India’s data centre capacity to double by FY27

India’s data centre capacity is expected to more than double to 2-2.3 GW by 2026-27, driven by growing digitalisation and increased investments in cloud storage by organisations, a report by CRISIL Ratings revealed. The report also highlighted that the rising adoption of Generative Artificial Intelligence (GenAI) will fuel demand in medium term.

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According to the recent CRISIL Ratings report, the Indian data centre industry is set for significant growth, with capacity expected to more than double to 2-2.3 GW by fiscal 2027, driven by rising digitalisation and growing demand for data storage. 

A data centre is typically a large group of networked servers used by organizations for the remote storage or distribution of large amounts of data. Data centres meet the growing demand for computing and storage infrastructure as businesses increasingly transition to digital platforms, including cloud services, a shift that has been further accelerated by the Covid-19 pandemic. 

Increased investments in cloud storage by enterprises, surging consumer data usage, and the rapid adoption of Generative Artificial Intelligence (GenAI) are key factors driving this expansion. As per the report, GenAI, with its higher computational and low-latency requirements, will play a pivotal role in shaping future demand. To address the growing demand, industry players are making significant capital investments, increasingly relying on debt financing. 

The growth is also fueled by increased internet usage, supported by improved high-speed data accessibility. Mobile data traffic grew at a compound annual growth rate (CAGR) of 25% over the past five years, reaching 24 GB per month by fiscal 2024 and is projected to rise to 33-35 GB by fiscal 2026. 

Additionally, hyperscalers are the major demand drivers. These players leverage their bargaining power to secure competitive pricing, typically 10-20% lower than other customers, necessitating efficient capacity utilisation to ensure profitability. Hyperscalers are large-scale data centres that provide cloud computing and data solutions for businesses with large digital infrastructure needs.

According to Manish Gupta, Senior Director and Deputy Chief Ratings Officer, CRISIL Ratings Ltd, “To meet the growing data centre demand, an investment of Rs 55,000- Rs 65,000 crore is required over the next three fiscals, primarily towards land and building, power equipment and cooling solutions. Data centre operators typically build infrastructure – land and building, which account for 25-30 per cent of overall capex – with the expectation of future tie-ups. While this approach may expose incremental capacities to utilisation risks, strong demand is expected to support capacity utilisation to reach 80-90 per cent within a year or two.”

Anand Kulkarni, Director at CRISIL Ratings Ltd, noted that data centres enjoy stable cash flows and low customer churn due to high switching costs. With significant expansion plans, the debt-to-earnings before interest, tax, depreciation and amortisation (Ebitda) ratio is expected to rise to 5.4x this fiscal from 5x last year. However, it is likely to improve next year as capacity utilisation grows.

CRISIL report concluded that the ability of data centre players to commission capacity on time, secure customer agreements, and maintain pricing will be key factors to monitor.