Tata Communications eyes tie-up with TCS on $6.5 billion data centre push

“Tata Communications has major strengths in the data centre to data centre connectivity; we are the market leaders in that. When it comes to TCS, there are several areas where we collaborate, and this (new data centre) will also be one of the areas of collaboration with TCS," Amur Lakshminarayanan, managing director and chief executive of Tata Communications, told Mint on Wednesday.

The Tata group's move—through TCS's planned investment—comes at a time when global tech giants are ramping up their presence in the country's digital infrastructure space, particularly as the use of AI workloads grows and companies demand local data storage.

On Tuesday, Google also announced a $15 billion investment to build AI-focused data centres in the country.

“We will continue to invest to make sure that the data centres, the edge, are all connected with the lowest possible latency, and the highest resilience and reliable solutions. In India, we saw a growing demand for data centre capacity; we see that in the next five years, data centre capacity will double," Lakshminarayanan said, adding that AI has given a boost to the data centre capacity uptake.

To be sure, Tata Communications also has a 26% stake in STT Global Data Centres India Pvt. Ltd, according to the company’s 2024-25 annual report.

The AI suite

Besides the connectivity solutions, Tata Communications is investing in AI cloud and agentic AI solutions, while also offering graphic processing units (GPUs) as a service to enterprises to help them manage their cloud computing requirements. In the Cloud and security business, Tata Communications saw a 13% year-on-year growth to ₹469 crore in the September quarter.

GPUs are powerful computer chips originally designed to handle graphics and images, such as those in video games. Today, they’re also used to perform complex calculations for things like AI, machine learning, and big data.

The company is also bullish on the GPU-as-a-service business. “Currently, most of the usage (of GPUs) is for training purposes and not so much for inferencing. In the future, inferencing will consume 80% of the GPUs and training will consume 20%," Lakshminarayanan said, adding that the company is using direct liquid cooling technology in their data centre connectivity offerings.

He explained that the technology is beneficial because it consumes less power and ensures the GPU's uptime and availability are among the highest.

Tata Communications has bought close to 1,000 GPUs to date, but has yet to see a meaningful jump in revenue from the business. It is also offering GPUs to companies as a service under the India AI Mission and is also using them internally.

“We will not invest in more GPUs if the current 1,000 GPUs are not utilized," Kabir Shakir, chief financial officer of the company, told analysts in an earnings call to discuss the September quarter earnings on Wednesday.

When asked about past asset divestments in the data centre business, Lakshminarayan said in 2016, when Tata Communications sold off some assets, it was driven by a weak balance sheet and high debt. Today, he said, the company is in a much stronger financial position and is ready to invest, especially as AI presents a clear tailwind.

“The rationale back then was very different. The company had a very poor balance sheet, high debts and low margins. There is a strength in the balance sheet and appetite to invest now," he said.

The Red Sea revenue hit

In the September quarter, the company's revenue grew 6.5% on-year to ₹6,100 crore. Its net profit, however, fell 27% to ₹183 crore. The company’s Ebitda (earnings before interest, taxes, depreciation, and amortization) margin fell 48 basis points to 19.2% on-year.

The company said the recent cable cuts in the Red Sea resulted in a loss of revenue and an increase in costs, as it had to divert traffic through alternative channels.

“There is also the cost of repairing the cables that got cut, which involves sending the ships to the sea, and all of that is expensive. The expenses incurred due to these disruptions will carry on for the next quarter as well," Lakshminarayanan said, adding that the company was able to cope with cable cuts, including those in the Red Sea, because of the diversity of the cables that it has around the world.

On 6 September, cable cuts in the Red Sea, a critical route for both global trade and communications, disrupted internet access in parts of Asia and West Asia. The outage was reportedly due to cuts in two cable systems—the South East Asia-Middle East-Western Europe 4 cable, operated by Tata Communications Ltd and the India-Middle East-Western Europe cable, run by a consortium that counts Airtel and Tata Communications as members.

Data Services, which account for 85% of Tata Communications’ revenue, saw a 7.3% increase to ₹5,179 crore during the quarter. Data Services include core connectivity services, digital platforms, and connected services.