CONFERENCE TAKEAWAYS

Data Center – Powering Digital Transformation

Conference Takeaways

4 July 2024 BSE Sensex: 80050

We hosted experts from the Data Center ecosystem and CEOs of leading Data Center (DC) companies in India, in
our Data Center Conference in Mumbai. Evolution of AI has fast-tracked the demand for IT infrastructure because
of increased adoption of cloud services and digital transformation. With more and more consumers and businesses
using Data Center and cloud services, the demand for hyper scalable DCs is booming, with capacity expected to
grow at a ~40% CAGR over the next five years. While India's Data Center sector shows immense potential,
sustained growth requires continued government support, streamlined regulatory processes, infrastructure
development, and strategic investments from both domestic and international stakeholders. We present key
takeaways below.

Capacity in India to rise from 1.2GW in FY24 to 3.2GW in FY27. The Data Center sector in India is expected to grow
at ~40% CAGR over the next five years. The surge in technological space such as Artificial Intelligence and Machine
Learning and the rise in internet consumption has increased the demand for data centers globally. India, one of the
largest consumers of internet, but still among the lowest on data center capacity per capita, is one of the fastest
growing data center markets in the APAC region. The panelists at the event feel that government is not only a policy
enabler, but also a demand generator and its push towards digitising archives, land records, judicial data and
Adhaar, are giving a strong impetus to the digital ecosystem. The India AI Mission aims to drive innovation and
collaboration across various sectors. Data Centers were earlier part of the IT & ITeS from a policy perspective, which
are now given infrastructure status. With large unutilised land parcels, states are looking to capitalize on this.

Long runway for Colocation providers and Hyperscalers: There are four kinds of Data Centers – Edge (smaller sized,
last mile, low latency), Colocation (large data center facilities that rent out rack space to third parties), Hyperscalers
(large-scale cloud service providers) and AI Data Centers (facility with vast computing resources designed for AI
workloads). Conference participants expect that colocation and hyperscalers will continue to grow at a fast pace. The
rapid adoption of cloud computing in India is driving the need for Hyperscaler data centers, as they can provide the
massive infrastructure required to support cloud services. The government's focus on digital transformation and
initiatives like "Digital India" are fueling the demand for data centers, with hyperscalers playing a crucial role in this
process. Colocation providers will play a key role in providing rack space to enterprises and emerging startups, who
may not have the resources to manage an entire data center.

Power, cooling and network connectivity key for growth. Heads of Data Centers in India believe that the India growth
story is quite strong and government policies have been highly supportive over the past few years. Various state
governments have also come up with Data Center policies and have announced many incentives. They do not see
any risk to rentals at least for the next decade, as demand will continue to outpace supply. Data Centers need
constant power supply, effective cooling and uninterrupted network service to function efficiently and provide
99.99%+ uptime. While policy is favorable, there is still scope for improvement in shortening approval times for land,
power lines or environmental clearance. Industry leaders also believe that there is a need to grow in the hinterland as
well, and hence state governments may explore setting up dedicated zones with capable power transmission and
network infrastructure, so that the entire ecosystem can be developed around these regions in Tier-2/3 areas.

Listed stocks in the value chain. Anant Raj (targeting 300MW capacity), Techno Electric (setting up a 40MW data
center in Chennai), Cummins (diesel gensets, 6% of consolidated sales is Data Centers), NetWeb (end-to-end high
computing solutions), AurionPro (Data Center building services), Black Box (comprehensive support for Data Centers),
E2E Networks (AI-focussed Hyperscale cloud platform) and Bluestar (Data Center cooling) are some of the listed
names in the Data Center ecosystem.

Prateek Singh Anmol Garg

[email protected] [email protected]
+912242022531 +91 22 42022596

For Private Circulation only ―Important disclosures appear at the back of this report‖
 Data Center – Powering Digital Transformation

Types of Data Centers

Exhibit 1: Types of Data Centers

Source: JLL

 Edge
Edge data center is a small data centers that is located close to the edge of a network. It provides the same device
found in traditional data centers but is contained in a smaller footprint, closer to end users and devices. Typically,
they are powered by edge caching—hardware- or software-based components that temporarily store data to increase
computing response time or reduce latency.
Exhibit 2: Edge data center

Source: JLL

How Edge Data Centers work?

Edge data centers work as a connection between two networks. The Edge data center is located closer to whatever
machine is making a request, inside an internet exchange point. The internet exchange point is a physical location
where multiple network carriers and service providers connect. This allows a quick flow of traffic between networks.
An edge data center can be built using a Modular Data Center (MDC), which has all the equipment of a traditional
data center but in a smaller size. By processing requests (such as JavaScript files or HTML) closer to where they are
needed, the edge data center reduces the time it takes to deliver this data back to the devices.

Benefits of Edge Data Centers:

 Security. Edge data centers improve security by limiting the quantity of data stored, reducing broader network
vulnerabilities, and decreasing the amount of sensitive data transmitted.
 Latency. Edge data centers enable lower latency, which results in substantially quicker response times. Reducing
the physical distance that data must travel by placing computation and storage close to the end users minimizes
the likelihood of encountering a transmission line with poor data flow.

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 Operating costs. With less traffic traveling to and from central servers, edge data centers lower the cost of routing
and data transmission, which is crucial for high-bandwidth applications. To be more specific, edge data centers
reduce the number of necessary interconnection hubs and high-cost circuits required to connect to cloud or
regional data centers by bringing storage and computing closer to the point of use.
 Bandwidth. By processing data locally, edge data centers lessen the amount of traffic going to and coming from
central servers. As a result, more bandwidth is made accessible across the user’s larger network, which enhances
the performance of the entire network.
 Colocation
They are large data center facilities hat rent out rack space to third parties for their servers or other network
equipment. This is a very popular service that is used by businesses that may not have the resources needed to
maintain their own data center, but still want to enjoy all the benefits. The hardware in these large data centers is
usually owned by the companies themselves, and simply housed (and sometimes maintained) by the data center
staff. Th companies also have the freedom to select their choice of equipment installed in this Colocation Data
Center, as per their requirement.
This concept is also beneficial for a company that can have its equipment distributed across multiple locations. They
may have servers, for example, in three or four different colocation data centers. This is important for companies that
have large geographic footprints, and they want to make sure their computer systems are located near their physical
offices.

