Adani Group, Reliance Industries to lock horns for India's data centres

Adani Group and Reliance Industries (RIL) seldom find themselves as competitors to each other. India’s data centre market would prove to be one, where both might be chasing the same set of clients, though for different reasons.

At RIL’s annual general meeting last month, Mukesh Ambani, chairman and managing director, announced a partnership with Microsoft to launch data centres across India.  In January, the Adani Group committed to developing data centres in Andhra Pradesh, with Rs 70,000 crore of investments in digital and energy infrastructure. 

So far, Adani has made initial moves in businesses like petrochemicals, natural gas and petroleum retailing where RIL is an established player. Data centres would be a new segment for both.

Experts say the duo’s ambition for data centres is fuelled by different reasons. “RIL wants to be a large and leading digital-telco player in India, which is going to involve a lot of vertical and horizontal integration. Data centres is part of this integration, which he (Ambani) now looks to offer to third parties in order to achieve benefits of scale. This is akin to warehouse; initially captive and now third party,” said Nitin Bhasin, head of research for Ambit Capital.  

He said, “The Adanis might be looking at it from an infrastructure or purely real estate play, not as services or a digital game. Both are definitely chasing Amazon and Google but are approaching with different mindsets.”

There is a government push in India for digitising of business and services, with multiple states also looking to set up data centres. There is also a need for greater data localisation to protect citizen’s digital assets. Some say this state policy opportunity is what sets Adani and RIL apart. 

Naresh Golani, group head (corporate ratings-large corporate) of CARE Ratings, said: “Adani Group typically builds its business around government policies, looking at past performance. While RIL’s retail business presence may overlap if they had to cater to e-retail giants like Amazon, Adani’s independent existence (no retail presence) is an advantage.”

The government push and the need for data localisation have also turned the data centre market into an extremely attractive one. Public cloud services revenue in India is projected at $2.4 billion in 2019, an increase of 24.3 per cent from 2018, according to Gartner. 

According to Golani, this market will grow at 20 per cent annually for the next few years. 

He sees enough potential for two giants to co-exist. “The growth potential is significant and there is enough scope for everyone,” he added.

Availability of capital might prove an advantage for both Adani and RIL’s Jio. “New entrants will face multiple challenges like a capex-intensive sector with long-term return on investment and limited experience of profitably running data centre operations,” said Naveen Mishra, senior director and analyst at Gartner. 

“Barriers to entry are high, given the existing 12-18 players in India, who are also adding capacity, as well as the ability to gather various government approvals.”

Others are hopeful the entry of two big conglomerates will further organise the segment. 

“They might land up competing but the opportunity is large and this could be healthy competition. Two big players in the sector will organise the segment, which is very fragmented right now. This could help attract international investors looking to invest in infrastructure yield assets,” Bhasin added.