India’s data center capacity is on track to more than double by FY27, reaching a remarkable 2-2.3 GW, according to a report by CRISIL Ratings. This growth is underpinned by the accelerating pace of digitalization, the widespread adoption of cloud services, rising data consumption, and the increasing demand for generative AI (GenAI).
Investment Requirements to Meet Rising Demand
Massive Investments in Infrastructure
To accommodate this rapid growth, an investment of ₹55,000-₹65,000 crore will be required over the next three years. These funds will primarily go towards:
- Land Acquisition and Building Infrastructure: Operators allocate 25-30% of capital expenditure to these areas.
- Power Equipment and Cooling Systems: Essential for maintaining high uptime and efficiency in modern data centers.
According to Manish Gupta, Deputy Chief Ratings Officer at CRISIL Ratings, “Data center operators typically build infrastructure with the expectation of future tie-ups. While this approach may expose incremental capacities to utilization risks, strong demand is expected to support capacity utilization to reach 80-90% within a year or two.”
Utilization Trends and Risk Mitigation
Operators often build capacity ahead of demand, anticipating future partnerships. This strategy, though risk-prone, is bolstered by India’s strong demand environment, ensuring high utilization rates within a short period.
Financial Stability Amid High Demand
Predictable Revenue Streams
CRISIL predicts that robust demand will reduce offtake risks, leading to stable cash flows for data center operators. The minimal churn among clients, due to high switching costs, further supports predictable revenues.
Managing Debt Levels
While the reliance on debt funding will moderately increase leverage, utilization ramp-ups are projected to enhance financial stability. The debt-to-EBITDA ratio, estimated at 5.4x this fiscal, is expected to ease in subsequent years as revenues grow.
Drivers of Data Center Growth in India
Mobile Data Traffic: A Key Contributor
India’s mobile data traffic has been growing at a compound annual growth rate (CAGR) of 25% over the past five years. This trend is expected to continue, with usage rising from 24 GB per user per month in FY24 to 33-35 GB by FY26.
5G and AI Expansion
The rollout of 5G technology and the increasing computational demands of AI applications are pivotal in driving the demand for data centers. These advancements necessitate higher processing power, storage, and efficient networking solutions.
Capacity Growth Projections and Market Opportunities
Industry Insights from JLL and ICRA
Reports from JLL India and ICRA estimate a 66% increase in India’s data center capacity between 2024 and 2026. By FY27, capacity is expected to exceed 2,000 MW, marking a more than twofold increase.
Investment Opportunities
To support this expansion, investments totaling ₹50,000-₹55,000 crore are required, representing a $25 billion market opportunity over the next decade, as per Avendus. These figures highlight India’s emergence as a global data center hub.
Market Dynamics and Competitive Landscape
Role of Hyperscalers
Hyperscale data center operators are playing a significant role in shaping the market, despite offering services at rates 10-20% below the industry average. Their presence encourages competition and drives innovation.
Client Retention
High switching costs create a stable client base for operators. This dynamic not only ensures minimal churn but also supports long-term financial stability.
FAQ Section
What is driving the growth of data centers in India?
The growth is driven by digitalization, increased cloud adoption, rising mobile data usage, and the computational demands of AI applications.
How much investment is needed to meet the growing demand?
An estimated ₹55,000-₹65,000 crore will be required over the next three years for infrastructure development, power equipment, and cooling solutions.
What is the expected utilization rate of new data centers?
Utilization rates are anticipated to reach 80-90% within 1-2 years of commissioning, driven by strong demand.
How will the rollout of 5G impact data center demand?
The rollout of 5G will significantly increase mobile data usage and enable advanced AI applications, further driving the need for data center infrastructure.
What are the financial implications for operators?
While debt levels may rise initially, strong demand and utilization ramp-ups are expected to improve financial metrics over time.