Benefits of Colocation:
 Lower costs – When comparing the costs of a colocation data center with the option of building a facility,
colocation emerges as the obvious choice. Unless the equipment requires a large amount of space, costs are far
lower with the colocation option.
 Fewer technical staff – There is no need to worry about tasks such as running cables, managing power, or
installing equipment. In many cases, the colocation data center can replace components or perform other tasks
as needed, eliminating the need for a large IT staff to handle these operations.
 Exceptional reliability – Colocation data centers are typically built to the highest specifications for redundancy.
This includes backup power generators, excellent physical security, and multiple network connections through
various telcos.
 Geographic location – The location of the data center can be chosen to be near the users, optimizing
performance and reducing latency.
 Predictable expenses – The costs associated with a colocation data center are highly predictable. Contracts
typically last one or more years, allowing for precise budgeting of IT needs.
 Easy scalability – As business grows, it is easy to add new servers or other equipment to the facility. This contrasts
with the challenges of expansion when equipment is housed in a small local data center or server closet.

 Hyperscalers
These are large-scale cloud service providers that offer extensive cloud infrastructure and services to a wide range of
clients, including businesses, governments, and individuals. A hyperscale data center differs from a traditional data
center primarily by virtue of its sheer size. A hyperscale data center requires a physical site large enough to house all
associated equipment—including at least 5,000 servers and quite possibly miles of connection equipment. As such,
hyperscale data centers can easily encompass millions of square feet of space.

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Benefits of Hyperscalers:
 Enhanced economies of scale - Hyperscale data centers have enormous computing power, allowing service
providers to offer pricing and service level agreements (SLAs) that typical data centers cannot provide.
 Balanced workloads - Balancing workloads is essential for hyperscale data centers because an overheated server
can set up a chain reaction and damage other servers. Since hyperscale data centers can house more servers
than typical data centers, they easily distribute workload to multiple systems and avoid overheating a single
server.
 Enhanced energy efficiency - Hyperscale data centers are enormous and can consume vast amounts of
electricity. However, overall, they are more energy-efficient than typical data centers. This is because hyperscale
service providers usually allow tenants to lease space by kilowatts (kW), which is more effective than renting the
facility by racks or square footage.
 Improved cooling efficiency - With hyperscale data centers, businesses can effectively minimize costs associated
with cooling the hardware and focus on the servers’ computing power. Most hyperscale data centers usually
provide the necessary cooling by recycling energy that flows into their servers.

 Artificial Intelligence
An AI data center is a facility with vast computing resources designed for AI workloads. It provides the infrastructure
to train and deploy complex machine learning models and algorithms. These centers consist of high-performance
servers, storage systems, networking infrastructure, and specialized hardware accelerators. They handle massive
data processing and utilize advanced techniques like deep learning to enable AI applications at scale.
Exhibit 3: How is AI Data Center different from Hyperscalers
Feature AI Data Center Hyperscale Data Center
Primary
AI workloads (model training, inference, research) Diverse workloads (cloud computing, storage, content delivery, web hosting, AI)
Focus
Hardware Specialized (GPUs, accelerators) More diverse mix, including some specialized hardware
Can be large, but not always as massive as
Scale Massive (millions of square feet, hundreds of thousands or millions of servers)
hyperscale
Source: Company, DAM Capital Research

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What does a Data Center look like?

Exhibit 4: Components of a Data Center

Source: Company, DAM Capital Research

Key components in a Data Center are:

 HVAC System: For climate control within the data center.
 Workstations for On-site Teams: Designated areas for staff to manage operations.
 NOC Room: Network Operations Center for monitoring and managing the network.
 Server Halls: Areas where the servers are housed.
 Man Trap (Physical Security): Security feature to prevent unauthorized access.
 Server Room Access Control: Systems to control and monitor access to the server rooms.
 Meet Me Room: Area for interconnecting different networks.
 Emergency Power Generators: Backup power sources to ensure continuous operation during power outages.
 Fire Suppression System: Equipment to detect and extinguish fires.
 Transformer Room: Space for electrical transformers to manage power distribution.
 Water Flow Systems: Infrastructure for managing cooling and fire suppression water needs.
 UPS Room: Uninterruptible power supply room to provide backup power and protect against power fluctuations.

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Growth of Data Center

 Growth of Data Center in the World
Exhibit 5: Global Data Center Market Size (USD Bn)

750
622.4
600

450
341.8
300

150

0
FY24 FY30P
Source: PS market research

Currently, the demand for Data Center is increasing. It is expected to reach a market size of ~600bn achieving a
CAGR growth of 10.5% over the period of six years. This growth is supported by various factors, including both small
are large businesses adopting digital technologies, which increases the demand for data storage, processing, and
management. Along with this, internet usage is increasing, especially in developing regions, which requires robust
data infrastructure for online activities. These users receive and transmit large amounts of data, thus increasing the
need for fast communication lines and data transmission technologies.

Other factors include the rise of big data analytics and artificial intelligence, and data sovereignty. Big data analytics
involve processing vast amounts of data to extract meaningful insights for business decisions. This process requires
significant computational power and storage capacity, pushing the demand for advanced data centers. Artificial
intelligence applications, such as machine learning and deep learning, also require powerful hardware and large
datasets, further increasing the need for data centers equipped with high-performance computing resources. Data
sovereignty regulations are also driving the need for more data centers. These regulations mandate that data be
stored within the borders of the country where it is generated or within specific regions. This is to ensure data privacy,
protect against foreign surveillance, and comply with local laws. This law will ensure development of regional data
centers in each country.

 Growth of Data Centers in USA

Exhibit 6: Data Power consumption (Gigawatts) Exhibit 7: Data Power consumption (% share)

Source: McKinsey Source: McKinsey

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US accounts for roughly 40% of the global market. The Data Center industry in the USA is experiencing a significant
growth, as indicated by the increasing power consumption from below 5 gigawatts in 2014 to over 30 gigawatts
projected for 2030. The demand for data centers in the US is also forecasted to grow by ~10% a year until 2030.

