How to Start a 5 MW Data Center in Pune: A Step-by-Step Guide for Entrepreneurs

Data Center Financial Planner

Introduction

I was thinking about what goes into starting a booming data center business in India. I did some research and in this blog post I’ll share a kind of a guide on setting up a 5 MW data center in Pune. Why Pune? It’s a growing tech hub, close to Mumbai, with good connectivity and lower costs than bigger metros. But trust me, this is a big project, and it’s not just about buying land and installing servers.

In this blog post I’ll walk through the process step-by-step, covering who how to execute this project, what to plan, and how to make it happen. Ready?

I’ basically an investor who wanted to know a few names (stocks) which deals in the core data center business. I say this YouTube video which was very helpful. In the video Mr. Dipan Mehta mentioned three companies: Netweb Technologies, E2E Networks, and Black Box Ltd being the core data center stocks that operating in this domain.

But when I dig deeper into the business model of these companies, I found that data centers are not their core business. So this made me wonder what are data centers in first place and how does its core business operate.

To answer these basics questions about data centers, I’ve written this blog post.

I’ve taken the location Pune as an example. Other preferable places can be Bangalore, Delhi NCR, Hyderabad, etc. Idea is to write a detailed blog post for one city that can be replicated for other places as well.

Why a Data Center in Pune?

Before we jump into the details, let’s talk about why a city like Pune is a smart choice.

It’s not just about the pleasant weather or the vibrant IT scene in Hinjewadi. Pune has reliable power, strong telecom networks, and proximity to submarine cable landing stations in Mumbai.

Plus, land costs are lower than in Mumbai or Bangalore (which is where the main users of these Data Centers have offices).

For a 5 MW data center, which is a medium-sized facility, Pune offers a sweet spot of opportunity and affordability.

The data center market in India is growing fast. Experts have estimated that it will grow at about 20–25% CAGR. This is why, companies like Amazon, Microsoft, and even local giants like Reliance Jio are investing heavily to build new data centers.

As a business owner, you can tap into this demand by offering colocation or cloud services.

Difference Between Colocation and Cloud Services

• Colocation: You’re essentially a landlord providing a secure, powered, and cooled facility. Clients (e.g., a bank in Pune) bring their own servers and manage them. Your job is to keep the lights on, the servers cool, and the facility secure.
• Cloud Services: You’re a full-service provider, owning and managing the entire stack, building, racks, servers, storage, and software. Clients (e.g., a Pune-based edtech startup) rent virtual resources (like compute power or storage) without worrying about hardware.

Colocation requires less IT investment since clients provide the gear. Cloud services demand significant upfront costs for servers and software (Rs.20–50 crore extra for a 5 MW facility) and ongoing expertise to operate and manage the data center.

Here is a quick comparison between the two

Aspect	Colocation	Cloud Services
What You Provide	Building, power, cooling, connectivity, and physical security for client-owned hardware.	Building, power, cooling, connectivity, plus provider-owned servers, storage, and software.
– IT Infrastructure	You’ll not supply. Clients will supply and manage their own servers, storage, and networking gear.	You’ll provide everything. Manages servers, storage, virtualization platforms (e.g., VMware), and software.
– Power & Cooling	UPS, generators, and CRAC units for client hardware; PUE ~1.3–1.5.	Same as colocation, but optimized for high-density, provider-managed systems.
– Connectivity	High-speed internet (e.g., Tata, Jio, Airtel) and meet-me rooms for client interconnects.	Same, plus direct cloud links (e.g., AWS Direct Connect) for scalable access.
– Security	Physical security (biometrics, CCTV); basic network security for clients.	Physical security plus advanced cybersecurity (firewalls, DDoS protection, encryption).
Management	You’ll manage the facility. Clients will manage their hardware and software.	You’ll manages facility, hardware, and software, offering fully managed services.
Scalability	Limited by physical rack space (200–300 racks for 5 MW).	Highly scalable via virtualization; resources allocated on-demand.
CapEx (5 MW)	Rs.80–150 crore (land, building, power, cooling); clients bear equipment costs.	Rs.100–200 crore (includes provider-owned servers, storage, and software).
OpEx (Annual)	Rs.30–50 crore (power, staffing, maintenance).	Rs.40–60 crore (higher due to software licenses, IT staff, cybersecurity).
Target Clients	Big IT Companies, Banks	Startups
Competition	Less competitive	Highly competitive. Faces global hyperscalers (AWS, Azure) and local players (Jio).

