India’s Data Centre Sector To Double Capacity, Draw Investments By 2026: CareEdge Ratings
Though India produces 20% of the world's data, but its share of data centre capacity is only 3% giving the country opportunity for significant capacity addition.
The capacity of India's data centre sector is projected to double to approximately 2,000 megawatts by 2026, drawing significant investment with a capital expenditure seen around Rs 52,000 crore through 2026, according to ratings agency CareEdge Ratings.
The agency said that there are opportunities for significant capacity additions in India due to the under-penetration of data centre capacity. India produces 20% of the world's data, but its share of data centre capacity is only 3%. The agency predicts a sharp rise in data demand with the adoption of technologies like 5G, the internet of things, and artificial intelligence, potentially tripling data consumption in India.
According to the agency, India is transitioning towards a developed market economy as a result of digitisation across industries, including e-commerce, fintech, online streaming and gaming. Internet penetration is expected to increase to 87% by 2028–29.
The agency underscored the importance of data centres, pointing out that the cost per MW to set up a data centre in India has increased because of factors such as land, equipment and other soft costs, which range between Rs 60 and Rs 70 crore per MW. However, location, design, and scalability also affect the cost.
“The capacity addition of 1.1 GW in data centre space needs to be corroborated with increased absorption in future/medium term, as cashflow stability is an important consideration for debt-funded investments,” said Puja Jalan, associate director, CareEdge Ratings.
“A key risk mitigant is the annuity akin structure wherein data centres operate on long-term/medium-term contractual arrangements with strong counterparties, thereby providing revenue visibility and assured cash flow. However, rising costs need to be weighed adequately with competitive pricing to balance leverage and profitability,” Jalan added.
CareEdge Ratings projects that data centre operators will invest more in the deployment of renewable power, and by FY31, the industry will be in a phase of consolidation as supply may surpass demand following capacity additions.
“The data centre growth is driving/attracting large-scale investments in the expansion of the network connectivity ecosystem which is critical for high volume data transfer at low latency levels. It is imperative that for such large-scale capacity addition, data centre players incorporate a mix use of renewable energy and low carbon technologies to ensure cost competitiveness for sustainability,” said Maulesh Desai, Director, CareEdge Ratings.
The ratings agency noted that revenue growth for data centre operators has been roughly 24% CAGR from FY17 to FY23, in line with capacity additions, based on financial evaluations of significant data centre players in India. According to the agency, revenue will increase by 32% CAGR between FY24 and FY26.
Due to increased occupancy and improved fixed cost absorption, Ebitda margins have increased since FY19 and have stabilised at about 43% in FY22-23. The agency expects these margins to remain unchanged over the next two to three years.