There is a, however, a noticeable shift in the distribution of power consumption among different types of data center
operators. While enterprises initially dominated, the share of hyperscalers and colocation companies is steadily
increasing. By 2030, these providers are expected to consume a larger portion of data power, reflecting the industry's
move towards more scalable, efficient, and flexible data center solutions.

This shift will be backed by major cloud vendors such as AWS and Cloud, who have been key customers for
colocation companies to build their own data center and negotiate shorter term, more favourable leasing terms.

Exhibit 8: Gain Power usage efficiency has stalled during the past decade

Power Usage Effectiveness (PUE)

2.5

2.0

1.5

1.0
2007 2011 2013 2018 2022

Source: McKinsey

The Power Usage Effectiveness (PUE) of data centers globally has shown a significant improvement from 2007 to
2022. Starting above 2.5 in 2007, the PUE dropped to around 2.0 by 2013 and reached its lowest point near 1.5 by
2018. This reduction is due to optimization of floor plan to increase cooling, upgradation of server racks to more
energy-efficient ones, choosing a more energy-efficient UPS for Data Center, and utilization of renewable energy, etc.
These efforts taken by the Data Centers have led to this reduction and show the industry's commitment to
sustainability and operational efficiency.

However, the PUE is now at a standstill and has been relatively flat for the last six years after 2018. The previous
drop of PUE was due to vendors and operators having the option to make effective changes to their data center, such
as better fans, better capacity management, basic monitoring of temperature and cooling, as well as refreshing aging
gear with newer equipment that met more stringent efficiency standards. However, it seems to have reached a peak
and will require additional heavy investments to reduce it further. Newer technologies such as liquid immersion are
available which can take the PUE further down to 1.03, since it utilizes liquid as an alternative to traditional air
conditioning, thereby less energy consumption. However, this will incur higher cost due to further modifications to the
existing server racks and other costs. Some vendors are hesitant to adopt this technology due to concerns about
potential warranty issues with their server suppliers.

 Growth of Data Center in India

Exhibit 9: Data Center Cumulative Investment

Data Centre Cumulative Investment (Rs. Bn)

2500
2039
2000
1578
1500
1186

1000 856
585
500 361

0
FY23 FY24 FY25 FY26 FY27 FY28
Source: Data Center Market - JLL

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This growth in investment is visible and will continue to grow in the future due to newer partnerships with NVIDIA
technologies. As new technologies emerge in India, investments are increasing and are expected to continue growing.
This reflects India's expanding role in the global technology landscape and investor confidence in its potential for
innovation and growth. Another reason for the increased investment is the implementation of data localization
regulations. India's data localization policies encourage companies to store data within the country, leading to
increased investments.

Exhibit 10: Data Center Cumulative Capacity Growth (MW)

Data Centre Cumulative Capacity Growth (MW)

4500 4076

3600 3154

2700 2371
1712
1800
1169
722
900

0
FY23 FY24 FY25 FY26 FY27 FY28

Source: Data Center Market - JLL

This capacity expansion of 41% will help achieve the 42% CAGR investment by FY28. While India is generating 20% of the
global data, its share of Data Center is just 3%, which indicates a vast potential for growth. The adoption of technologies
like AI and the further expansion of 5G and IOT will drive increased consumption in India.

Exhibit 11: Data Center Capacity Growth

Colocation DC (MW) Hyperscaler DC (MW)

1000

750 266
191
162
500 142
70
592 656
250 497
372 401

0
FY24 FY25 FY26 FY27 FY28
Source: Data Center Market - JLL

The demand is growing for both Colocation and Hyperscale Data Center. However, we see a higher demand for
Hyperscaler DC due to the following reasons:

 Demand for Cloud computing: The rapid adoption of cloud computing in India is driving the need for Hyperscaler
data centers, as they can provide the massive infrastructure required to support cloud services.

 Digital transformation initiatives: The government's focus on digital transformation and initiatives like "Digital
India" are fueling the demand for data centers, with hyperscalers playing a crucial role in this process.

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 Growth of Data Center in the Middle East and Africa

Exhibit 12: Africa Data Center constructions market

Africa Data Center Construction Market - Cumulative (USD Bn)

10.0
7.7
8.0
6.3
6.0 5.0
3.8
4.0
2.7
1.7
2.0 0.8

0.0
CY 21 CY 22 CY 23 CY 24 CY 25 CY 26 CY 27
Source: Arizton Report

The Africa Data Center Construction Market is on a robust growth path with a projected CAGR of 47% from CY21 to
CY27. This growth is expanding due to increasing demand for such facilities throughout the continent, particularly in
fast-growing markets such as Kenya, Morocco and South Africa.
The growth of data centers in Africa will be driven by the population increase, expected to double to 2.5 billion in sub-
Saharan Africa by 2050. In early 2022, 43% of Africans had internet access, which is projected to rise by 11% in the
next decade, making Africa 16% of the global internet user base. This increase will support a more digital economy in
Africa. Meanwhile, data-sovereignty regulations requiring data to be stored locally or regionally will also increase
demand for local data centers.
Apart from population, there is a growing demand for DC in Africa driven by increased broadband internet
penetration, which is expected to double to over 500mn users by 2030. Despite this, there is still a significant gap in
broadband subscription rates compared to the international average, indicating a need for further infrastructure
development.

