The Indian data centre (DC) market has been witnessing significant growth, primarily driven by large hyper-scalers, according to a report by ICRA.
As per the report, there has been a five-fold increase in capacity in Indian data centres.
Overall, 3900-4100 MW of capacity involving investments of ₹1.05–₹1.20 lakh crore are likely to be added in the next five years.
Large hyper-scalers such as Amazon Web Services, Google, Microsoft, Facebook, IBM, Uber, Dropbox, etc. are outsourcing their storage needs to third-party DC providers, leading to a growth in the Indian data centres market.
“To cater to the increasing demand, Indian corporates like the Hiranandani Group, Adani Group, and foreign investors like Amazon, EdgeConnex, Microsoft, CapitaLand, and Mantra Group have started investing in Indian Data Centres. Along with them, existing players like NTT, CtrlS, Nxtra, and STT India are also expanding their capacities,” ICRA said.
According to Rajeshwar Burla, Group Head, Corporate Ratings, ICRA, “The favourable regulatory support, rapidly growing cloud computing, increasing internet penetration, Government effort on digital economy, adoption of new technologies (IoT, 5G etc), growing needs of hyper-scalers are some of the major factors driving the demand for data centres in the country.”
“The sector is likely to witness a five-fold increase in capacity in the next five years. In addition, the Government of India (GoI) accorded infrastructure status to the data centres in the Union Budget 2022-2023. This will enable the players to get access to longer-tenured debt at competitive rates and access to foreign funding through the external commercial borrowing route, “Burla further added.
The industry’s revenues are expected to rise at a CAGR of around 18-19% during FY22-FY24 (24% CAGR growth during FY2018-FY2021), buoyed by increase in rack capacity utilisation and ramp-up of new DCs.
As per the report, with an increase in revenues and better absorption of fixed costs, operating margins are likely to improve and remain in the range of 40%-42%.
“The ROCE is expected to remain modest as the DC players are in continuous large capex mode wherein the ramp-up of the DCs happen over a period of time,” it further added.
However, there are certain key challenges for the sector, including increasing competitive intensity, which is expected to exert pressure on margins for incremental business. Further, large-debt-funded capex plans could exert pressure on credit metrics of the players.
Demand in co-location services
As per Burla, between the two major services provided by the DC players, co-location services account for around 62%-65% of revenues as compared to managed services, which account for 28%-30% of revenues.
“The upcoming investments are geared towards meeting the high demand for co-location services. These services have higher operating margins due to shared resources compared to managed service clients,” Burla said.
“On the cost structure, power expenses account for 55-60% of total costs towards maintenance of multiple cooling paths and redundancy. Given the ESG considerations for most of the key tenants, DC players are also expected to invest in green power to meet their power requirements. We can expect DC players to make substantial investments in solar power going forward,” Burla added.
Certain measures have also been taken by the Central and State governments to boost investments in data centres.
Some of the state governments (Maharashtra, Telangana, Karnataka, and Uttar Pradesh) have provisions for special incentives such as exemptions on stamp and electricity duty, power subsidies, land at subsidised cost, and other concessions by some of the state governments to bolster data centre investments.
Further, the IT ministry has plans to offer incentives worth up to ₹15,000 crore under a national policy framework for DCs.
This includes an incentive of 4-6% if the components (IT hardware and power) are procured from Indian manufacturing units and incentive of up to 3% for use of renewable energy.
May 24, 2022