Rising competition and large debt-funded CapEx in DC business to pinch credit metrics

Rising competition in the data centre business is expected to exert pressure on margins for incremental business. This, along with the large debt-funded capex, could pinch the credit metrics of the players, according to ICRA.

Among those investing heavily in Indian data centres are home-grown corporates like the Hiranandani Group, Adani Group in joint venture with EdgeConnex, and Reliance Group; foreign investors including Blackstone, CapitaLand, and Princeton Digital Group; captive consumers such as Amazon, and Microsoft. Existing players such as NTT, CtrlS, Nxtra, and STT India are also expanding capacities. Overall, about 5,000 MW of added capacity, involving investments of nearly ₹1.5 lakh crore, is expected over the next six years.

The return on capital employed, or ROCE, is expected to remain modest over a period of time even as data centres ramp up amid a large capex programme.

“ICRA expects the sector to witness a six-fold increase in capacities in the next six years, with Mumbai, Hyderabad and NCR to account for 70-75 per cent of the installed DC capacity,” said Anupama Reddy, Vice-President and Co-Group Head, Corporate Ratings, ICRA. The Hindu BusinessLine