Exhibit 13: Middle East Data Center construction market

Middle East Data Center Construction Market - Cumulative (USD Bn)

15.0
12.0
12.0
9.8
9.0 7.8
6.0
6.0 4.3
2.7
3.0 1.2

0.0
CY 21 CY 22 CY 23 CY 24 CY 25 CY 26 CY 27
Source: Arizton Report

There has been immense growth in Data Centers in the Middle East region and this trend is expected to continue.
This growth from 1.2 to 6bn in three years and 46% CAGR growth expected during CY21-27E is supported by various
factors such as smart city projects, growing demand for AI adoption, and cloud infrastructure growth. The Middle East
expects to invest nearly $50 billion in smart city projects through 2025. They are leading in adopting 5G, IoT, big data
solutions, and digital platforms. They're also increasing connected devices through more underwater and land cables,
driving demand for data center. Growth of AI adoption is expected to range between 20% and 34% annually across
the region, with the UAE experiencing the fastest growth, followed by Saudi Arabia. According to PwC, the Middle East
is expected to capture 2% of the total global benefits of AI in 2030. This is equivalent to US$320 billion. This
advancement of Gen AI will drive the need for customized data facilities.
According to McKinsey, the Middle East is poised for significant economic impact from cloud technology, with
forecasts suggesting it could generate up to $183 billion by 2030, equivalent to 6% of the region's GDP. Already, 85%
of companies in the region are adopting or planning to adopt cloud solutions, and 42% have already implemented
them. This rapid adoption, coupled with increasing cloud availability zones, is set to drive demand for data centers
across the Middle East.

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Demand Drivers
Exhibit 14: Various demand driver for various Data Centers

Source: Company, DAM Capital Research

Each type of data center plays a pivotal role in the overall data management and processing ecosystem, catering to
different needs based on distance, latency, bandwidth, and connectivity.

 Applications and Use Cases

Edge Data Centers:
 Ideal for Internet of Things (IoT) devices, autonomous vehicles, and other applications where immediate data
processing is critical.
 Support smart city infrastructure by enabling real-time data analytics close to the data source.

Colocation/Captive Data Centers:

 Suitable for businesses requiring a balance between local processing and centralized data management.

 Provide disaster recovery and business continuity solutions by offering regional data storage and processing
capabilities.

Hyperscalers/Cloud Data Centers:

 Essential for cloud service providers, large enterprises, and global applications requiring significant computational
power and storage.
 Support big data analytics, artificial intelligence, and machine learning applications by providing the necessary
infrastructure to process and store large datasets.

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Vertically Integrated Model – Data Centers + Cloud + Software

The vertically integrated data center, with cloud and software built on top of it, represents a comprehensive approach
where a single entity manages the entire spectrum of data center operations, cloud services, and software solutions.
This integration enables seamless coordination and optimization across infrastructure, platform, and application
layers, aiming to deliver enhanced performance, scalability, and customer value.

Exhibit 15: Vertically Integrated Business Model’s Pricing Mechanism

Source: DAM Capital Research

Here’s an in-depth exploration of how this model functions and its key components:

 Data Center Infrastructure

 Design and construction: Vertically integrated providers have in-house teams responsible for designing,
constructing, and maintaining data center facilities. This includes planning for optimal power distribution, cooling
systems, physical security measures, and disaster recovery capabilities.

 Ownership and management: They own and manage their data centers, allowing for direct control over
operations, maintenance, and capacity planning. This ownership facilitates faster response times to customer
demands and ensures adherence to stringent security and compliance standards.

 Cloud Services (IaaS, PaaS, SaaS)

 Infrastructure as a Service (IaaS): Providers offer virtualized computing resources over the internet, including
servers, storage, and networking components. Customers can scale resources up or down based on demand,
without the need for physical infrastructure investments.

 Platform as a Service (PaaS): Integrated platforms provide development tools, databases, and middleware that
enable customers to build, deploy, and manage applications efficiently.

 Software as a Service (SaaS): They deliver software applications via the cloud, eliminating the need for customers
to install, maintain, and update software locally. Examples include collaboration tools, CRM systems, and business
analytics solutions.

 Managed Hosting and Colocation Services

 Managed hosting: Providers manage dedicated servers and applications on behalf of customers, offering
enhanced security, performance monitoring, and technical support.

 Colocation services: They lease physical space, power, and network connectivity to customers who deploy their
own IT infrastructure within the provider's data centers. This option allows organizations to benefit from shared
facilities and robust infrastructure without the burden of ownership.

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 Software Development and Integration

 Custom solutions: Vertically integrated providers may develop proprietary software solutions tailored to specific
industries or customer needs. This includes integrating third-party applications, APIs, and services to enhance
functionality and interoperability.

 Open APIs: Offering open APIs allows customers and partners to integrate their own applications and services with
the provider’s cloud and software ecosystem, fostering innovation and ecosystem growth.

 Security and Compliance

 Integrated security measures: They implement comprehensive security protocols across all layers of infrastructure
and software, including data encryption, access controls, threat detection, and compliance monitoring.

 Compliance assurance: Ensuring adherence to industry regulations (e.g., GDPR, HIPAA) and data protection
standards is a critical aspect. Providers often undergo third-party audits and certifications to demonstrate
compliance and trustworthiness to customers.

 Advantages of Vertically Integrated Data Center

 End-to-End service delivery: Integration allows seamless coordination between infrastructure, cloud services, and
software applications, resulting in faster deployment, improved performance, and simplified management for
customers.

 Scalability and flexibility: Customers can scale their computing resources and software usage on-demand,
adapting to fluctuating business needs without upfront investments in infrastructure or software licenses.

 Cost efficiency: Consolidating operations and resources under one roof reduces overhead costs associated with
managing multiple vendors or maintaining disparate IT environments.

 Innovation and customization: Providers can innovate rapidly by developing and integrating new technologies,
features, and services into their offerings, catering to evolving customer requirements and industry trends.

 Examples of Vertically Integrated Data Centers:

 Microsoft Azure: Azure offers a comprehensive suite of cloud services (IaaS, PaaS, SaaS) integrated with
Microsoft's extensive data center infrastructure. This includes Azure Virtual Machines, Azure SQL Database, and
Microsoft 365 (formerly Office 365).

 Amazon Web Services (AWS): AWS provides a wide range of cloud computing services hosted on its global
network of data centers, including EC2 (Elastic Compute Cloud) for scalable computing, S3 (Simple Storage
Service) for object storage, and AWS Lambda for serverless computing.

 Google Cloud Platform (GCP): GCP integrates its advanced data center infrastructure with cloud services such as
Google Compute Engine, BigQuery for data analytics, and Google Workspace (formerly G Suite) for productivity and
collaboration.

 Challenges and Considerations:

 Complexity of integration: Managing diverse aspects of infrastructure, cloud services, and software development
requires deep technical expertise and operational coordination.

