Great Indian data centre rush: Corporates, start-ups want share in business

File photo: Data centre (Representational image)
Yotta Infrastructure Solutions, a company controlled by real estate giant Hiranandani, is set to launch the country’s largest third-party data centre in a single building in Navi Mumbai this December.

“With space for 7,000 racks, this data centre in Navi Mumbai will be 60 per cent larger than the current largest one in the country. It is being built with an investment of Rs 1,100 crore,” said Sunil Gupta, managing partner and chief executive officer of Yotta.

Gupta said the company was ready to set up over 70,000 racks in Mumbai, Chennai, and Navi Mumbai within the next five years, with 500 Mw of power This, he said, is going to be a booming business. He is not the only one. Cashing in on the boom are global companies, Indian corporate houses, and private equity-backed start-ups, who are willing to put money in building third-party data infrastructure.

These include Fidelity Investments-owned Colt Data, which runs data centres across Europe and Asia, US-based Equinix, one of the largest co-location players in the world, and Dallas-based Cyrus One. The domestic companies include the Adanis and Reliance Jio, amongst others, along with PE Funds Epsilon and MLC-backed Pi Datacentres, which has raised over Rs 250 crore and is looking at being the first in the business to go for an initial public offering (IPO).

According to Bank of America Merrill Lynch estimates, India will build an incremental data centre capacity (mostly in five metropolitan cities) of 700-800 Mw IT power in the next five years. This will require investments of $7-8 billion.

As much as 3.8 million square feet of additional data centre space is already being built with 250 Mw of IT power. This will come into play within 12 months and a similar amount will be required every year till FY24.

According to Colt Data, the demand for cloud services in India is expected to grow by a 24 per cent compund annual growth rate till 2020, though others say it will be over 30 per cent overall year on year. The rush has been prodded by many factors but one key reason is the new and stringent government regulation on data privacy which will require foreign companies to store data within the country.

Merrill Lynch estimates that 30-40 per cent of the incremental demand for data storage will come from here. Also, there has been a huge explosion of data usage due to the 4G revolution. Further, the increasing adoption of cloud computing by enterprises for business applications is also pushing up demand (currently only 15-20 per cent of enterprises have adopted cloud).

Finally, storage demands in Artificial Intelligence and the Internet of Things, currently in their infancy, are set to explode in a few years. This is why Colt Data is setting up a 100 MW IT hyper scale data centre campus in Mumbai which it hopes to be up and running by the middle of 2020.

“We are the first mainstream western data centre to come to India. With half the Indian population below 25, digitally savvy individuals are creating their own huge data footprint. Colt will provide its low latency and high bandwidth services to both international and local businesses,” said CEO Detlef Spang.

Equinix said it is looking for a global scale anchor tenant to enter emerging markets like India though it did not respond to a query.  

Gautam Adani, chairman of the Adani group, which is also into power (power constitutes 40 per cent of the cost of running data centres), sees a large opportunity. “The government is looking at data localization. If that happens, it will lead to exploding data centre requirements. This will bring in the Googles and Amazons of the world,” said Adani.

His group has tied up with the Andhra Pradesh government to set up a hyper scale data centre with a capacity of 300-400 MW. The larger plan is to create data centre parks with a total capacity of 1GW across the country.

Meanwhile, Jio has also entered the space by creating a new market for data storage; it has made a commercial offering to small and medium scale enterprises which hardly use any enterprise solutions by offering a package of Rs 1,500 per month with basic services such as e-mail, video conferencing, connectivity tools, and limited data storage.

At a price which it claims is one-tenth of the market price (currently it costs Rs 2,500 per seat per year for a competing basic service) it could set off a price war as well as spur new demand for such services from small to medium-sized businesses.  

To ensure that that its cloud service requirements are met, Jio already has captive data centres in Mumbai, Noida, Kolkata and Nagpur of around 1 million square feet. It has also tied up with Microsoft to offer its cloud platform to small and medium scale enterprises.  

But to come back to the Hiranandani group, what makes a real estate player find the business attractive? Land is a key component for the business: you need buildings and space to scale up. That is why the Yotta Navi Mumbai data centre will be on a 20-acre campus with enough land for five buildings.

Gupta explained, “The returns are attractive. We can sell the entire rack space in our first building of over 800,000 square feet in 6-12 months. A similar sized commercial building will take much more time. Also the returns — with EBITDA margins of around 30-35 per cent, it is very attractive compared to real estate.”  

One salient fact about the industry is its concentration: nearly 80 per cent of the data centres are located in Mumbai, Delhi, Hyderabad, Chennai and Bengaluru. In China, it is far more dispersed with Beijing, for example, having only an 18 per cent share. This could impact overall costs of delivery as well as make it difficult to serve the growing small and medium scale enterprises which are also looking for cloud solutions.

Some Indian companies are taking a different route.  Hyderabad-based Pi Datacentres, for instance, which started with Amravati two years ago, is now putting in data centres in Kochi and Raipur, though it will also build a centre in Mumbai for some of its clients

“We have a cost advantage — 40 per cent of the cost of a data centre is power and in Amravati, it is 30 per cent cheaper than in a metro,” said Pi COO Bhaskar Vadlamani.

Nor did their location, he said, deter their clients which include Tata Steel,, and Tech Mahindra.

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