Note: For a 5 MW data center in Pune, colocation requires less investment in IT equipment but limits scalability, while cloud services demand higher upfront costs for virtualization but offer flexibility and broader client appeal.

Where do you begin? Let’s break it down.

Step 1: Finding the Right Land

First you need land.

For a 5 MW data center, you’ll need 1–3 acres (one acre is 32 kattha).

The location matters a lot. You want a spot with good power supply, fiber connectivity, and low risk of flooding or earthquakes.

In Pune, areas like Pimpri-Chinchwad, Hinjewadi, or Chakan are ideal. These are industrial zones with solid infrastructure.

Who to Contact for Land?

• Real Estate Firms: Reach out to Knight Frank India or JLL India. They know Pune’s industrial land market inside out. You can find them at knightfrank.co.in or jll.co.in. A quick call to their Pune offices can get you started. They’ll help you find plots that fit your budget, which could be Rs.10–50 crore (about Rs.5 Crore / Acre) depending on the area.
• MIDC: The Maharashtra Industrial Development Corporation (MIDC) manages industrial estates in Pune. They offer leasehold land, which can save you upfront costs. Check midcindia.org or call for their Pune office. Can an MIDC officer who’ll explain how leasing land in Chakan cut costs for a small business. This option is definitely worth exploring.
• Local Agents: Platforms like IndiaMart or Justdial list local land consultants in Pune. Search for “land acquisition consultants Pune” and contact top-rated ones. They’re often more affordable and know the local scene well.

Note: Check if the land is zoned for industrial use. You’ll also need environmental clearances from the Pune Municipal Corporation (PMC) or the Maharashtra Pollution Control Board.

Recenetly, a shopping mall in Mumbai missed this step and has got stuck now. So don’t skip it. Keep a side budget for taking necessary clearances.

Step 2: Building the Data Center

Once you have the land, it’s time to build the facility.

A 5 MW data center needs about 50,000 square feet of building space. The land is about 3 acres and the building will take about 40% of the area. Balance will for for security primeter, power backups, parking, storage, etc.

The building are will be used for the servers, power systems, cooling, and security. The building must be sturdy, fire-resistant, and designed for high reliability (Tier 3 standards), which guarantee 99.982% uptime.

Who to Contact for Construction?

• Specialized Contractors: Companies like Sterling and Wilson or Larsen & Toubro (L&T) are pros at building data centers. Sterling has worked with big names like CtrlS, and L&T handles massive projects across India. You can reach Sterling at sterlingandwilson.com or L&T at larsentoubro.com. They’ll manage everything from concrete walls to raised flooring.
• Design Consultants: Firms like CBRE India or AECOM India can create a blueprint that meets global standards. CBRE’s Pune team can helped you to design a data center with energy-efficient cooling. It’s worth the investment to avoid costly mistakes.
• Local Builders: For smaller parts of the project contact Pune-based contractors. Just make sure they’ve worked on industrial projects before. These contractor can help you save costs by sourcing materials locally.

What’s to construct?

The construction includes the following:

• Building shell,
• Power infrastructure (like transformers and UPS systems), and
• Cooling units.

Expect to spend Rs.50–100 crore here. You’ll also need permits from PMC (local municipal corporation) and compliance with Indian building codes.

Don’t rush this phase, it’s the foundation of your business.

Step 3: Sourcing Key Equipment and Services

A data center isn’t just a building, it’s a high-tech ecosystem.

You’ll need servers, power systems, cooling, connectivity, and security. Each part requires reliable vendors. Let’s look at who to contact for these.

3.1. IT Equipment (Servers, Storage, Networking)

Your data center will house 200–300 racks with servers for computing and storage. These are the heart of your operation.

