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ESDS: Riding India’s Cloud-to-AI Infrastructure Supercycle

India’s underpenetrated cloud market offers a durable growth runway, with AI adding a higher-growth layer. India’s cloud market is expected to grow at a 23.6% CAGR through FY25 from INR 651 Bn to INR 1.9 Tn in FY30, supported by enterprise digitisation, BFSI adoption and rising government workloads. Increasing data-residency and compliance requirements further favour domestic infrastructure providers, where ESDS has established credentials and diversified exposure across Enterprise (55.1%), Government (27.4%) and BFSI (17.5%). Beyond the core opportunity, India’s cloud GPU market is projected to grow at ~50% CAGR through FY30, expanding ESDS’s addressable market into GPUaaS, GPU colocation and AI-led managed infrastructure.

Full-stack Platform & Proprietary Tech Position ESDS to Capture the Opportunity

ESDS’s integrated offering across cloud, colocation, GPUaaS, managed services and SaaS is driving deeper customer relationships, with the share of customers using all three core services rising from 62% in FY24 to 89% in FY26, alongside 94.9% revenue retention. Its proprietary SWARAJ technology further strengthens the proposition, with EBITDA margin expanding from 35.6% to 49.6% and RoCE from 14.5% to 32.8% over FY24–26. Meanwhile, its established presence across 115 BFSI institutions and 104 government clients, coupled with a rise in >5-year customer revenue from 23.3% to 47.8%, provides a sticky installed base from which ESDS can cross-sell higher-value cloud, managed-services and AI infrastructure.

AI Infrastructure Contract Could Drive Growth; But Execution Is Critical

The USD 1.25 Bn AI infrastructure contract with Sharon AI marks a potential inflection point for ESDS, with revenue expected to scale from INR 4.7 Bn in FY26 to INR 22.6 Bn in FY27E (two quarter impact) and INR 45.8 Bn in FY28E (full year impact). The contract provides 5-year revenue visibility, with ~8,208 NVIDIA B300 GPUs to be deployed, taking GPU compute capacity from 81 teraflops to 2,481 teraflops (~30.6x). ESDS plans INR 5.7 Bn of capex, ~70% of which is front-loaded in FY27E, to build the required local DC infrastructure and expand new DC. EBITDA is estimated to rise from INR 2.3 Bn in FY26 to INR 9.4 Bn in FY28E, with margin reaching 20.6% by FY28E. Key earnings upside lies in replicating the GPU lease model beyond the anchor contract, although execution, deployment and customer monetisation remain critical to converting the headline contract value into sustained earnings

View and Valuation:

We initiate coverage on ESDS with a ‘BUY’ rating and a TP of INR 1,550, valuing the company at 18x FY28E EV/EBITDA, with a DCF used as a sanity check. In our view, ESDS offers one of the most compelling listed opportunities to gain exposure to India’s structural cloud, data-centre and AI infrastructure build-out, supported by its full-stack capabilities across cloud, managed infrastructure and datacentre services. Growth is underpinned by capacity expansion, deeper customer monetisation and operating leverage, with the USD 1.25 Bn AI contract adding a significant new leg to the earnings trajectory. We expect Revenue/EBITDA/PAT to grow at 120.9%/72.6%/81.3% CAGR over FY26–29E, driven by core business momentum and the ramp-up of AI infrastructure revenues. Our 18x FY28E EV/EBITDA valuation implies ~31x FY28E forward P/E, which we believe appropriately reflects ESDS’s strong growth profile. Successful execution and faster ramp-up of the AI contract could provide further upside to earnings and valuation.

Optionality:

Additional AI/large-cohort wins could accelerate earnings, while broader ITworkload migration by large DC customers to ESDS could deepen wallet share and build recurring revenues.

Key Risks:

AI deal execution, customer concentration, capex intensity and competition risks could delay earnings ramp-up, pressure utilisation, margin and returns.

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