India's Data Center Capacity Set to Double in 3 Years
The Indian data center industry is undergoing a significant growth phase, with projections indicating a doubling of capacity over the next three years. Currently standing at around 0.9 Gigawatts (GW) in 2023, the capacity is expected to surge to nearly 2 GW by 2026. This expansion presents lucrative investment opportunities, with an estimated capital expenditure (capex) requirement of Rs 50,000 crore in the coming years, according to a study by CareEdge Ratings.
Despite generating a substantial 20% of global data, India only accounts for a modest 3% share of global data center capacity. However, the country boasts the highest mobile data usage globally in terms of exabytes per month.
The ratings agency foresees several factors driving robust investments in the sector, including data localization policies, tax incentives, and cost-saving incentives provided by various states.
Puja Jalan, Associate Director at CareEdge Ratings, highlighted the need to address project execution challenges such as land availability and managing the vendor ecosystem to realize planned capacity additions successfully. Additionally, the cost per megawatt (MW) for establishing data centers has escalated to Rs 60-70 crore from an average of Rs 40-45 crore, posing further challenges.
The growth in data center capacity has been accompanied by increased absorption rates, rising from 82% in 2019 to 93% in 2023. This, in turn, has led to a nearly 25% compound annual growth rate (CAGR) in revenue for industry players from 2016-17 to 2022-23.
Maulesh Desai, Director at CareEdge Ratings, emphasized the importance of incorporating renewable energy and low-carbon technologies to ensure cost competitiveness and sustainability. He anticipates the entry of new players with diverse expertise, which may reduce the market share dominance of the top 5 players from over 90% to approximately 75%.
Looking ahead, the industry is poised to witness announcements of 5 gigawatts (GW) capacity additions over the next 5-6 years, offering long-term revenue visibility and enhancing credit perspectives. To maintain competitiveness, the adoption of innovative designs to accommodate scalability and newer technologies to meet increasing energy and cooling demands are crucial success factors.
Over the next three to four years, robust revenue growth is anticipated, with a projected 32% CAGR during 2023-24–26. Operating margins are expected to remain stable during this period, indicating a promising outlook for the Indian data center industry.
