08:52data centers is one of the big and key client segment for them.
08:57All right. Thank you so much Mr. Jawahar for breaking this down for us. Of course,
09:00a very interesting space this one and one to watch out for the future.