 Security and compliance: Ensuring robust security measures and regulatory compliance across integrated
services is paramount, requiring continuous monitoring, auditing, and adherence to evolving standards.

 Market competition: The rapidly evolving cloud computing market demands continuous innovation and
differentiation to maintain competitive advantage and meet customer expectations.

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Value Chain of Data Center Ecosystem

The value chain of the data center ecosystem involves several key players and stages, each contributing distinct expertise
and services to ensure the efficient design, construction, operation, and utilization of data centers. The benchmark range is
US$6-8mn/MW for construction of a Data Center in India, almost 90% of it is OEM + EPC. 2.5-4% of value of constructed
facility is O&M.

Exhibit 16: Value Chain of the Data Center Ecosystem

Source: DAM Capital Research, Sterling Wilson Data Center EPC

 Design
The design stage sets the foundation for the data center’s architecture, layout, and specifications. It involves
understanding the client’s requirements, compliance with regulatory standards, and optimizing for efficiency and
scalability.
 Architectural Design: Includes space planning, layout of equipment, and infrastructure to maximize operational
efficiency and airflow management.
 Engineering Design: Involves electrical, mechanical, and structural engineering to ensure robust infrastructure for
power distribution, cooling systems, and building structure.
 Network Design: Designs the connectivity framework to ensure optimal performance and reliability, including
internal network architecture and connections to external networks.
 Key Players: AurionPro, ARUP, Jacobs, AECOM, RED Engineering Design, SUDLOWS, Syska Hennessey

 OEM (Original Equipment Manufacturer)

OEMs manufacture and supply critical equipment and components required for data center operations. These
include servers, storage devices, networking equipment, cooling systems, and power distribution units (PDUs).
 Product Development: Research, design, and manufacture equipment that meets data center specifications for
performance, efficiency, and reliability.
 Supply Chain Management: Ensure availability and delivery of equipment to meet project timelines and
operational requirements.
 Technical Support: Provide installation, maintenance, and troubleshooting support for their products.
 Key Players: ABB, Schneider Electric, Huawei, Delta, Cummins, Vertiv

 EPC (Engineering, Procurement, and Construction)

EPC firms are responsible for the construction and implementation of the data center facility based on design
specifications. They manage the project from initial planning through to completion.
 Project Management: Coordinate all aspects of the construction project, including scheduling, budgeting, and
resource allocation.
 Construction: Manage physical construction of the data center facility, including building structure, electrical and
mechanical systems installation, and environmental controls.
 Quality Assurance: Ensure compliance with design specifications, safety standards, and regulatory requirements.
 Key Players: Sterling Wilson Data Center EPC, Tata Projects, L&T, Blue Star

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 O&M (Operations and Maintenance)

O&M providers manage day-to-day operations, maintenance, and optimization of data center facilities to ensure
continuous availability, efficiency, and security.
 Monitoring and Management: Continuous monitoring of data center infrastructure, including power usage, cooling
efficiency, and environmental conditions.
 Preventive Maintenance: Scheduled maintenance to minimize equipment downtime and optimize performance.
 Incident Response: Immediate response to issues such as equipment failures, power outages, or environmental
alarms.
 Capacity Planning: Forecasting and planning for future capacity needs based on data center growth and user
demands.
 Key Players: Sterling and Wilson Data Center EPC, CBRE, JLL

 Colocation Providers/Developers
Colocation providers offer shared data center facilities where multiple tenants can house their servers and IT
infrastructure. Developers are involved in building and managing these facilities.
 Facility Development: Designing and constructing data center campuses or facilities to accommodate multiple
tenants.
 Tenant Onboarding: Providing space, power, cooling, and connectivity services tailored to tenants’ needs.
 Service Delivery: Offering additional services such as managed services, cloud connectivity, and disaster recovery
solutions.
 Key Players: Nxtra, NTT, Yotta, Sify, Colt, CtrlS, Adani Connex, STT, Equinix

 End Users
End users are organizations or individuals that utilize data center services to host their IT infrastructure, applications,
and data.

 IT Operations: Deploying and managing servers, storage, and networking equipment within the data center.

 Application Hosting: Running applications and services on infrastructure hosted in the data center.

 Data Storage and Backup: Storing and managing critical data and performing regular backups for disaster
recovery.

 Key Players: Facebook, Microsoft, Netflix, Google, AWS, SBI, NSE, Vodafone, Apple

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Highlights from the Data Center Event

JLL- Rachit Mohan (APAC Head Data Center Advisory)
 Components: Key components to focus on in a Data Center include adequate storage space, efficient cooling
systems for data racks, and reliable power output to ensure optimal performance and uptime. These elements are
crucial for maintaining the integrity and functionality of the data center, preventing overheating, and guaranteeing
consistent power supply to all systems.
 Data Sovereignty: Due to accelerated adoption of public cloud and data sovereignty policies, major global players
are investing heavily in hyper-scale facilities, turning the nation into a hyperscale data center hub to meet the
increasing demand for cloud services. Since this is a work-in-progress law, the government contracts for Data
Center are yet to arrive.
 Growth of Cloud and AI: There is an increasing demand in AI. According to Bloomberg, Gen AI is going to be
$1.3Tn over a period of 10 years. As Cloud and AI require more computing, the server types are improving.
 Emerging Markets: Data Center growth in India will be particularly seen in emerging markets such as Tier 2 cities
in the future.
 Deal Volume: Out of the total volume of the world, 61% comes from the US, 28% from APAC and 11% from EMEA.
Lower deal volume in EMEA is due to energy constraints.
 Data Center Market in India: As of year-end 2023, India had 854MW of operational capacity and 807MW of
occupied capacity. The major four cities of DC in India are Mumbai – 454MW, Chennai – 88MW, NCR Delhi –
84MW and Pune – 82MW. In India, however, Hyderabad is the fastest-growing city for DC with 52MW.
 Big Business in Mumbai: In Mumbai, the concentration of corporate offices leads to a preference for keeping
data center localized to fix downtime and enable quick rectification of issues. Apart from offices, Mumbai benefits
from superior infrastructure, particularly in power, thanks to Adani.
 Favorable DC Point in India: India is becoming a favorable DC location due to its lower energy consumptions,
positive developments in renewable energy utilization, and cost-efficiency advantages. In addition, India benefits
from a growing pool of talented professionals specializing in this sector.

