According to a report by CareEdge Ratings, India’s data centre industry has entered a growth phase and its capacity is estimated to double to around 2,000 MW by 2026.
The growth plans have also created substantial investment prospects believes CareEdge Ratings and estimates a capital expenditure (capex) of Rs 500 billion in this space over the next three years till 2026.
The report noted that there is there is significant under-penetration of data centre capacity in India which will pave way for large capacity addition plans. India is transitioning towards a developed market economy. This wave of digitisation, driven by the expansion of e-commerce, fintech platforms, online streaming, and gaming services, is anticipated to increase the number of internet users and boost internet penetration (internet users as a per cent of population) from approximately 63 per cent in the fiscal year 2022-23 (FY23) to 87 per cent by FY29. While India generates about 20 per cent of the global data, however in terms of the data centre capacity, it has a share of just 3 per cent.
According to the report, adoption of technologies such as 5G, internet of things (IoT), and artificial intelligence (AI) are expected to significantly augment demand for data and in turn data centre. Collectively, these demand factors are projected to triple data consumption in India.
The report added that per MW cost in India for setting up data centre has witnessed escalation due to incremental land, equipment and other soft cost with new capacities now being set up at a cost of Rs 60-70 crore/MW. This cost of data centre is also contingent upon provisions for scalability, design, and location.
Based on an assessment on the financials of major data centre players in India, the report noted that the revenue of data centre operators has witnessed growth of approximately 24 per cent compound annual growth rate (CAGR) from FY17 to FY23, corresponding with capacity additions.
The report forecasts a revenue growth of 32 per cent CAGR during FY24-FY26. Since FY19, EBITDA margins have expanded due to higher occupancies and better absorption of fixed costs and thereafter stabilising at 43 per cent during FY22-23. These margins are expected to remain steady for the next 2-3 years.
Commenting on the report, Puja Jalan, associate director, CareEdge Ratings, said, “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 the debt-funded investments. A key risk mitigant is the annuity akin structure wherein data centre operates 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 the leverage and profitability.”
Meanwhile, Maulesh Desai, director, CareEdge Ratings, adds, “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 mix use of renewable energy and low carbon technologies to ensure cost competitiveness for sustainability.”
