Tata communications plans to sell its data center business

Tata communications Ltd, a Tata group firm is planning to sell a 74 percent stake in its subsidiary – Tata Communications Data Centre Pvt. Ltd according to media reports. Jefferies LLC has been hired by Tata Communications to advise it on the sale as per the reports.

The deal if executed is expected to raise approximately $300 million. This cash raise from the transaction is expected to help reduce debts on books. The company was in  debt to the tune of Rs. 11, 547 crores. Reports also suggest that talks with certain private equity investors and strategic investors have been  initiated by Tata Communications.

According to the annual reports of Tata Communications, the data center subsidiary is profitable and has generated profits to the tune of 23 crores on a turnover of 375 crores. The Tata communications’ data center has facilities in Delhi, Mumbai, Bengaluru, Chennai , Kolkata and Pune and some tier-II , and tier-III towns. The company also provides data center services in the US, UK & Singapore. According to the company’s website Tata communications data center owns over 1 million sq.ft of data center and co-location space across 44 global locations and also has eight partner sites in Australia, Malaysia, Germany and the Netherlands.

Several Indian and global firms are in process of setting up data centers in India. In 2013-14, the Tata Communications had a 28 percent market share of the Indian data market and a 25 percent market share of the Indian data center market.

To tap demand for cloud based computing, Microsoft’s chief executive officer Satya Nadella announced plans to build data centers in India. Microsoft plans to offer its Azure and Office 365 services in India. Last month, Amazon Web services (AWS), part of Amazon .com, said it would set up data centers in India next year for the cloud computing platform for its Indian customers including Hungama, Tata Motors Ltd, Jubilant Food works Ltd, Future group , NDTV Ltd, ZEDO, Fresh Desk, Hike , Paytm and Inmobi.

Tata communications has generated 21 percent returns in 1 year period. Over a three years period the stock has delivered 21.76 percent (annualized). On YTD basis the stock has generated 7 percent.