Indian corporates have started investing massively in data centres to cater to the increasing demand aided by data localisation, according to ICRA.

Hiranandani Group, the Adani Group, in a joint venture with EdgeConnex, the Reliance Group, foreign investors such as Blackstone, CapitaLand, Princeton Digital Group and captive consumers like Amazon and Microsoft have started investing in data centres in the country, ICRA says in a report.

Along with them, existing players like NTT, CtrlS, Nxtra, STT India are also expanding their capacities. Overall, 4,900-5,000 megawatt of capacity involving investments of around ₹1.5 lakh crore are likely to be added in the next six years, the report says.

The key triggers for digital explosion in India are the increasing internet and mobile penetration, the government's thrust on e-governance/digital India, adoption of new technologies (cloud computing, IoT, 5G etc), growing user base for social media, gaming, e-commerce and OTT platforms, says Anupama Reddy, vice president and co-group head, Corporate Ratings, ICRA.

"This, coupled with favourable regulatory policies viz. the draft Digital Data Protection Bill 2022, providing infrastructure status to data centres, special incentives from Central and state governments like land at subsidised cost, power subsidies, exemptions on stamp duty, discounts on usage of renewable energy and procurement of IT components made locally, and other concessions are expected to boost DC investments in the country," says Reddy.

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% of the installed DC capacity.

The presence of landing stations, fibre connectivity, uninterrupted power supply, proximity to tenant’s headquarters and high score on disaster proofing are some of the key parameters a DC operator would look for in a location, says Reddy. "Mumbai and Chennai have maximum landing stations, with the former being the preferred location for a DC operator. Chennai’s reputation took a dent due to the floods of 2017 and 2018. The other key emerging locations are Hyderabad and Pune, wherein some of the large hyper scalers are setting up huge DCs closer to their operation bases in India," Reddy adds.

Given the ESG considerations for most of the key tenants, data centre players are also expected to invest in green power to meet their power requirements.

The industry revenues are expected to increase at a CAGR of around 17-19% during FY2023-FY2025 (24.5% CAGR growth during FY2018-FY2022), supported by an increase in capacity utilisation and ramp-up of new data centres, the ratings agency says. "With increase in revenues and better absorption of fixed costs, operating margins are likely to improve and remain in the range of 43%-45% during next three years," it adds.

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