Investing in India’s Data Centre Boom: A New Frontier for Growth

Introduction

In the ever-expanding digital universe, data centres are the unsung heroes, storing, processing, and protecting the vast streams of information we generate daily. With the rise of AI and cloud services, these facilities are becoming more critical than ever, and India’s burgeoning digital landscape is set to become a key player in this global trend. For investors, this shift presents a unique opportunity to capitalize on the growth of data centres.

Why Data Centres Matter

Data centres are the backbone of the digital world, akin to Fort Knox for information. They ensure that data is securely stored and efficiently processed, while also safeguarding against both cyber and physical threats. The growing reliance on AI and cloud computing has spurred significant investments from global tech giants into data centres, setting the stage for a boom in this sector.

The Indian Data Centre Landscape

Historically, India was not a major hub for data storage. However, recent government initiatives and increased digital activity are changing that narrative. According to JLL, India’s data centre capacity is expected to nearly double from 853 MW to 1,645 MW by 2026. This growth is likely to drive substantial investments across real estate, infrastructure, and technology sectors, potentially reaching $5.7 billion.

Investment Opportunities

As India positions itself as a key player in the data centre arena, several companies stand out as potential beneficiaries of this trend. Here are some names to research on:

1. Netweb Technologies

• Sector: High-performance computing and storage solutions
• Growth: Revenue has grown by 41% annually over the past five years, with an order book of around ₹420 crore.
• Opportunity: Netweb Technologies is well-positioned at the heart of data centre operations.

2. HFCL

• Sector: Connectivity solutions
• Growth: Anticipates its revenue from data centres to triple by FY25, targeting a topline of ₹750 crore.
• Opportunity: HFCL is crucial for seamless data transfer between servers and users.

3. Schneider Electric

• Sector: Power supply solutions
• Growth: Data centre revenue constitutes about 15% of its total revenue, with expected double-digit growth in this segment.
• Opportunity: Schneider Electric provides essential power solutions to keep data centres operational.

4. Blue Star

• Sector: Cooling solutions
• Growth: Holds orders worth over ₹4,000 crore from various sectors, including data centres.
• Opportunity: Cooling costs account for nearly 40% of data centre expenses, making Blue Star’s services critical.

5. Honeywell Automation

• Sector: Integrated security solutions
• Growth: Provides comprehensive security measures including surveillance and environmental sensors.
• Opportunity: Essential for protecting sensitive information in data centres.

Additional Considerations

While these companies present attractive investment opportunities, it is crucial to conduct thorough research before investing. Keep in mind that valuations may be high due to the current AI buzz, and many of these companies have diverse operations beyond data centres. Ensure that you factor in these variables to make informed investment decisions.

Conclusion

The rise of data centres in India is more than just a technological trend; it’s a significant investment opportunity. By aligning with companies that are integral to this sector, investors can potentially benefit from the digital boom. However, as always, due diligence and careful consideration of valuations are essential.

Happy investing!

Few names spread across the Value Chain of Data Centers

a) Site Selection, Construction, and Consultants:

• Larsen & Toubro
• Anant Raj
• Techno Electric
• Ahluwalia Contracts
• Railtel

b) Infrastructure, Equipment, and Networking Solutions:

• HFCL
• Netweb Technologies
• Tejas Networks
• Sterlite Technologies
• RailTel

c) Energy and Power Solutions:

• Siemens
• Schneider Electric
• Hitachi Energy
• KEI Industries
• Amara Raja Batteries

d) Cooling Solutions:

• Blue Star
• Voltas
• Johnson Controls-Hitachi Air
• Schneider Electric
• Netweb Technologies

e) Physical Security and Supportive Systems:

• Honeywell Automation
• Bosch
• Siemens
• Schneider Electric

f) Infrastructure Management (DCIM) Solutions:

• Siemens
• HCL Technologies
• Wipro
• Infosys
• TCS

I prefer concentration since I’ve benefitted immensely from the same strategy in the past i.e. TIPS INDS (bought in 2021 while everyone was talking up SAREGAMA back then).

Today TIPS has become my largest holding following the same. Will EFC become the same, I don’t know but I feel there’s enough firepower. So wait, watch and learn about the company and, thus the sector as well while laddering up as conviction builds up.

Hi, I am from Rajkot and Intersted in city meets

CarTrade Tech: Navigating Volatility Towards Potential Profitability

CarTrade Tech, a prominent player in the vehicle trading space, has had a rocky road to profitability. Despite its volatile history, recent developments suggest it might be gearing up for a more stable financial future. Here’s a breakdown:

Current Challenges

1. Margin Volatility: Historically, CarTrade has struggled with inconsistent margins due to several factors:

• Pandemic Impact: Semiconductor shortages and reduced marketing spend from OEMs affected the consumer segment.
• Low NPAs: Financial institutions’ lower NPAs led to fewer auctions on Shriram Automall.
• High Initial Costs: Aggressive marketing and soaring ESOP expenses contributed to margin pressures.

2. Stock Performance: The stock has seen a 50% decline from its IPO price, reflecting the market’s skepticism about its earnings stability.

Positive Developments

1. OLX Auto Acquisition: The recent acquisition of OLX Auto is a significant move. This strategic integration enhances CarTrade’s market presence and dealer network, potentially driving growth.
2. Increased Traffic: With an average of 7 crore unique visitors per month (including traffic from OLX Auto), marketing costs are expected to decrease, which should help improve margins.
3. Automobile Industry Recovery: The Indian car market is bouncing back, with OEMs enjoying record sales. This recovery provides a more favorable environment for CarTrade’s business segments.
4. Rising Default Rates: Higher default rates in the banking sector could increase auction volumes on Shriram Automall, benefiting CarTrade’s remarketing segment.

Considerations

• Recent Profits: The company has posted a profit after tax of around ₹25 crore in the last two quarters, indicating a potential turnaround.
• Valuation: CarTrade’s stock is trading at a P/E ratio of around 50 (excluding discontinued operations). Given its history, this valuation might appear stretched.
• Competitive Landscape: Rivals like Cars24, CarDekho, Spinny, and Droom are heavily investing to boost their traffic, adding competitive pressure.

Final Thoughts

While CarTrade Tech shows promising signs of stabilization and growth, it’s crucial to weigh its high valuation and competitive threats. The recent profit figures and strategic moves, such as the OLX Auto acquisition, offer a positive outlook, but investors should remain cautious and conduct thorough research.

This analysis is for informational purposes and not a recommendation. Always consider your own risk tolerance and investment strategy before making decisions.

We will have to see how it fares in a bear market – some interesting observations

• FIIs and DIIs are decreasing stake (meanwhile public holding increased from 50% to 61%)
• commanding a PE of 94 at this point in time