Panel Discussion
Sujeet Deshpande - CEO & Co-Founder, Lumina CloudInfra
Sunil Gupta - Managing Partner & CEO, Yotta Infrastructure Solutions
Surajit Chatterjee - MD (Data Center), CapitaLand Data Center Services
Vinod Javur, COO - Digital Edge DC (India)
Prasanna Sarambale - CEO, Sterling Wilson Data Center EPC

 Drivers behind growth in India: The two main drivers going ahead would be personal data consumption growth
and enterprise growth. With more than 1bn mobile connections and 700mn smartphones, and the launch of
cheap smartphones, personal data consumption is expected to witness strong growth. Enterprises as well, who
are now dealing with heaps of data, are looking for options to store and analyse this data. The rise of AI has also
seen the use of video versus text earlier, which is data intensive. There is no ready capacity right now; panelists
believe that if someone wants even a 20MW ready capacity, they do not have that to offer.
 Regulations key demand driver as well: Data Centers were earlier part of the IT & ITeS from a policy perspective,
which are now given infrastructure status. As a result, there is renewed focus from all states towards developing a
Data Center policy. With large amounts of land, states are looking to capitalize on this high growth opportunity.
Panelists believe that states should focus on Tier-2 and 3 towns as well and work towards providing the necessary
infrastructure (power and network cables) to attract Data Centers in those locations.
 Rise in demand is not a blip, but sustainable for over a decade: Panelists believe that the exponential growth
expected in the sector over the next 3-4 years can last at least a decade, following which we may see stabilization
in demand. So, there is still a huge runway for growth. India is still far behind in terms of hinterland development
as Data Centers are primarily metro focused, but this may change with policy initiatives in times to come.

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 Government is not only a policy enabler, but also a demand generator: Government is one of the largest sectors
actively digitizing itself. Starting from land records to judicial information, the push is to digitize everything. The
launch of UPI and Adhaar have been adding to this digital push. With initiatives like the India AI mission, the
government hopes to help India gain pace in the race for AI. The government opened up its cloud requirements to
private operators in 2017-18 and the Meghraj Policy came back then. Cloud is being taken very seriously and the
CII and Assocham are working extensively towards understanding the space and drafting policy requirements.
 Government's role as a facilitator: Panelists spoke about the government's role in facilitating DC development by
streamlining approvals, providing infrastructure support, and generating demand through its own digital initiatives.
They also discussed the government's openness and support through platforms such as CII Data Center Taskforce.
 Challenges and risks: Challenges such as lengthy approval processes for land and power acquisition,
infrastructure readiness, and varying state-level support are identified. There is increasing importance of
addressing environmental, social, and governance (ESG) concerns as well as technological risks associated with
evolving AI and cloud technologies.
 Market dynamics and rental projections: While the capacity is expected to increase, panelists believe that rentals
will also continue to rise given increasing demand and the need for supply to catch up. They highlighted the
importance of local manufacturing in reducing costs and meeting global standards.
Overall, the consensus among industry experts is that while India's Data Center sector shows immense potential,
sustained growth requires continued government support, streamlined regulatory processes, robust infrastructure
development, and strategic investments from both domestic and international stakeholders. The next decade is seen
as critical for the sector's expansion, with India poised to become a significant player in the global data infrastructure
landscape.

Yotta- Sunil Gupta (Co-Founder and CEO)

 Lack of GPU: While India has the skillset, better energy consumption, startups, capability of funding and usage of
renewable energy sources, lack of GPU is the reason for falling behind. However, the government has approved
the Rs103.7 billion India AI Mission, which aims to deploy 10,000 GPUs under public-private partnerships in
March earlier this year.
 Infrastructure of Data Center: Beside the skillset to enable AI systems in India, good quality Data Centers are
required, which has improved over the last 10 years. India boasts higher-quality data centers, compared to other
manufacturing countries.
 Saturity of current LLM models: Current narrative about GPT models is that they are saturated. Now the current shift
is towards creating Artificial Generative AI (almost as perfect as human intelligence). While the current GPT 4 model
used 10k GPU to train their model, this Artificial Gen AI will require 1 lakh GPU working together. Hyperscalers are
demanding places which will give the output of 500MW to 1GW in one location for creating this model.
 Global demand for Yotta NVIDIA chips: There was a significant demand for the 4k chips delivered to Yotta. All the
chip decks were sold out before their launch, with 70% of customers from global markets and the remaining from Indian
companies.
 Rates as compared to Yotta: When comparing data center rates, Yotta stands out for its competitive pricing.
Hyperscaler rates typically range between $9 and $12 per unit, while NVIDIA core players such as Lambda Labs and
Peak IV offer rates of around $4 to $5. In contrast, Yotta provides a significantly lower rate of $2.5 to $2.7 per unit.
 Important for Data Center to survive: Two important products which are required for a Data center in a location to
create and survive are fiber network and reliable power. If enough fiber network and power are provided, then a
Data Center can be sustained at that location.
 Cost of Colocation Data Center: In colocation, cost distribution is crucial. Land constitutes 10% of the total cost,
20% is allocated to the core and shell, while 70% is dedicated to the MVP, encompassing products inside the data
center. The investment per GPU is approximately $38-39k.
 AI in Data Center: AI in IT services will lead to more job losses than creations, with the traditional IT industry
declining. Training for AI tools such as ChatGPT is insufficient. AI use cases are driven by AI, not IT services.
Creating foundational models is complex and not aligned with IT services' goals. Over 1,000 POCs are ongoing.
New jobs will differ from those lost, and displaced workers may struggle to adapt. Management is sceptical about
the substantial impact of training.

