The Indian data centre industry is poised to attract investments exceeding Rs 45,000 crore1 over the three fiscals through 2026 as growing demand for data and storage piques the interest of a diverse set of companies.
Notwithstanding increasing financial leverage due to elevated investments and rise in competition with entry of new players, the credit profiles of large established data centre operators should continue to be supported by strong cash flow visibility from long-term customer contracts.
Large enterprises are increasingly embracing cloud solutions, fuelling the surge in demand for data centres. Furthermore, rising usage and adoption of over-the-top (OTT) platforms is driving up retail data consumption. For context, mobile data traffic rose exponentially at a CAGR of 45% over last five years.
Moreover, the launch of 5G services will amplify data consumption among retail users even further, as use cases unfold. All this data would have to finally be stored in data centres.
Additionally, there is enhanced regulatory emphasis on local storage of personal data, as stipulated by the Digital Personal Data Protection Act as well as through policies formulated by some of the sector regulators.
Says Manish Gupta, Senior Director and Deputy Chief Ratings Officer, CRISIL Ratings, “To cater to this rising demand for data, the installed capacity of Indian data centres is expected to more than double and reach ~1,700 MW2 by March 2026 from an estimated ~780 MW as of March 2023. This would require investment of ~Rs 45,000 crore. Investments would primarily be concentrated in few cities such as Mumbai, National Capital Region, Chennai, Hyderabad and Pune, with Mumbai alone garnering about a third of these investments.”
Mumbai remains the most preferred location because of availability of sub-sea cable landing stations, proximity to larger enterprises that help in reducing latency and continuous availability of electricity.
Given the strong demand prospects, data centre investments are being planned by diverse set of players. These include not just well-established domestic and global data centre operators and private equity firms but also companies from sectors such as telecom, real estate, and engineering, procurement and construction. Operational and technical expertise to meet stringent service agreements, such as uptime requirement of about 99.982%3, would be a key differentiator here.
Says Naveen Vaidyanathan, Director, CRISIL Ratings, “Amidst increased competition and elevated capex, the leverage of CRISIL-rated data centre operators is expected to increase from ~3.5x in fiscal 2023 to 4-4.5x over the next two fiscals before moderating in fiscal 2026. However, the project implementation risk is mitigated by modular nature of capex, high revenue visibility amid long-term contracts with strict termination clauses and low, single-digit churn rates because of high switching cost for customers.”