• Vendors:
  • Servers & Storage: Dell Technologies (dell.co.in) and Hewlett Packard Enterprise (hpe.com) are go-to choices for servers and storage.
  • Networking: Cisco India (cisco.com) is great for networking gear like switches. For a local touch, try ESDS Software Solutions (esds.co.in). They offer servers and managed services.
• Cost: Budget Rs.20–50 crore for IT equipment.

It’s a big chunk, but it’s what makes your data center tick.

Power Systems

Power is the lifeblood of a data center. A 5 MW facility needs robust systems to ensure no downtime.

• Vendors:
  • UPS & Power Distribution: Schneider Electric India (se.com/in) can provide the total solution. Vertiv India (vertiv.com) also offers reliable solutions.
  • Diesel Generators: Cummins India (cummins.com) will be the best choice.
• Cost: Rs.10–20 crore for UPS and generators.

You can also look into renewable energy deals to cut long-term costs. There are data center that slashed its power bill by 20% with solar power.

Cooling Systems

Servers generate heat, so cooling is critical. You want a system that keeps temperatures at 18–27°C without burning a hole in your pocket.

• Vendors:
  • Precision Air Conditioning: Daikin India (daikinindia.com) Vertiv India are leaders in precision air conditioning. Stulz India (stulz.in) is another solid option for complete cooling solutions.
• Cost: Rs.5–15 crore.

You shall go for hot/cold aisle containment. It’s a game-changer for efficiency.

Connectivity

Your clients need fast, reliable internet. Pune’s proximity to Mumbai’s submarine cables is a big plus.

• Vendors:
  • High Speed Internet: Tata Communications (tatacommunications.com) and Reliance Jio (jio.com) offer high-speed connectivity for enterprise solution. Web Werks, a Pune-based provider (webwerks.in), is great for colocation and local interconnects.
• Cost: Rs.1–3 crore per year for bandwidth.

Sign contracts with at least two providers to avoid outages.

Security and Fire Suppression

Safety is non-negotiable. You need physical and cyber security, plus fire protection.

• Vendors:
  • Security Systems: Honeywell India (honeywell.com/in) offers fire suppression and security systems. Bosch India (bosch.in) is good for CCTV and biometrics.
  • Cybersecurity: Fortinet India (fortinet.com) provides firewalls and DDoS protection.
• Cost: Rs.1–3 crore for setup, and Rs.0.5–1 crore annually for maintenance.

Management Software

To keep everything running smoothly, you need software to monitor power, cooling, and servers.

• Vendors: Schneider’s EcoStruxure (same contact as above) is a top DCIM tool.
• NTT India (services.global.ntt) offers managed services if you’re short on expertise.
• Cost: Rs.1–2 crore for setup, Rs.0.5–1 crore yearly for licenses.

Step 4: Planning Your Revenue

Let’s figure out how your 5 MW data center in Pune will make money.

As a business owner, you need to know who’s paying you and how much. India’s data center market is growing fast driven by cloud adoption, 5G, and data localization laws.

A 5 MW facility can serve a mix of clients, and your revenue depends on the services you offer: colocation or cloud services. Let’s break it down.