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BlackBox (N Jayantha Prabhu Head Business – India, MEA and SAARC)

 Key industry trends in 2024: There are various key trends popular in 2024 such as: (1) Sustainability and Energy
Efficiency, where importance is given to the adoption of renewable energy sources, enhanced energy efficiency
measures and advanced cooling techniques, (2) utilization of AI and machine learnings in Data Center operations,
increasing popularity of Edge Computing, (3) increased Rack Densities and High Density cooling for newer
technologies as the demand and computing increases and (4) Cybersecurity, which is an important trend to
protect data with enhanced security protocols and advanced technologies

 Growth In India: India is an emerging expansion market due to various factors such as: (1) cable landing ─ earlier
we had only two cable landings in Mumbai and Chennai; however, currently, we have 14 locations of international
cable landing sites; (2) skill set is for technology is highly powerful in India; (3) power costs are very low in India,
aided by an increase in renewable energy sources.

 Benefits of working with a premier global solution provider: These premier providers offer several benefits,
primarily due to their expertise and experience, which enhance customer outcomes and provide a global reach.
They possess advanced knowledge and adhere to industry best practices, enabling them to support any future
hyperscalers entering the Indian market with necessary resources to successfully navigate the market. They also
have an insight into the latest technology and innovative solutions to keep up with the demand of the market.

 Global portfolio solutions of Blackbox: The company provides comprehensive support for Data Centers, covering
areas such as connectivity infrastructure, data center solutions, enterprise networking, modern workplaces, and
cybersecurity.

 Supporting hyperscalers and large enterprise Data Center: Blackbox works with various large hyperscale centers
such as Meta, Google, Microsoft, etc., and hyperscalers globally. However, prior to working with hyperscalers,
Blackbox initially began its work with large enterprise Data Centers, focusing on sector such as Telcos and the
Government in India.

Sterling Wilson Data Center EPC (Ranjit Gajare, Head – Data Centers International Sales)
 General trend, example of USA: The US had a capacity of 6-7GW in 2014 and it is expected to reach 35GW by
2030. Over a period, hyperscalers and colocations have gained share from enterprise. Power Usage Efficiency
(PUE) has been falling over time, from 2.5 in 2007 to stabilizing at 1.5 now (constant over the last 10 years).

 Strong growth in India ahead: They have built out capacity to around 1GW now and plan to add 300-400MW
every year. Total capacity is expected to reach 4GW by 2028. Majority will be by colocations; hyperscalers will be
building their own facilities as well.

 Major types of Data Centers: Can have a Data Center at Edge (local Level), Hyperscaler (at a national level) and
colocation (at regional level). The more local the center is, the lower the latency, for example, for an OTT platform,
Edge suits better.

 Rising rack densities: Today, on an average, a single rack power density is 5-8kW/rack. It used to be 2-3kW/rack
a decade before. As servers and GPUs are getting powerful, this is expected to rise to 30kW or even 50kW/rack.
Higher requirement means higher cooling requirement, which in turn requires more power.

 Cooling technologies changing with times: With the rise in power density, the cooling technology is moving
towards liquid immersion cooling or direct-to-chip cooling. So, server boxes will be dipped in di-electric liquid to
cool the servers. In direct-to-chip cooling, servers will be cooled at a chip level and not room level. This is viable
only at 25-30kW/rack and not lower, so not everyone is adopting this technology.

 Pre-fabricated Data Centers. While the conventional Data Centers are brick and mortar, there has been a rising
demand for pre-fabricated steel structures, which have lower cost of deployment. They have limited MW
requirements, where servers are packed in containers and they can be horizontally and vertically stacked. They
have Limited applications of 0.5-1MW, for example, in military, mining, and in remote locations.

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 Data Center – Powering Digital Transformation

 Inverted Pyramid Approach by SW EPC. Long Lead Equipment including DGs, UPS, Chillers, etc., have long
manufacturing lead times and they have the highest value. Therefore, as soon as SW secures a project, they place
orders for low lead equipment such as trays, supports, pipes and cables before even the engineering and design
phase. Based on their experience, they are able to accurately estimate the quantities required. These items are
needed as soon as the civil part is complete. Long lead equipment are installed in the final stage, even though
they are the most critical. Lead times of equipment like DGs have gone up from 4-5 months to a year now
because of huge demand.

 End-to-end EPC solution provider. SW specializes in designing, building, and operating data centers. They have a
robust track record of executing data center projects across various sectors including Telecom, Banking &
Financial Services, IT & ITES, Cloud, E-Commerce, PSUs, and Central & State Governments. The company has in-
house expertise across multiple disciplines such as civil engineering, electrical systems, Integrated Building
Management Systems (IBMS), HVAC (Heating, Ventilation, and Air Conditioning), firefighting systems, DG (Diesel
Generator) sets, and Testing & Commissioning. They also handle Operations & Maintenance (O&M) of data
centers. The company has successfully delivered data center projects worth Rs16bn globally. They operate not
only in India but also in the Middle East and Africa regions.

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Companies related to Data Centers in India

 Anant Raj
 Anant Raj is a leading real estate developer in the NCR region with a fully paid land bank of 312 acres, of which it
holds 167 acres in the premium location of Golf Course Extension Road, Sector 63A, Gurugram. The company is
also venturing into the Data Center segment with the aim to reach a capacity of 307MW.

 They have active partnerships with RailTel and Telecommunications Consultants India (TCIL) for providing Data
Center services.

 Techno Electric
 Techno Electric in an SPV is setting up a 40MW data Center in Chenai ─ in the implementation stage, which
should be ready by Mar-2026. Currently, implementing 6MW first phase with a capex of Rs4.5bn with a total
commitment of Rs12bn.

 Won a concession agreement from RailTel to set up 100+ edge data centers for the Indian Railways under the
digitization plan in partnership with RailTel over the next four years with a potential opportunity of Rs10bn
(assuming 100 data centers of 100kw each).

 Execution timeline will be 20 locations on a yearly basis and commissioning timelines will be 12 months from the
date of land allotment.

 These data centers can vary in capacities from 100KW to 2MW or more, which will ultimately decide the total
opportunity size.

 Allotted land in Kolkata to set up a data center next to other centers set up by STT, Reliance, AdaniConnex, etc.

 Cummins
 Basis our discussion, of the total project cost, 80-85% is MEP and 10% is for Diesel Gensets.

 Given capacity is expected to double over the next three years to 2GW, this translates to Rs500bn (assuming
Rs500mn/mw).

