From Anant Raj To Airtel: Stocks That Can Benefit From Data Centre Boom In India

India generates about 20% of the global data, but in terms of data centre capacity, its share globally is just 3%. The country's under-penetration in the sector and several demand catalysts indicate potential for large capacity-addition plans over the next few years, according to CareEdge Ratings.

These capacity additions stand to benefit companies like Anant Raj Ltd., Adani Enterprises Ltd., Reliance Industries Ltd., Blue Star Ltd., Bharti Airtel Ltd., Exide Industries Ltd. and more.

When compared to China, the US and the European Union, India's internet user penetration in India stands the lowest, but mobile data consumption stands the highest.

Regarding the data centre capacity per million internet users, India's rate is just 1 megawatt, as opposed to 4 MW per million users in China.

• Digital Transformation: Technology drives India's transition to a developed economy, fuelled by e-commerce and fintech, boosting internet usage. CareEdge projects India's internet penetration to rise from 63% in the financial year 2023 to 87% by fiscal 2029. The adoption of 5G, the internet of things and AI will fuel demand for data centres.

• Lower Cost Per Megawatt: Setting up a data centre is capital-intensive, with 40% for land and buildings, 40% for electrical systems and 20% for heating, ventilation, and cooling systems. India offers a cost advantage for the setup due to lower land and labour costs, with CareEdge stating a 45% lower capital expenditure compared to the global average.

• Government Push: The Union government aims to stimulate investments in the data centre sector through initiatives like introducing a draft data centre policy and granting infrastructure status in the Union budget 2022–23. This status facilitates easier access to credit, long-term financing and refinancing opportunities, thereby fostering sector growth.

India set up its first commercial data centre in 2000. Initially, growth progressed slowly to 122 MW by 2010, averaging 12 MW annually. However, capacity had grown nearly fourfold by 2020, with an average yearly addition of 32 MW, led by various advancements. CareEdge credits Reliance Jio's affordable network and the introduction of the Unified Payments Interface for this growth.

CareEdge forecasts a robust growth phase, with capacity expected to double to 2,000 MW by 2026. It estimates potential investments of Rs 50,000 crore in the next three years, indicating promising prospects for the industry's expansion.

The real estate company is making a big play in data centres. The company has an early-mover advantage to cater to the emerging demand. Their advantage lies in lower capex per MW due to land ownership and existing infrastructure.

The company is transforming its 5.66 million square feet of commercial property into a 157 MW data centre. Anticipating Rs 3,300 crore in rentals when fully operational, it is investing Rs 10,000 crore for a 300 MW data centre.

Adani Enterprises Ltd. benefits from India's data-centre boom via its joint venture, AdaniConneX, which constructs and manages data centres. Increased demand enables the JV to secure more clients, generating revenue through space leasing and related services, directly boosting profit for Adani Enterprises.

The data-centre business complements Adani Enterprises' existing portfolio. The firm has a strong presence in power generation and transmission and owns land parcels across India, which could mitigate land acquisition costs for future data centre setups.

The conglomerate has formed a joint venture named Digital Connexion with global players like Brookfield Infrastructure and Digital Realty. The JV focuses on constructing and managing data centres across India. Their inaugural facility in Chennai commenced operations in early 2024, with plans for expansion in Mumbai and potentially other locations.

The data-centre surge is fuelled by rising internet penetration, and Reliance Jio, a major telecom operator, could house its data needs within Digital Connexion's centres, potentially reducing reliance on external providers and cutting operational costs. Digital Connexion's centres cater to other companies besides Jio, offering Reliance Industries a new revenue stream.

The engineering company is entering the data centre development space as an operator. The company plans to invest $1 billion to establish data centres with a total capacity of 250 MW across India by 2030. The company's current project is a 24 MW facility under construction in Chennai.

The EPC player can also leverage its knowledge in engineering, procurement, and construction and act as an EPC partner for other companies building data centres in India.

The telecom company benefits through its subsidiary, Nxtra, which is a player in the Indian data centre market, owning and operating a large network of data centres across the country.

Companies that require data centre services pay Nxtra rental fees for space and related services. This generates recurring revenue for Bharti Airtel. As the demand grows, Nxtra can also attract new clients, expanding Bharti Airtel's overall customer base.

Airtel is also aggressively expanding Nxtra's data centre capacity. They aim to triple the capacity by 2025.

The company is a leading battery manufacturer, including high-end direct current batteries, which are specifically designed for data centre applications.

Data centres also rely on UPS systems to provide temporary power during outages. While Exide doesn't directly manufacture these systems, they have batteries that are crucial components. A rise in demand for UPS systems could indirectly benefit Exide's battery sales.

Data centres require an uninterrupted power supply to function. The company manufactures diesel generators that act as backup power sources during grid outages or fluctuations.

The company has also strategically developed its product line. Their OptiPrime series of generators is specifically designed for data centres.

While Sterlite Technologies is not directly involved in building or operating data centres, the company can benefit from the data centre boom in India in a couple of ways.

The firm is a leading provider of optical fibre cables and related networking solutions used for high-speed data transmission within data centres. A boom in the sector can help drive demand for these products.

The company stands to benefit from their expertise in air conditioning and cooling equipment.

Data centres require a precisely controlled environment to function properly, and maintaining cool temperatures is essential. Blue Star is not just a manufacturer of generic air conditioners. They offer products specifically designed for data centre requirements.

Black Box has identified digital infrastructure, including data centres, as a key growth area. They recently opened a centre of excellence in Bengaluru, specifically dedicated to innovation and collaboration in data-centre solutions.

Mindspace Business Parks REIT owns and operates a portfolio of business parks and commercial spaces. As demand for data-centre capacity increases, the company can lease existing vacant space or undeveloped parcels to data centre operators. This could lead to higher occupancy rates and more rental income.