The data center (DC) market in India is expected to grow at a phenomenal rate over the coming years. Hyperscalers such as Amazon Web Services, Google, Microsoft, Dropbox and more are outsourcing their storage needs to Indian third-party DC providers. Indian corporates such as Adani Group, Bharti Airtel, Hiranandani Group, and more are investing to increase the capacity of data centers in the country to meet greater demand in the near future. According to an ICRA report, in the next five years, overall, 3900-4100 MW of capacity involving investments of Rs 1.05 lakh crore to Rs 1.20 lakh crore is going to get added in India.
Data Center Industry Revenues to Grow at a CAGR of 18%-19%
The industry revenues are expected to grow at a CAGR of 18% to 19% during FY22 – FY24, supported by an increase in rack capacity utilisation and ramp-up of new data centers. The operating margins for the companies are also expected to improve with better absorption of fixed costs. The operating margins could go up from 40% to 42%.
ICRA pointed out that the ROCE (return on capital employed) will be modest because the data center companies are usually spending big for capex as capacity ramp-up happens over a significant period of time.
The credit metrics of the data center players could be hurt because of the large debt-funded capex plans and increasing competition in the market that will certainly affect the margins of the companies.
But the state governments understand how data centers are a crucial aspect of infrastructure for digital connectivity and thus offer various incentives such as subsidising the cost of land, exemption on stamp and electricity duty, and other concessions. The IT ministry is also offering incentives worth up to Rs 15,000 crore under a national policy framework to the data centers. This includes a 4% to 6% incentive on the components.
