L&T boosts AI, data centre ambitions with E2E Networks deal
Summary
- This deal will help the engineering major to speed up its offerings in the data centres space by 18-30 months, as it gives the company access to E2E’s existing AI cloud platform.
Mumbai: Larsen & Toubro Ltd’s (L&T) investment in listed artificial intelligence (AI) cloud platform provider E2E Networks could speed up the engineering major’s offerings in the data centres and AI space by 18-30 months, as it gives the company access to E2E’s existing AI cloud platform.
As part of the deal, L&T will integrate E2E Networks’ Cloud and AI Cloud platform with its data centre management and cloud solutions business.
L&T is developing its own data centres and has operationalized a 2MW facility at Panvel near Mumbai and a 12MW facility in Chennai in recent weeks. While the data centres allow the company to offer computing power to its clients, a collaboration with E2E allows it to offer an enterprise cloud layer on top of it.
In layman terms, this means that L&T is building the equivalent of a computer processor and E2E Networks brings a spreadsheet software that would be necessary for the computing power to be leveraged. Having both the services under one roof allows companies and conglomerates to optimize the cost of operations. It also increases the umbrella of clients that L&T can rope in—especially in the AI domain.
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“They essentially have a cloud of their own. We are talking about an 18 to 30 months’ timeline to build something like this," said Hasit Joshipura, adviser to the chairman and managing director—data centre, cloud services and innovation fund, L&T.
“I don’t think it’s an issue of can L&T do this or not. The point is, if you see a technology which is well within your strategy, then why would you not invest in it?" Joshipura told Mint. “This is a space which is moving very rapidly."
A senior analyst with a top Mumbai-based brokerage, who tracks India’s information technology (IT) services and data centres industries, said on condition of anonymity, “The move is within the expected realm of acquisitions and investments by large conglomerates. Building core competency in AI from scratch would not necessarily benefit L&T—as against using its partnership with an investee firm to leverage client relationships."
Another consultant for AI ventures in India, who also requested anonymity due to non-compete clauses with E2E’s competitors, further said, “Investing in an AI cloud company is the trend of the moment for global companies, and not just India. L&T may use its investment in E2E Networks to level alongside India’s other big industrial conglomerates—where the Tata group and Reliance Industries already have a leg-up."
Symbiotic partnership
The partnership could also potentially help E2E. Presently, its servers are co-located in the data centres of Netmagic in Noida and Mumbai. In future, as the company grows, it can leverage L&T’s data centres.
“They have software, but they have to house in somebody’s data centre," Joshipura said.
E2E’s service is especially targeted at higher education and research institutions, enterprises, and AI/ML (machine learning) startups that do not have the financial and technological bandwidth to develop their own cloud computing solutions.
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“Collaborating with E2E Networks allows us to offer our clients seamless, scalable and secure cloud experiences. By combining our capabilities, we are delivering a cloud ecosystem designed for businesses in India that want to drive growth, optimize costs and unlock the full potential of AI and digital transformation," Seema Ambastha, chief executive of L&T’s data centre and cloud business, said in a joint press statement of the two companies.
L&T will be investing ₹1,407 crore to acquire a 21% stake in E2E Networks. This includes a 15% stake through a preferential allotment at ₹3,622.25 per share and secondary acquisition of a 6% stake at ₹2,750 per share.
The primary component of L&T’s investment ascribes a price to earnings (P/E) valuation of 185.5x to E2E, as per Mint’s calculation. In comparison, the top 10 IT companies in India are trading at an average P/E ratio between 50-60.
Rise in valuations
Commenting on the rich valuation, Joshipura said, “If you want new technology, the valuations will be rich. Nvidia has become one of the most valuable companies in the world. Is that rich?"
Shares of E2E Networks touched the 5% upper circuit to close at ₹4,997.50 on the National Stock Exchange on Wednesday. The shares have given more than 7x returns to shareholders since the beginning of the year.
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L&T shares ended the session 0.2% in the red at ₹3,566. The benchmark Nifty ended the session 0.9% higher.
“The strategic collaboration between E2E Networks and L&T marks a significant milestone for the future of adoption of domestically built HyperScaler Cloud Platforms in India. The partnership marks the next step in the journey towards ‘Make in India’ for running production-grade traditional CPU workloads and GPU-led GenAI (generative AI) innovation in India. The narrative in India has changed from being viewed as a digital colony to that of evolving into a provider of sovereign cloud platforms to the world," Tarun Dua, chairman and managing director of E2E Networks, said in the statement.