 This drives an opportunity of Rs50bn for DGs over three years, translating to Rs~16-17bn of an annual
opportunity.

 However, Cummins mentioned it is already at Rs5bn of sales, ~6% of consolidated sales (incl. exports) which is
attributable to data centers as at FY24. Hence, this can potentially grow to ~Rs7bn per year over the next 2-3
years.

 We note, Cummins and Caterpillar are the two largest players in diesel gensets.

 Netweb
 Netweb provides end-to-end high-end computing solutions (HCS) with offerings of HPC (high performance
computing), Private Cloud and HCI (hyperconverged infrastructure), AI systems and enterprise workstations, high
performance storage (HPS) and Data Center servers.

 Netweb is also a manufacturing partner for NVIDIA Grace CPU Superchip and GH200 Grace Hopper Superchip
MGX server designs, which will support simultaneous workloads such as AI training, inference, and 5G on a single
system.

 The company has deployed over 5000 GPU-based systems, 500 successful HPC installations and over 70+
private cloud and HCI installations.

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 Aurion Pro
 AurionPro provides both Data Center building service, whereby it builds Turnkey Data Center Physical
Infrastructure, and Consulting and Planning Services, whereby it delivers professional consultancy services for the
physical environment of Data Center.
 The company has locked in a strong team of industry veterans with over 20 years of experience in the field.
 This space for the company sees more demand than supply with various orders coming from the RBI, the IIT
Mumbai High Performance Computing Center, the IIT Guwahati High Performance Computing Center, etc.

 E2E Networks
 E2E is an AI-focussed hyperscale cloud platform offering Advanced Cloud GPUs and a comprehensive ecosystem
of cloud technologies designed for the development and deployment of AI/ML/GenAI workloads on largescale
compute clusters.
 The company has served over 15,000 clients, with more than 3,000 active customers, available in 10 countries
and utilizes three active Data Centers in partnership with NetMagic.
 The company support clients such as IIT madras, IIT Bombay Cars 24, Car Dekho, Team BHP, etc.

 Bluestar
 While it is actively present in data center cooling opportunities, it is not widely recognized by the EPC players and
is understood to be present in sub-1MW projects.

Exhibit 17: Comparative Valuations

Particulars Mcap CMP Revenue (INRMn) CAGR EBITDA (INR b) EBITDA Margins (%)
DAM ESTIMATES (Rs. Bn) (Rs) FY24 FY25E FY26E FY24-26E(%) FY24 FY25E FY26E FY24 FY25E FY26E
BLUESTAR 347 1,688 96,854 117,502 143,872 21.9 6,649 8,892 11,110 7 8 8
ABB 1,790 8,447 104,465 126,716 155,861 22.1 14,898 20,220 25,282 14 16 16
ANANT RAJ LTD 167 487 14,833 18,598 26,944 35 3,338 4,701 9,053 23 25 34
BBG ESTIMATES
TECHNO ELECTRIC 167 1,549 15,024 25,895 34,857 52 2,094 3,764 5,336 14 15 15
CUMMINS INDIA 1,097 3,958 88,164 102,934 120,294 17 17,079 19,150 22,806 19 19 19
NETWEB TECHNOLOGY 147 2,610 7,241 10,597 14,557 42 1,025 1,605 2,245 14 15 15
AURIONPRO SOLUTI 81 1,460 8,875 NA NA NA 2,025 NA NA 23 NA NA
BLACK BOX LTD 63 376 62,816 NA NA NA 4,203 NA NA 7 NA NA
E2E NETWORKS LTD 22 1,533 945 NA NA NA NA NA NA NA NA NA
BLUE STAR LTD 331 1,608 96,854 116,857 137,724 19 6,649 8,609 10,568 7 7 8
Source: Bloomberg, DAM Capital Research

Exhibit 18: Comparative Valuations (contd…)

Particulars EPS (INR) PE (x) ROE (%) EV/EBITDA
DAM ESTIMATES FY24 FY25E FY26E FY24 FY25E FY26E FY24 FY25E FY26E FY24 FY25E FY26E
BLUESTAR 20 28 36 84 60 47 21 21 23 52 39 31
ABB 59 80 101 143 105 84 23 26 28 117 86 68
ANANT RAJ LTD 8 11 21 38 42 21 8 9 16 32 33 17
BBG ESTIMATES
TECHNO ELECTRIC 25 33 43 62 47 36 13 15 18 73 41 29
CUMMINS INDIA 59 63 75 68 63 53 28 27 28 63 56 47
NETWEB TECHNOLOGY 13 21 29 194 126 91 29 25 27 141 90 65
AURIONPRO SOLUTI 31 NA NA 47 NA NA 20 NA NA 39 NA NA
BLACK BOX LTD 8 NA NA 47 NA NA 34 NA NA 16 NA NA
E2E NETWORKS LTD 15 NA NA 101 NA NA NA NA NA NA NA NA
BLUE STAR LTD 20 28 35 80 58 47 21 20 22 49 38 31
Source: Bloomberg, DAM Capital Research

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provide any assurance of returns to investors.
Details of Compliance and Grievance officer
Name: Rajesh Tekadiwala Tel No. 022 -4202 2584 Email Id - [email protected]

Rating System

Investment Ratings Expected returns (over 12-month)

Buy > =10%
Sell < -5%
Neutral <-5% to 10%

SEBI Registration Nos. of DAM Capital Advisors Limited - CIN- U99999MH1993PCL071865

Research Analyst INH 000000 131
Stock Broker
NSE Capital Markets / NSE Futures & Options
INZ000207137
BSE Capital Markets / BSE Futures & Options
Merchant Banker INM000011336

22 | DAM CAPITAL 4 July 2024

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www.damcapital.in

DAM Capital Advisors Limited DAM Capital (USA) Inc.

th
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Bandra Kurla Complex, Bandra (East), Suite 12-129,
Mumbai 400 051. New York, NY 10004
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Board: +91 22 4202 2500 Tel: +19087701300 / +18572056777

Fax: +91 22 4202 2504

Our research is also available on Bloomberg and Thomson Reuters

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CAPITAL 4 July 2024