Private Defence Firms’ Revenue To Grow 15–16% This Fiscal: Crisil Ratings

New Delhi, Jun 6 (KNN) Revenue of private sector companies in India's defence industry is expected to grow 15–16 per cent this fiscal — matching last year's performance — supported by a healthy order book of approximately Rs 50,000 crore and the government's drive to source 75 per cent of India's defence requirements domestically under the Atmanirbhar Bharat initiative, according to Crisil Ratings. 

An analysis of 24 companies accounting for approximately 42 per cent of private defence industry revenue underpins the assessment.

These companies have logged a compound annual growth rate of 26 per cent over the past five years, backed by government schemes including Innovations for Defence Excellence (iDEX), the Positive Indigenisation List, the Technology Development Fund, and the Development-cum-Production Partner (DcPP) programme.

A Shift Towards High-Value Orders

Jayashree Nandakumar, Director, Crisil Ratings, said, "We expect the revenue of these companies to rise 15-16 per cent to nearly Rs 20,000 crore this fiscal. From offset-fulfilment obligations and sub-assembly (majorly forging) supplies, they are now serving as system integrators. That means they are securing orders in electronic warfare and intelligent systems used in rocket warheads, drones, aerial bomb systems, radars, satellites and surveillance platforms.”

“This shift in their order-book profile, improvement in operational capability and built-in price escalation clauses for key raw materials will underpin continued healthy operating profit margin of 18–19 per cent this fiscal, similar to last fiscal, and up 400 basis points (bps) since fiscal 2020," Nandakumar added.

Rising Capex and Working Capital Pressures

The transition to higher-value orders is driving a significant increase in capital expenditure, projected to rise to Rs 1,500–1,600 crore this fiscal from Rs 1,000 crore last year. Working capital requirements are also expected to increase to Rs 1,600–1,800 crore, as high-value orders are subject to more stringent testing and approval norms, stretching execution cycles.

Timely testing and approval are critical — particularly for system integration orders where execution delays of 5–6 months can occur. A six-month delay could increase the working capital cycle by 35–40 days over the base-case scenario of 240–250 days, Crisil noted.
The majority of incremental funding will be met through internal accruals, limiting reliance on external debt.

Credit Profiles Remain Stable

Pallavi Singh, Associate Director, Crisil Ratings, noted, “Balance sheets have also benefitted from equity infusions of nearly Rs 3,900 crore over fiscals 2022 to 2025. Hence, the credit profiles of private sector defence companies are expected to remain stable, driven by adequate debt protection metrics. This is reflected in an interest coverage ratio of 4.3–4.5 times and debt to earnings before interest, taxes, depreciation and amortisation (Ebdita) ratio of 2.2–2.3 times this fiscal."

Risks to Watch

Crisil highlighted that key risks include potential delays in testing and approvals, changes in defence procurement policies, and disruptions in the supply of critical raw materials — all of which could affect execution timelines and financial performance.

(KNN Bureau)