India has become a hotspot for investors over the last few months, with a string of corporates like the Adani Group, and Reliance Industries have started investing in data centers. Now, it’s the turn of Japanese tech major NTT, who on Wednesday launched an integrated division to tap in on the global data center opportunity. A significant part of their $7 billion global commitment would be spent in India for data centers over the next four years.
The company feels that as capacity supply goes up with an increase in competition, there may be margin compression issues in the data centers business in the country, according to NTT’s country chief executive for global data centers and cloud infrastructure, Sharad Sanghi. He also states that India is the fastest-growing region for NTT hence a huge amount of the $7 billion will be invested. This investment would be spread across the four regions the country operates in. It is expected that over $1.5 billion would come into India.
NNT has its revenues growing every year at 30 percent and wishes to double its capacity within the next few years with this investment. Its overall capacity will go up by 1.5 million sq. ft. from the current capacity of 1.2 million sq. ft. It is also looking at going to other locations. There’s also demand from cloud service providers, data localization requirements as a greater number of enterprises move to the cloud. Only recently, Adanis have committed Rs. 70,000 crore for data centers while Hiranandanis has committed Rs. 14,000 crore. RIL has also announced a partnership with Microsoft for this. With such a high quantum of investments in the cloud business, the characteristic of the market will change according to Sanghi. The supply increase could cause short term blips in profitability due to narrowing operating margins, while revenues will keep growing because of the market opportunity. While expressing confidence at the growth of the company in the face of competition, he added that adding data centers was its core business and the clients, who sign long-term contracts do partner with companies not into different businesses like power and realty. He also stated that aggressive pricing may not work for companies, giving an example of two incidents of companies who went bust trying this strategy. He also pitched for the improvement in power supply places like Noida, Chennai, and Bengaluru.
Smaller entities may find it difficult to survive due to a consolidation in the industry following the dynamics, and NTT will not look at mergers and acquisitions but may move in opportunistically for the buys.