The Indian data centre industry’s capacity is set to more than double to 2-2.3 GW by fiscal 2027, driven by increasing digitalisation of the economy. Enterprises are ramping up investments in cloud storage, while consumer demand for data continues to surge. Furthermore, rising penetration of Generative Artificial Intelligence (GenAI) will drive demand over the medium term.
Incremental capital expenditure (capex) to support strong demand will involve a higher proportion of debt funding, resulting in a moderate increase in debt levels. However, capacity additions are expected to lag demand growth, keeping offtake risks low. Consequently, the industry can expect healthy and stable cash flows, which will help maintain a steady credit profile for players.
A CRISIL Ratings analysis of industry players, representing approximately 85% of the market share by operational capacity, confirms this outlook.
Data centres address the demand for computing and storage infrastructure, driven by two primary factors:
- Enterprises rapidly shifting their businesses to digital platforms, including cloud, a trend accelerated by the Covid-19 pandemic.
- Increased accessibility to high-speed data, leading to a surge in internet usage across social media, over-the-top (OTT) platforms, and digital payments.
Mobile data traffic recorded a compound annual growth rate (CAGR) of 25% over the past five fiscals. It stood at 24 GB per month at the end of fiscal 2024 and is projected to rise to 33-35 GB by fiscal 2026.
In addition to ongoing demand, the rapid advancement of GenAI—which requires higher computational power and lower latency compared to traditional cloud computing—will also provide a significant tailwind to data centre demand in India.
Manish Gupta, Senior Director and Deputy Chief Ratings Officer, CRISIL Ratings Ltd, said: “To meet the growing data centre demand, an investment of ₹55,000-65,000 crore is required over the next three fiscals, primarily for land and building, power equipment, and cooling solutions. Data centre operators typically build infrastructure—land and building, which account for 25-30% of overall capex—with the expectation of future tie-ups. While this approach may expose incremental capacities to utilisation risks, strong demand is expected to support capacity utilisation to reach 80-90% within a year or two.”
Capacity additions are being driven by expansion plans of existing players as well as the entry of new players, supported by significant demand from hyperscalers. Hyperscalers, due to their large capacity requirements, typically wield high bargaining power, allowing them to secure competitive pricing. Pricing for hyperscalers is typically 10-20% lower than that for other customers. Hence, balancing capacity utilisation ramp-up with pricing will remain key for returns on data centre investments.
Anand Kulkarni, Director, CRISIL Ratings Ltd, said: “Once capacities are tied up, data centres benefit from predictable cash flows, backed by a stable client base and low churn rates. This is due to the high switching costs for customers, stemming from their investments and the potential business disruptions involved in switching. Amid significant capex plans for expansion, the debt-to-earnings before interest, tax, depreciation, and amortisation (EBITDA) ratio of data centre operators is expected to increase to ~5.4x this fiscal from ~5x last fiscal, before improving from the next fiscal as capacity utilisation ramps up.”
In this context, timely capacity commissioning, customer tie-ups, and the ability of data centre players to sustain pricing will remain critical factors to monitor.