Potential Revenue Streams

1. Colocation Services:
   • You rent out rack space, power, cooling, and connectivity to clients who bring their own servers. A 5 MW data center can house 200–300 racks.
   • Pricing: In Pune, colocation costs Rs.1–3 lakh per rack per month. The price depends on power density and service level (e.g., Tier 3 with 99.982% uptime).
   • Revenue Estimate: At Rs.2 lakh per rack per month and 80% occupancy (160–240 racks), you could earn Rs.3.2–4.8 crore monthly (Rs.38.4–57.6 crore annually).
   • High-demand clients like banks or IT firms (e.g., TCS, Infosys) in Pune prefer long-term colocation contracts for stability.
2. Cloud Services:
   • You provide virtualized computing resources (servers, storage, software) managed by you. This is more lucrative but requires more investment.
   • Pricing: Cloud services in India charge Rs.5,000–50,000 per month per virtual machine (VM) or storage unit, depending on capacity. For a 5 MW facility, you could support thousands of VMs or terabytes of storage.
   • Revenue Estimate: Assuming you serve 500–1,000 VMs. At about Rs.20,000 per VM per month, that’s Rs.1–2 crore monthly (Rs.12–24 crore annually). Add managed services (e.g., databases, backups) for another Rs.10–20 crore annually. This makes a total of about Rs.22–44 crore.
   • Startups and SMBs in Pune’s tech hub (like Hinjewadi) are key clients here.
3. Hybrid Model:
   • Many Indian data centers (e.g., Web Werks, CtrlS) offer both colocation and cloud services to diversify revenue. For a 5 MW facility, you could allocate 70% of capacity to colocation (140–210 racks) and 30% to cloud services (200–400 VMs).
   • Revenue Estimate: Now let’s combine. 70% colocation (140 racks at Rs.2 lakh = Rs.2.8 crore/month = Rs.33.6 crore/year) and 30% cloud (300 VMs at Rs.20,000 = Rs.60 lakh/month = Rs.7.2 crore/year), you could generate Rs.40.8–50 crore annually at 80% utilization.

How to Plan Revenues

• Target Clients:
  • Colocation: Focus on enterprises (e.g., banks like HDFC, IT firms like Infosys) and telecom operators (Jio, Airtel) needing dedicated hardware. Pune’s IT and BFSI sectors are goldmines.
  • Cloud Services: Target startups, fintech, and edtech firms in Pune needing scalable resources without hardware investments. Hyperscalers (AWS, Azure) may also lease capacity for edge computing.
  • Local Advantage: Pitch low-latency services to Pune-based clients and compliance with India’s data protection laws to attract government or BFSI clients.
• Pricing Strategy:
  • Offer competitive rates compared to Mumbai (5–10% lower) to attract clients. For colocation, bundle power and cooling in the rack price to simplify billing. For cloud, offer tiered plans (e.g., basic VMs for startups, premium for enterprises).
  • Long-term contracts (3–5 years) ensure stable cash flow. A friend running a small data center in Hyderabad told me that locking in a bank for a 5-year deal was a game-changer.
• Revenue Growth:
  • Year 1: Expect Rs.15–25 crore at 50% occupancy as you onboard clients.
  • Year 2–3: Rs.30–50 crore at 80% occupancy with a mix of colocation (70%) and cloud (30%).
  • Beyond Year 3: Rs.40–60 crore as you optimize services and add clients like hyperscalers or government agencies.

Start with colocation to keep costs low and build a client base.

Gradually add cloud services to boost revenue, especially for Pune’s startup ecosystem.

A hybrid model balances risk and reward, but don’t rush into cloud without the budget or expertise to compete with Jio or AWS.

Step 5: Planning Your Budget

Now, let’s talk money.

Setting up a 5 MW data center in Pune involves one-time costs (CapEx) for building and equipping the facility and ongoing costs (OpEx) to keep it running.

Below is a table breaking down both, with specific costs for power, cooling, power backup, networking, and other components, tailored to Pune’s market as of May 2025.

