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Thursday, March 28, 2024

India data center capacity to double in 3 years, capex requirement Rs 50,000 crore

The Indian data center ↗ industry has entered a growth phase, and the capacity is expected to double in the next three years, from around 0.9 Gigawatts (GW) in 2023 to nearly 2 GW in 2026. This additional capacity built up has created substantial investment prospects due to the estimated capex ↗ requirement of Rs 50,000 crore in the next three years, said a CareEdge ↗ Ratings study.

India has a data center capacity ↗ share of only 3% globally despite generating 20% of the global data. While mobile data usage in India is highest globally when compared with exabytes usage per month.

The ratings agency expects data localization, tax incentives ↗, and cost-saving sops issued by the states to help attract robust investments.

“The growth plans have also created substantial investment prospects and as per our estimates a capex of Rs 50,000 crore in this space over the next three years till 2026. However, the project execution challenges, in terms of land and equipment availability and management of vendor ecosystem needs to be addressed for the fructification of the planned capacity addition planned,” said Puja Jalan, Associate Director, CareEdge Ratings

According to her, cost per MW of setting up data centers has also been rising with costs escalating to levels of Rs 60-70 crore per MW from average per MW cost of Rs 40 – Rs.45 crore.

The data center capacity growth in India has been complemented by the increased absorption. CareEdge Ratings in its report has cited that the absorption levels have gone up from 82% in 2019 to 93% in 2023. As capacity was added, industry players’ revenue increased by nearly 25% CAGR from 2016-17 to 2022-23.

“It is imperative to note that for large scale capacity addition, data centers need to look at a mix use of renewable energy and low carbon technologies to ensure cost competitiveness, as a precursor for sustainability. We expect more entry of new players in the segment with multiple domain expertise which will help dilute the market share (capacity-wise) occupied by top 5 players from>90% to ~75%,” said Maulesh Desai, Director, CareEdge Ratings.

According to him, the industry is expected to see 5GW capacity addition announcements over 5-6 years. Long term revenue visibility with strong counterparty augur well from the credit perspective.

Going forward, cost competencies, innovative designs to accommodate scalability and adoption of newer technologies to meet ever rising energy and cooling requirements are critical success factors for the industry.

Over the next three to four years, revenue growth is anticipated to continue, and the ratings agency expects a 32% CAGR growth during 2023-24–26. It is anticipated that the operating margins are likely to remain stable in the next three years.

Michael Maren
Michael Maren
Former marine biologist who likes to spend as much time in the tropics as possible, due to a horrible time I once had in Alaska. Brrrr.

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