New Delhi [India], March 11 (ANI): The data centre business in India is expanding, supported by internet/data usage and data localisation initiatives, asserted rating agency ICRA.

Rapid digitisation and favourable regulatory regime to propel demand for data centres in India.

ICRA expects India's data centre (DC) operational capacity to increase to 2,000-2,100 MW by March 2027 from around 1,150 MW as of December 2024, involving investment of Rs 40,000-45,000 crore in 2025-26 and 2026-27.

Further, established data centre players and new players, which have entered this sector in the last 3-4 years, have a development pipeline of 3.0-3.5 GW to be delivered in the next 7-10 years, involving significant investments of Rs 2.0-2.3 lakh crore.

Increasing broadband and mobile internet penetration, the government's focus on Digital India, accelerated adoption of cloud services, artificial intelligence (AI), and 5G, and the growth of social media, e-commerce, gaming, and OTT platforms are triggers behind the digital explosion in India.

Digital personal data protection bill; infrastructure status for data centres; special incentives from central and state governments; initiatives for enhanced connectivity--BharatNet expansion, deep tech fund of funds, and domestic manufacturing will spur data centre growth.

Giving more insight, Anupama Reddy, Vice President and Co-Group Head, Corporate Ratings, ICRA, said: 'While cloud, 5G roll-out, machine learning and internet of things (IoT) are expected to generate enormous data and storage requirements, generative artificial intelligence (AI)-led high computing requirements present a new wave of demand for DC capacity and a significant opportunity for DC operators.'

Driven by AI requirements, the global DC market has already witnessed multiple large deals signed by hyperscalers and India is expected to follow the trend.

'This, coupled with favourable regulatory policies and an infrastructure status for the data centre sector, will support strong growth prospects in India in the coming decade,' Reddy added.

As part of the Union Budget 2025-26, the government's proposal to set up a centre of excellence in AI for education, the BharatNet project to provide broadband connectivity to all gram panchayats, and the start of the Deeptech Fund of Funds to provide access to skilled professionals in AI, cyber security, and cloud computing complement the strong growth prospects for the data centre sector in India.

Some of the key parameters a DC operator would look for in a location are the presence of landing stations, fibre connectivity, uninterrupted power supply, proximity to the tenant's headquarters, and a high score on disaster proofing.

Mumbai and Chennai have maximum landing stations, with the former being the preferred location for a data centre operator, ICRA asserted.

Around 75 percent of the upcoming capacities in the next three years are concentrated in the Mumbai, Chennai, and Hyderabad markets.

ICRA estimates the revenues for the top five data centre players (which account for around 75-80 percent of overall industry revenues and operational capacities in India) to expand by a sharp 18-20 percent year-on-year in 2025-26.

Operating margins are expected to remain healthy at 40-41 percent in 2025-26.

The return on capital employed (RoCE) is likely to be modest as the data centre players are in continuous capex mode, and new data centres will ramp up over time.

'As competition is heating up with the entry of new players, pricing flexibility is getting increasingly constrained, which will exert a drag on the profitability and return metrics for the incremental business,' ICRA said. However, ICRA anticipates the leverage and coverage metrics of the players to remain comfortable in the medium term. (ANI)