Cost Break-up for a Hybrid Model 70% Colocation and 30% Cloud Services

Category	CapEx (One-Time Costs)	OpEx (Annual Costs)
Land Acquisition	Rs.10–50 crore (1–3 acres in Pimpri-Chinchwad, Hinjewadi, or Chakan; leasing via MIDC reduces upfront cost).	Rs.0.5–2 crore (property taxes, lease payments if not purchased).
Building Construction	Rs.30–60 crore (35,000–50,000 sq. ft. facility with raised flooring, fire-resistant materials, and Tier 3 design).	Rs.2–5 crore (facility maintenance, repairs).
Power Infrastructure	Rs.10–20 crore (UPS systems, transformers, and cabling for 5 MW; e.g., Schneider Electric solutions).	Rs.20–30 crore (electricity at Rs.5–7/kWh; 5 MW at 70% capacity = 30,660 MWh/year).
Power Backup	Rs.5–10 crore (2–3 diesel generators, 1.5–2 MW each, from Cummins; fuel storage for 24–48 hours).	Rs.2–4 crore (fuel, generator maintenance).
Cooling Infrastructure	Rs.5–15 crore (precision air conditioning, CRAC units, hot/cold aisle containment; e.g., Daikin or Vertiv).	Rs.3–6 crore (cooling system maintenance, power for cooling ~30% of total electricity).
IT Equipment	Rs.20–50 crore (200–300 racks with servers, storage, networking from Dell, HPE, Cisco; higher for cloud services).	Rs.3–7 crore (server maintenance, upgrades; higher for cloud due to software licenses).
Networking/Connectivity	Rs.2–5 crore (fiber cabling, switches, routers; connections to Tata, Jio, Web Werks).	Rs.1–3 crore (bandwidth fees, network maintenance).
Security Systems	Rs.1–3 crore (biometrics, CCTV, fire suppression from Honeywell, Bosch; cybersecurity from Fortinet).	Rs.0.5–1 crore (security maintenance, software updates).
Management Software	Rs.1–2 crore (DCIM software like Schneider’s EcoStruxure for monitoring power, cooling).	Rs.0.5–1 crore (software licenses, updates).
Permits & Compliance	Rs.1–3 crore (environmental clearances, PMC permits, Uptime Institute Tier 3 certification).	Rs.0.5–1 crore (audits, compliance with data protection laws).
Staffing	– (included in OpEx)	Rs.2–5 crore (20–30 staff: engineers, technicians, security, management).
Marketing & Sales	Rs.0.5–1 crore (initial branding, client acquisition).	Rs.1–2 crore (ongoing marketing, trade shows in Pune/Mumbai).
Total	Rs.80–150 crore	Rs.30–50 crore

Notes:

• CapEx: Rs.80 crore is the low end (leasing land, minimal cloud services), Rs.150 crore assumes land purchase and heavy cloud investment.
• OpEx: Power dominates (50–60% of costs). Pune’s electricity rates (Rs.5–7/kWh) are reasonable, but renewable energy (e.g., solar PPAs) can save 10–20%. Staffing and maintenance scale with operations.
• Assumptions: Costs reflect Pune’s market, based on industry trends and vendor quotes (e.g., Sterling and Wilson, Schneider). Verify with vendors for accuracy.

Step 6: Estimating ROI and Payback Period

Now, let’s see if this investment makes sense.

Return on Investment (ROI) and Payback Period depend on your CapEx, OpEx, and cash inflows from revenue.

I’ll use the hybrid model (70% colocation, 30% cloud) for a balanced estimate, as it’s a practical approach for a new data center in Pune.

Cash Flows

Here is a breakdown of cash inflows, cash outflows, and net cash flows for a 5 MW data center in Pune.

The calculation are done based on the hybrid model (70% colocation, 30% cloud services).

Assumptions:

• Revenue: Starts at Rs.15–25 crore in Year 1 (50% occupancy), reaching Rs.30–50 crore in Years 2–3 (80% occupancy), and Rs.40–60 crore in Year 4+ (90–100% occupancy), based on a mix of colocation (140–210 racks at Rs.2 lakh/month) and cloud services (300 VMs at Rs.20,000/month).
• CapEx: Rs.80–150 crore (midpoint Rs.115 crore), spread over Years 1–2 (Rs.40–75 crore/year).
• OpEx: Rs.30–50 crore annually (midpoint Rs.40 crore), starting from Year 1.
• Debt: 50% of CapEx (Rs.57.5 crore) financed at 10% interest, with annual debt servicing of Rs.6 crore (principal + interest) over 10 years.
• Timeline: Years 1–5, with cash flows stabilizing by Year 4.

