Present a data centre development to the investment committee: cost Rs 900 crore, stabilised net operating income Rs 108 crore, a 12% yield on cost against an 8% market cap rate. Show the downside of a delay, a cost overrun and a slow lease-up, and what would make the committee comfortable.

The base case creates about Rs 450 crore of value, and each downside alone still clears the 8% cap rate, but all three together fall to 6.7% and lose about Rs 183 crore. The committee gets comfortable when the combined downside still clears 8%. A fixed-price build contract and an anchor tenant signed before construction do that: mitigated, the combined downside yields about 8.9% and still creates value.

Someone who builds a house to rent out asks one thing: will the rent, as a share of what I spent, beat the rent-to-price ratio at which finished houses sell? If yes, the house is worth more than it cost the day it is let. A development creates value when its yield on costStabilised net operating income divided by the total cost of developing the asset, including land, construction and financing during the build. exceeds the market cap rateNet operating income divided by the price buyers pay for a completed, income-producing property. An 8% cap rate means a price of 12.5 times income. for finished assets. Kaivalya earns 12% on cost against 8%, so on completion it is worth Rs 1,350 crore, Rs 450 crore more than it cost.

Take them one at a time, then together. A 12-month delay adds a year of carry, 9% of Rs 900 crore, taking cost to Rs 981 crore and yield to 11.0%. A 15% overrun takes cost to Rs 1,035 crore and yield to 10.4%. Stalling at 70% leased cuts income to Rs 75.6 crore and yield to 8.4%, the most damaging single risk. Each alone still clears 8%, but together they compound to 6.7%, and the campus would be worth about Rs 945 crore against a cost of Rs 1,128 crore.

Answer each worry with a contract, not with conviction. Committee comfort comes from showing that the realistic combined downside still clears the cost of capital, and that the protections are signed rather than hoped for. First, an anchor tenant: a large customer pre-committing to part of the capacity before construction, so occupancy has a floor; here assume that lifts the downside to 85%. Second, a fixed-price construction contract with a capped contingency, so the overrun cannot exceed 5%. Third, delay penalties payable by the contractor and a power supply agreement signed before ground-breaking, since power is often the true bottleneck for data centres. With the first two in place, the combined downside yields 8.9% and still creates about Rs 117 crore.

Say the limits yourself before the committee does. The 8% cap rate is today's market, and if it rises to 9% by completion the base-case value falls by about a ninth; an anchor tenant usually negotiates a lower rent, which trims the base case; and one tenant on a large share of the campus is a concentration risk of its own. Offering these points first is part of what earns trust.