As we all aware the main investment thesis for HBL is Railways Electronics TCAS/TMS/Interlock (oligopoly/sustainable scale up in next 3-4). Reportedly this segment is slated to become the major segment in next 3-4 years. Defence segment is seen as lumpy order-flow (though that is changing?).
There is another market that HBL has started addressing with significant vigour - PLT batteries for Data Centres (DC). in last 3 years this segment reportedly has steadily grown to around 150-180 Cr annual business. Given the huge demand for Data Centres in India (to be accelerated with 5G rollout), this could again be a very important fast-growing segment for HBL.
We have been spending energies to understand this market at some depth. Summarising below the takeaways from interviews with two DC domain experts.
- Data Centre Market in India - Scale of opportunity/Current Players/Current Active capacity
- Hyperscalers - AWS, Microsoft, Google - Cloud players
- Data Centre Infrastructure Builders - STT, Yotta, CTRLs, Nextra, Equinox, RackTAck, - 10-12 active players.
- Data Centre Infra guys - are trying to sell to Enterprises, Hyperscalers, Government. Nobody talks small these days. Even the smallest guy will say he is building 100-500 MW. And everybody is hoping Hyperscalers will buy from them
- RIL Jio is on his own - building for own business needs - not trying to sell infra to others. Though this is likely to change as bulk of the Market is moving from Core DC to Edge DC (closer to the customer, and with 5G Edge requirements will be huge 10x Core). Once RIL integrated offering is ready, probably the game plan will be to serve Enterprise DC requirements from Mobile Edge centres.
- Someone like Adani (despite many announcements) will probably NOT go big. He will build as he gets committed business. There are already players like Yotta who have a big presence, and are expanding pan-India
- Current total active capacity in India will be about 500-800 MW. The market is booming. But we have to take what everybody says with a pinch of salt. One maybe putting up a building that can cater to 25 MW, but putting in DG, UPS/Batteries for 5MW, and actual load maybe 1 MW. So discounting all of that it will be safe to say current active capacity should be around 500-800 MW
- Situation is analogous to how it was in 1998-99 for Telco players. There were like 20-25 players. Similarly here 10-12 players are active today. Some will NOT get any business and will close down. And there might be some consolidation within 3-5 years
- Trends Big Data Centres vs Smaller Data Centres
- in 2016, 7-8 MW was big. 2018 15 MW was a big DC. Today nobody talks of putting anything less than 20-25 MW. Some talk of 50 MW and 75 MW. This is the IT power. Total power you should multiply by 1.5x
- One can put up much bigger 200 MW also. But problems are twofold a) Getting large power at each location b) land rates are very high
- Instead of building vertically (more complexity/cost in strengthening building load handling capacity, goes up by 3-4x), the trend is now more clearly towards horizontal scale-up within a Campus
- Bigger trend is now towards smaller Edge DC (5-7 Mw, scalable to 25 MW) close to the customer
- Already established players are taking the position of existing Supply creates demand. Customer likes to see the choices he/she has, rather than depending on paper plans (read announcements). They are moving to create pan-India presence.
- Yotta has a 40MW (~7000 racks) live location. Another 8400 racks coming up in Navi Mumbai Campus. Plans are to come up with 100 EDGE, 11 of these are operational. Plan is to deploy 1L racks in 5 years (double of current India capacity)?. Coming up with a Hyoerscaler DC at Kolkata (Kolkata will be the 3rd cable landing station in India) - acquired 100 Acre land (erstwhile Hindustan Motors)
- Smaller players/New players are playing a wait-n-watch game, try and catch up when demand peaks. Both strategies bring their own set of pros & cons
- RIL/Jio integrated plans are seen as the biggest threat once 5G is deployed countrywide within next 2 years. This again lends some credence to the case for existing players trying to get their feet/roots entrenched before the inevitable onslaught/consolidation
- Costing/Contract Trends
- Roughly 80K - 1L per KW rentals
- Contracts are usually 1,3, or 5 year durations. Renewable yearly with some negotiation from both sides
- Hyper-scalers/Enterprise Customers are usually technology-agnostic. Data Centre Infrastructure guys take the technology/vendor decisions based on a TCO (Total Cost of Ownership) approach
- UPS/Battery Technology Choices/Adoption
- 90% of market today is served by VLRA/improved versions like PLT/TPPL
- 5-10% served by Li-Ion
- VLRA shelf-life 5-6 years; improved VLRA 8-10 years; Lion 15-20 years
- Lion 3x VLRA costing today; Smaller rack size, smaller SMPS for Lion catching up trend
- From a TCO (maintenance/sustainability/effective life) perspective for big capacity DC guys - 40 MW & above, Lion becomes cost-effective and they are able to compete. For mid-size DC players or someone setting up a captive enterprise DC, VLRA/PLT is more cost effective
- Given the market trends of exploding numbers for EDGE DC, Korean Lion players like Samsung and LG are looking at promotional rates/ will be forced to offer more competitive rates in order to harness the opportunity
- Big players like RIL Jio plans reportedly are of putting up 400-800 MW in next 3 years. There will be at least 4 Tier 4100 MW DCs. Nagpur, Jamnagar and Mumbai and Kolkata are prime locations. 40 Tier 4 MEC (Mobile Edge computing) sites where DC capacity will be around 25MW. MEC sites will start with 5 or 10 MW and eventually grow to 25MW over 3 to 5 years.
- These kind of huge numbers are likely to accelerate the trend towards Lion as market forces come into play and make it much more cost-effective and competitive even for lower capacity Edge/Core DC
- Environment/Sustainability trends also point towards accelerating Lion
- UPS/Battery Main Vendors/Deployments
- UPS - Scheider, Emerson, 3-4 main players
- Lion - Samsung, LG, Panasonic, Chinese, Others
- VLRA - Amara Raja, HBL, Others
Yotta - All Lion
NetMagic - All Lion
Airtel (Nextra) - All Lion (Microsoft Azure hyper-scaler set up)
Availability of Lion is a big issue currently. Lag time is there
5 months has come down to 2-3 months, but can be a big issue for someone looking to accelerate fast execution
- TBD (yet to establish)
- Addressable market for HBL
- Replacement Market share
- Attractiveness of PLT/TPPL for VLRA replacement
- Effectiveness of PLT/TPPL with Integrated BMS offering with proactive maintenance support vs Lion offerings
- Major deployments of big players
(Quick n dirty top-of-mind extract ; to be refined/updated from extensive Notes)