Private defense companies project double-digit growth, CRISIL claims this based on order books

India's private defense firms will keep expanding. Revenue will experience robust growth in 2025-26 on the back of robust domestic demand, says CRISIL Ratings. Private defense firms are anticipated to achieve robust growth of 16 to 18 percent, says the rating agency. This comes after a CAGR of 20 percent during fiscal years 2022 to 2025.

According to CRISIL, the strong growth momentum is supported by significant policy incentives from the government, which has attracted large-scale private investment. Investments in research and development (R&D) and capital expenditure (capex) have strengthened companies' capabilities, helping them secure larger orders.

The agency stated that private defense companies' profitability is expected to remain stable, with operating margins ranging between 18 and 19 percent. Balance sheets remain strong due to equity investments made over the past three financial years, even as working capital debt and capital expenditure (capex) plans are increasing.

The agency studied over 25 private defense firms, which generate close to half of the overall industry revenue. Public sector firms dominate the Indian defense industry, but private firms' share of revenue is progressively growing.

Growing military expenditures in view of geopolitical tensions, as well as government policies of indigenous procurement and self-reliance, have opened doors for private firms. This trend has attracted large capital inflows through IPOs and private equity investments, enabling seamless funding of innovation and R&D in the sector.

Jayshree Nandkumar, Director at CRISIL Ratings, said that over the past three fiscal years, defense companies have seen equity investments of ₹3,600 crore, based on a net worth of ₹4,760 crore at the end of FY2022. This was primarily through public offerings and private equity. Nandkumar said that a third of such funds went into working capital financing, while about half was used for capital expenditure, R&D, and innovation. This enhanced the capabilities of private sector defense companies and enabled them to secure larger orders.

With increased capabilities, the order book will continue to improve, especially supported by key government initiatives such as the Emergency Procurement Scheme and Atmanirbhar Bharat, the Defense Acquisition Policy, and the Defense Production and Export Promotion Strategy. These policies encourage both indigenization and exports.

The total order book is projected to reach ₹55,000 crore by the end of this fiscal year, up from ₹40,000 crore by the end of FY2023-24. The rating agency said sectors supporting order book expansion include electronic warfare systems, C4 (command, control, communications, computers, and intelligence) systems, and aerospace equipment and components, among others.