Data Centres Market in India

2015

Alchemy Research and Analytics2

• Executive Summary

• Industry Overview

o Market Size

o Comparison with Global Markets

o Growth trend and forecasts

• Demand-side analysis

o Demand drivers across major sectors

o Emerging demand from public sector schemes (Digital India Programme)

o Outlook of data requirements from major sectors

• Supply-side analysis

o Types of players: captive vs. third party

o Major players

o Comparison of major players across select KPIs

• Location analysis

o Comparative analyses of major sub-markets

o Recent developments in top three sub-markets

• Trends and outlook

o Technology trends

o Industry outlook

Contents

Alchemy Research and Analytics3

Executive Summary

• Data centre infrastructure market, in terms of revenue, is estimated at $2.03 billion for 2015 –enterprise networking contributes the maximum share (47%) to this, followed by servers (33%)

• Growth of Indian data centre market is forecast to reach 20% YoY, against the 11% globally for theperiod 2013-18

• Cloud service adoption is driving much of the data centre market. The Indian market in this regard isunique due to the rapid growth in all cloud segments such as IaaS, PaaS, etc.

Market size and growth

• BFSI, telecom and IT&ITES are the major sectors driving demand for data centres in India. Adding to themomentum is the rising IT penetration and social media consumption in the country

• A bigger demand potential in Indian data centres’ market is being generated by public investments inlarge scale digitisation – christened as the Digital India Scheme

Demand Drivers

• Captive data centres have a dominant share of the market. But they are gradually ceding ground tothird-party service providers – they account for about 40% share, compared to 20% five years ago

• Most of the data centres are Tier III based, though increasingly suppliers are enhancing their standardswith higher availability and redundancy

• An investment worth $1.6 billion is underway in the Indian data centre market Based on projects under construction, 2.38 million sq ft. expected before 2017

Data Centre Providers

• Software-defined infrastructure is setting the case for next generation data centres. These are part ofongoing steps towards technology integration and automation in data centre processes

• Analytics platforms increasingly playing a key role, to manage data centres’ growing complexities aswell as demanding requirements of development costs, network availability, security, etc.

• Open source architecture is finding greater preference due to its amenability in integrating legacysystems as well as maintaining vendor neutrality

Software-led business model

Alchemy Research and Analytics4

Demand

Alchemy Research and Analytics5

Major Sectors Driving Demand for Data Centres

BFSI

Telecom

IT and IT-enabled services

• Driven by increasing mobile penetration and usage, telecom service providers are augmentinginfrastructure not only to meet demand (mainly data) but also quality The top three players (over 90% revenue market share) reported 70% YoY growth in data

revenues for the quarter ended June 2015 Shift to 4G as a key differentiator – network rollout will necessitate significant investments.

Reliance Jio is working on 14 data centres to complement its 4G rollout by end-2015 M-Governance – a government initiative about mobile-based public services involves State

owned Data Centres for cloud-based offerings

• The demand in IT and IT-enabled services is creating the need for new data centres. Third-partyprovision is increasingly attractive for the costs and efficiencies involved IBM recently announced its plans to set up a second data centre in India. Microsoft plans to

get its data centre operational by end-2015 Enterprises network solutions’ is the focus area. Airtel partnered with Amazon Web Services

(AWS) to offer private network solutions. AWS is planning data centres in India to scale up

• Indian financial services sector is the predominant demand driver. It already has the highestpenetration in the data centres’ market, and will be maintaining its leadership The industry as a whole is projected to grow at CAGR 12-15% in next five years New banking licences (payment banks and full-service commercial banks) involve technology

play as entrants seek to reduce costs through cloud-based services In about a year, Government’s payment gateway RuPay accounted for about a third of total

debit cards operational in the country. By March 2016, RuPay credit cards are expected

Source: Ministry of External Affairs, India Mobile Broadband Index 2015, NASSCOM, Times of India, Data.gov.in

Alchemy Research and Analytics6

Key Enabling Factors Contributing to Data Centre Demand

Virtualisation

Cloud-computing

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2014 2018

$ m

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• Advent of cloud-computing has increasingly led to a service-based model of data centre

• The exponential growth in cloud services market is shaping data centre demand

• Virtualisation across server, desktop or storage, helps reduce the hardware cost and enables greater flexibility and efficiency in data centres

• As per IDC, server virtualisation market in India will reach $3.89 billion by 2020