Year	Cash Inflows	Cash Outflows	Net Cash Flow
Year 1	Rs.15–25	Rs.70–125 (CapEx: 40–75 + OpEx: 30–50)	-Rs.55 to -Rs.100
Year 2	Rs.30–50	Rs.50–80 (CapEx: 20–40 + OpEx: 30–50)	-Rs.20 to +0Rs.
Year 3	Rs.30–50	Rs.36–56 (OpEx: 30–50 + Debt: 6)	-Rs.6 to +Rs.14
Year 4	Rs.40–60	Rs.36–56 (OpEx: 30–50 + Debt: 6)	+Rs.4 to +Rs.24
Year 5	Rs.40–60	Rs.36–56 (OpEx: 30–50 + Debt: 6)	+Rs.4 to +Rs.24

ROI & Payback Period Calculation

Vales are in Rs. Crore

Metric	Low-End Estimate	Midpoint Estimate	High-End Estimate
Total CapEx	Rs.115	Rs.115	Rs.115
Annual Net Profit (Year 4+)	Rs.4 (Revenue: Rs.40, OpEx: Rs.30, Debt: Rs.6)	Rs.10 (Revenue: Rs.50, OpEx: Rs.34, Debt: Rs.6)	Rs.14 (Revenue: Rs.60, OpEx: Rs.40, Debt: Rs.6)
ROI (%)	3.5% ( = 4 / 115 x 100)	8.7% ( = 10 / 115 × 100)	12.2% (= 14 / 115 × 100)
Annual Net Cash Flow (Year 4+)	Rs.4	Rs.14	Rs.24
Payback Period (Years)	9.0 (= 115 / 4, adjusted for debt)	6.8 ( = 115 / 14, adjusted for debt)	4.8 ( = 115 / 24, adjusted for debt)

Notes

• ROI: Ranges from 3.5% (conservative, lower revenue) to 12.2% (optimistic, high occupancy and premium clients). Midpoint (8.7%) is realistic for a 5 MW data center in Pune with 80–90% occupancy by Year 4.
• Payback Period: Ranges from 4.8 years (high revenue, fast client acquisition) to 9 years (lower revenue, slower ramp-up). Debt servicing extends payback by 1–2 years compared to a debt-free scenario.

Step 7: Finding Clients

As a data center owner in Pune, your success depends on who’s using your facility.

From big enterprises to nimble startups, there’s a wide range of businesses needing your services.

Client Type	Why They’re a Fit	How to Approach Them
Hyperscalers	Big cloud providers like AWS, Microsoft Azure, or Google Cloud need large-scale capacity for their cloud services.	Attend tech conferences in Mumbai or Bangalore to network with hyperscaler representatives.
Enterprises	IT firms like TCS or Infosys and banks like HDFC need secure, local data storage for compliance with India’s data protection laws.	Reach out directly via their Pune offices. Highlight your Tier 3 reliability and security features.
Startups	Fintech and edtech startups. They can’t afford their own servers, so your cloud offerings are perfect.	Network at startup events. Market flexible cloud plans (e.g., ₹5,000–20,000/month per VM) via digital campaigns.
Telecom Operators	Companies like Jio and Airtel are rolling out 5G and need edge data centers in Pune for low-latency applications like IoT or gaming.	Contact Jio or Airtel enterprise teams. Pitch your 5 MW capacity for edge use cases.

Start marketing early.

Attend industry events in Pune or Mumbai, and network with Web Werks for client leads.

A friend who runs a small data center told me that long-term contracts with enterprises were a lifesaver for cash flow.

Step 8: Getting Started

Here’s a simple timeline to follow:

• Months 1–3: Buy or lease land. Work with Knight Frank or MIDC. Get PMC clearances.
• Months 4–6: Hire CBRE for design. Finalize permits.
• Months 7–18: Build with Sterling or L&T. Install equipment from Dell, Schneider, and Daikin.
• Months 12–24: Test systems for Tier 3 compliance. Start marketing to clients.
• Year 2–3: Aim for 80% occupancy to break even in 5–7 years.

Conclusion

India’s data center market is growing fast. Places like Pune & Kolkata is a great place to start.

Be patient, building takes time, and clients won’t come overnight.

Stay compliant with India’s data protection laws; they’re strict, and penalties hurt. Also, include green energy in your plan. Renewable energy will saves money in long term.

Starting a 5 MW data center is a bold move.

From land to servers to clients, every step needs care.

Drop a comment below, I’d love to hear your thoughts about this small case study.