Indian data center industry poised for Rs 45,000 crore investment by 2026

The Indian data centre industry is set to witness a substantial influx of investments, surpassing Rs 45,000 crore, over the next three fiscal years through 2026. The ever-increasing demand for data and storage solutions has caught the attention of a diverse array of companies looking to capitalize on this booming sector.

Despite rising financial leverage attributed to increased investments and intensifying competition due to the entry of new players, the credit profiles of established large data centre operators are expected to remain strong. These operators benefit from robust cash flow visibility resulting from long-term customer contracts.

The surge in demand for data centres can be attributed to large enterprises increasingly adopting cloud solutions. Additionally, the growing use of over-the-top (OTT) platforms has led to a significant increase in retail data consumption. Over the past five years, mobile data traffic has witnessed an exponential compound annual growth rate (CAGR) of 45 percent.

The imminent launch of 5G services is expected to further drive up data consumption among retail users as new use cases emerge, necessitating the need for advanced data storage solutions.

Furthermore, there is a growing regulatory emphasis on the local storage of personal data, in compliance with the Digital Personal Data Protection Act and policies set by sector regulators.

Manish Gupta, Senior Director and Deputy Chief Ratings Officer at CRISIL Ratings, highlighted, “To meet the rising demand for data, 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 require an investment of around Rs 45,000 crore. These investments will be primarily concentrated in key cities such as Mumbai, the National Capital Region, Chennai, Hyderabad, and Pune, with Mumbai alone expected to attract about a third of these investments.”

Mumbai’s status as the most preferred location for data centre establishments is due to several factors, including the availability of sub-sea cable landing stations, proximity to major enterprises that reduce latency, and a consistent supply of electricity.

Given the promising demand outlook, a wide array of players are planning data centre investments. This includes established domestic and global data centre operators, private equity firms, as well as companies from various sectors such as telecom, real estate, and engineering, procurement, and construction. The ability to offer operational and technical expertise to meet stringent service agreements, including an uptime requirement of about 99.982 percent, will be a significant differentiator in this competitive landscape.

Naveen Vaidyanathan, Director at CRISIL Ratings, anticipates that amidst increased competition and higher capital expenditures, the leverage of CRISIL-rated data centre operators is likely to rise from approximately 3.5 times in fiscal 2023 to 4-4.5 times over the next two fiscal years before stabilizing in fiscal 2026. The modular nature of capital expenditures, high revenue visibility through long-term contracts with strict termination clauses, and low single-digit churn rates due to the high switching costs for customers help mitigate project implementation risks. Infotechlead