Projected Growth in Indian Cloud Services’ Market

0.9

6.2

16.5

0.32.7

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5

10

15

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2 Mbps 45 Mbps 155 Mbps

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Existing tariff Revised tariff

Rationalisation in Cost of Leased Line• Lately, broadband costs have declined. In July 2014, TRAIreduced the ceiling rates for domestic bandwidth by 60% - thiscontributes towards the operational costs of data centres

• Increasingly, IT managers are seeking converged infrastructure toreduce complexity and overall costs of managing data centres

Hyperscale IT (such as those of Amazon and Facebook) isbeing sought for lowering costs and higher efficiency

Automation in processes, especially in software-definedenvironments help service providers cut costs

Source: Dazeinfo, StorageServers, Express Computer, The Hindu BusinessLine

Technology

Operational costs

Alchemy Research and Analytics7

• World’s largest financial inclusion project• 177 million accounts till August, 2015• Universal access to financial services

• Almost 90% of subsidy beneficiaries data being digitised

• To be integrated with unique IDs

Anticipated Demand from the Digital India Scheme

• 100 Mbps rural broadband through common servicecentres at capex of $5 billion by December 2016

• Virtual Network Operators for urban broadband

• Mobile services to 55,669 unpenetrated villages andupgradation of 150,000 post offices

• Electronic delivery of public services (e-governance),electronic databases and workflow automation ingovernment department

• Digital locker – a sharable private space on public cloudsystem to safely store e-documents and certificates

Infrastructure demand

generated

• National information infrastructure, at an estimated cost of $5 billion – to integrate networks likeSWAN,NKN and NOFN with cloud-enabled national and state data centres

• Third-party cloud data centres planned to manage costs. Government’s cloud-service “Meghraj”seeks to provide high-speed connectivity to various departments

Company Planned initiative Proposed investment ($ billion)

Reliance Industries Ltd (RIL) Infrastructure for broadband network 39.06

Bharti Enterprises Digital infrastructure 15.63

Reliance ADAG Digital, Cloud and Telecom infrastructure 1.56

Source: Financial Express, Economic Times, Forbes India, PMJDY website, Mint

Recent Major Investment Announcements

Key projects in focusDigital India Scheme – salient features

DBT

PMJDY

Aadhaar• World’s largest unique ID project – so far

generated 903 million IDs• Outlay of $2.13 billion for 2009-17

Alchemy Research and Analytics8

Supply

Alchemy Research and Analytics9

80%

20%

75%

25%

Source: Frost & Sullivan, CyberMedia Research, NetMagic Solutions, Financial Express

60-70 %

30-40 %

Captive

3rd party

Captive centres dominate. But third-party providers on the rise

2010 2013 2015

Projected growth in third-party data centre capacity

3.15

9.14

2012 2018 E

mill

ion

sq

. ft.

• Over 70% of the projected growth in third-party data centres to be driven by verticals of BFSI, media and entertainment, telecom and retail among others

• High opportunity cost of reliable power supply as well as real estate is increasingly tipping the scale in favour of third party

• Third party data centres are increasingly consolidating their position through steps in technology and value added services

Outsourcing requirements of BFSI and government services fuelling the multi-tenanted data centre segment

Telcos’ transition to 4G/LTE technology another key driver

Alchemy Research and Analytics10

Source: Rcom, The Economic Times, Business Standard, NDTV Profit, The Indian Express, The Hindu Business Line

Major players- by size of data centres

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

0 2 4 6 8 10 12‘0

00

sq

ft

Reliance IDC48%

Tata IDC31%

*Netmagic7%

Others14%

* As of 2012

Market share across DC players

Service providers augmenting capacities

Planned capacity addition by 2017

- 500,000

CtrlS

Netmagic

ESDS

Pi

Tata

Reliance

Size (sq ft)

• About 80% of the market appears to be concentrated between the datacentres of Reliance and Tata

With Tata group scouting for buyers for its data centres, the marketshares are set to change significantly in the near future

As with Tata group, a consolidation can be expected in the market forother players as well. Airtel and BSNL for instance are operational inboth captive and third party segments

• Based on plans, an estimated $1.6 billion worth of investment is beingcommitted for upcoming data centre capacity during the period 2015-18

Reliance is in the process of establishing its 10th data centre inMumbai with a capacity of 650,000 sq. ft

