The Indian data centre industry is set to undergo a significant transformation, attracting substantial investments of over ₹45,000 crore over the next three fiscal years through 2026. A recent report by CRISIL Ratings highlights this surge in interest as diverse companies are drawn to the growing demand for data and storage solutions.
The Cloud and OTT Revolution
With the widespread adoption of cloud solutions by large enterprises, the data centre sector has witnessed a sharp increase in demand. Moreover, the skyrocketing usage of over-the-top (OTT) platforms has led to a surge in retail data consumption. Notably, mobile data traffic has grown at a remarkable compound annual growth rate (CAGR) of 45% over the past five years. The impending launch of 5G services is poised to further amplify data consumption among retail users, solidifying the need for data centre expansion.
Meeting the Rising Demand
To cater to this burgeoning demand for data services, the installed capacity of Indian data centres is projected to more than double, reaching approximately 1,700 MW by March 2026, up from an estimated 780 MW as of March 2023. Achieving this expansion will necessitate investments of around ₹45,000 crore. The bulk of these investments will be concentrated in key cities like Mumbai, the National Capital Region, Chennai, Hyderabad, and Pune, with Mumbai alone attracting approximately one-third of the total investments. Manish Gupta, Senior Director and Deputy Chief Ratings Officer at CRISIL Ratings, underscores the significance of Mumbai as a prime location due to factors like subsea cable landing stations, proximity to large enterprises reducing latency, and consistent power supply.
A Diverse Range of Investors
The surging demand prospects have lured a diverse array of investors, extending beyond traditional data centre operators and global players. Now, private equity firms, telecom companies, real estate developers, and engineering, procurement, and construction entities are entering the data centre investment landscape. This diversity in investors underscores the robust growth potential and long-term viability of the data centre industry in India.
Navigating the Competitive Landscape
With heightened competition and increasing capital expenditures, CRISIL Ratings anticipates that the leverage of data centre operators it rates will rise from approximately 3.5x in fiscal 2023 to 4-4.5x over the next two fiscal years, before stabilising in fiscal 2026. However, the modular nature of capital expenditures, long-term contracts with stringent termination clauses, and low customer churn rates in single digits, attributed to the high switching costs for customers, help mitigate project implementation risks. Naveen Vaidyanathan, Director at CRISIL Ratings, sheds light on these risk factors and emphasises that timely commissioning and customer partnerships will be key factors to monitor in the evolving data centre landscape.
