The Indian data center industry is on a growth trajectory, with its capacity set to double in the next three years, according to a study by CareEdge Ratings. Currently, India has a mere 3% share of the global data center capacity, despite generating 20% of the global data. This presents a massive growth opportunity for the industry. The study estimates that the industry will require an investment of about Rs 50,000 crore in the next three years. The growth plans have created substantial investment prospects and the industry expects a capex of Rs 50,000 crore. The ratings agency highlights that data localization, tax incentives, and cost-saving measures offered by the states will help attract robust investments.
However, there are challenges that need to be addressed for the smooth execution of these plans. Issues such as availability of land and equipment, as well as the management of the vendor ecosystem, need to be tackled to ensure the planned capacity addition materializes successfully. The study notes that the cost per MW of setting up data centers has also been rising, escalating to levels of Rs 60-70 crore per MW, from an average cost of Rs 40-45 crore per MW.
The growth in data center capacity has been accompanied by increased absorption. The absorption levels have gone up from 82% in 2019 to 93% in 2023, as more capacity was added. This has led to a nearly 25% compound annual growth rate (CAGR) in industry players’ revenue from 2016-17 to 2022-23.
To ensure cost competitiveness and sustainability, the study emphasizes the importance of data centers adopting a mix of renewable energy and low carbon technologies. It suggests that large-scale capacity addition should consider utilizing these technologies as a precursor for sustainability. The industry is expected to see the entry of new players with multiple domain expertise, which will help dilute the market share occupied by the top 5 players from over 90% to around 75%.
CareEdge Ratings predicts that the industry will announce capacity additions of 5GW over the next 5-6 years. This long-term revenue visibility with strong counterparties bodes well from a credit perspective. Going forward, the industry’s success factors will include cost competencies, innovative designs to accommodate scalability, and the adoption of newer technologies to meet the rising energy and cooling requirements.
The ratings agency anticipates a continued revenue growth of 32% CAGR during 2023-24–26. It also expects the industry’s operating margins to remain stable over the next three years.
