IBEF: January 23, 2020
Nippon Telegraph and Telephone, a Japanese tech major said that it plans to invest a significant part of its US$ 7 billion global commitment for data centres business in India over the next four years.
The company also feels that there will be margin compression issues for the data centres business in India as capacity supply goes up along with an increase in competition, NTT's country chief executive for global data centres and cloud infrastructure, Mr Sharad Sanghi said.
Many corporates including the Adani Group, Hiranandanis and Reliance Industries, in last few months announced investments in data centres, because of the regulatory moves like data sovereignty which makes it compulsory for financial institutions to house their data locally.
"India is the fastest growing region for NTT and a substantial amount of the US$ 7 billion commitment will be invested here," Mr Sanghi said.
Mr Sanghi added that the overall investment is expected to be split equally between the four regions where the company operates in, with India receiving over Rs 11,000 crore (US$ 1.5 billion) amount.
He further said that the company, whose revenues have been increasing at 30 per cent every year, is aiming to increase its capacity to double in the next three years through the investments.
The company's overall capacity currently stands at 1.2 million sq ft spread across Mumbai, Noida, Chennai and Bengaluru, is expected to increase to 1.5 million sq ft, he said.
It is also planning to expand to newer locations as well and also adding to its land bank to house the facilities, he said.
The demand is coming from global hyperscalers like cloud service providers, data localisation requirements, since a greater number of enterprises are moving to the cloud, Mr Sanghi said.
The Adanis have committed Rs 70,000 crore (US$ 10.02 billion) for data centres in Andhra Pradesh, Hiranandanis have committed Rs 14,000 crore (US$ 2 billion) whereas RIL has announced a partnership with Microsoft for the same.
Mr Sanghi said that the increase in investments in the business will change the characteristic of the market, which has so far been dictated by suppliers, from 2021 onward once the capacities come on board.
The revenue is expected to increase because of the market opportunity, while, increase in the supply can lead to a short-term blip in profitability by narrowing operating margins, he added, stressing that this will not last for long time.
NTT is confident of guarding its business and growing in the face of competition, he stated, adding data centres is its core business and clients, who sign long-term contracts, partner with companies which are not into different businesses like power and realty.
He added that there will be a consolidation in the industry due to the dynamics and it will be hard for the smaller entities to survive, making it clear that NTT does not intend to opt for mergers and acquisition as a strategy but may look for inorganic routes growth in the country.
He also made it clear that aggressive pricing may not work for companies, indicating towards two incidents of companies who tried getting business using this same strategy but ended up going bust.
Mr Sangi pitched for an improvement in power supply in Noida, Chennai and Bengaluru, saying two hours of power down time per week is a worry.
NTT also launched an integrated division to look over the global data centre opportunity.
Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.