Alchemy Research and Analytics11

Captive Third party Storage Server DR* Security Managed service

Netmagic Solutions

Sify Technologies

CtrlS Datacentres

Trimax

Net4 India

ESDS Software Solutions

Reliance

Tata Communications

BSNL

Bharti Airtel (Nxtra Data)

Spectra Solutions

Cyfuture

DataGalaxy

Aride Ocean

Source: Company Website

* DR- Disaster Recovery

Presence across segments

• Most of the data centre providers operate in the service segments of third party, storage and server due to demand for consolidation and virtualization

Tata Communications is reportedly in talks for hiving off its data centre business. Key players reported to be in discussion for acquiring the capacity are Google and Amazon Web Services

• BFSI and telecom verticals are predominant in the captive data centre segment

Alchemy Research and Analytics12

Trends and Outlook

Alchemy Research and Analytics13

Source: ResearchGate Report, StorageServers, CXOtoday.com

-29%

149%218%

280% 252%331%

368%413% 382%

430%

-100%

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100%

200%

300%

400%

500%

0

2

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2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

$ m

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Investment Saving RoI

VMware RoI calculator of total cost of ownership

Potential $3.8 billion Impact of Virtualization by 2020

Servers61%

Server administration

21%

Power/cooling17%

Floor space1%

• SMB enterprises are driving the adoption of virtualization to slash operational costs

Servers offer the maximum scope Pure-play service providers are

tailoring solutions for SMBs

Virtualisation to manage costs and scalability

SMBs

• Incremental data centre investments are relying on virtualisation for disaster recovery centres

• It is expected that upcoming data centres for Digital India scheme will significantly deploy virtual servers for disaster recovery mechanisms

Disaster Recovery

Alchemy Research and Analytics14

Source: IBM India, Times of India, Gartner, International Business Times

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2013 2014 2015 2018

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Growth in Public Cloud Service Market

Cloud services shaping the data centre market

Planned investment

Microsoft $22.7 million for setting up three cloud service data centres in Mumbai, Pune and Chennai

IBM Planning to set up second data centre in India, to add to the one operating in Mumbai presently

Amazon Web Services Multiple data centres planned by 2016. In the fray to acquire Tata Communications’ data centre

NTT Communications $100 million through Netmagic Solutions (NTT’s Indian subsidiary) to set up ninth data centre in Mumbai

ESDS Software About $53 million to set up data centres in Navi Mumbai, Bengaluru and Nashik

NxtGen Datacenter &Cloud Technologies

Raised $13.5 million from IFC, Axon Partners Group and Intel Capital for data centre in Bangalore andenhanced cloud service offerings

• Gartner’s Cloud Adoption Survey in January 2015 revealed 53% of organisations were using cloud services. Another 43% in the same survey indicated planned adoption by end of year

• Key segments driving the growth in cloud services include:• Cloud infrastructure as a service• Cloud management and security service• Cloud application infrastructure platform as a service

• The Indian market is witnessing growth in all segments of cloud services

Alchemy Research and Analytics15

Ongoing transition to a next generation data centre

Stages in transforming data centre from traditional to next-generation

Consolidation and Integration

Standardisation and Optimization

Automation and Simplification

Dynamic Optimization

• Better asset utilisation by removing redundant systems and applications

• Virtualisation to enable greater flexibility in IT resources

• Deploy analytics to get accurate estimates of system redundancies and efficiencies

• Define and prioritise the operational services in data centre

• Standardising the common IT services for consistent delivery

• Service optimisation to re-orient IT spending from routine activities to innovative practices

• Managing IT services with the minimum of human intervention

• Automated workflow• Self-service portals and

standardised catalogue of services for users

• Determine effective price points of several cloud-processed services

• Extension of cloud and automation to a software defined environment

• Infrastructure to dynamically respond to changes in workload

• Enhanced security and compliance

• Big data analytics assumes a critical role

• Workloads assigned manually to server, storage and networking

• Manual IT optimisation• Reactive approach to scenarios of

threats and opportunities

Traditional data centre

• Automatic workload assignment to best-fit resources

• Software-defined optimisation• Proactive approach to threats and

opportunities

Software-defined data centre

• Workload assignment based on infrastructure pattern analysis

• Dynamic optimisation with cognitive learning

• Proactive approach to threats and opportunities

Next-generation data centre

Source: Alchemy Research Analysis

Alchemy Research and Analytics16

Contact

Niladri Paul

T: + 91 (0) 343 255 0131M: +91 (0) 980 008 6550

Email: niladri@alchemy-research.com

www.alchemy-research.com