India’s private defence companies are poised to sustain strong momentum, clocking 16-18% revenue growth in the current fiscal, according to Crisil Ratings. 

According to the ratings agency, the outlook is based on an impressive compound annual growth rate (CAGR) to the tune of 20% between FY22 and FY25, driven by robust domestic demand and a policy thrust on self-reliance.

The credit rating agency said that the growth trajectory is underpinned by rising investments in research & development (R&D) and capacity expansion, which have helped private players secure larger and more sophisticated orders. Operating margins are expected to remain stable at 18-19%, aided by built-in price escalation clauses in contracts and steady revenue visibility.

"While public sector undertakings continue to dominate India’s defence industry, the revenue share of private companies is steadily rising. These firms have capitalised on strong government support for domestic procurement and self-reliance, reflected in higher capital outlays as well as increased military spending driven by geopolitical uncertainties," said Crisil.

“Over the past three fiscals, defence companies have seen equity infusions of about ₹3,600 crore on a net worth base of roughly ₹4,760 crore at the end of FY22, largely through public offerings and private equity,” said Jayashree Nandakumar, Director, Crisil Ratings. “Almost half of these funds went into capex, R&D and innovation, significantly enhancing private sector capabilities.”

Crisil’s analysis of over 25 rated private defence firms, which account for nearly half of the sector’s revenues, shows that their combined order book could rise to as much as ₹55,000 crore by March 2026, up from about ₹40,000 crore in FY24. Demand is particularly strong in segments such as electronic warfare, C4 (command, control, communications, computers and intelligence) systems, and aerospace equipment.

"Strong operating performance and a healthy order book are expected to drive capacity additions and higher working capital requirements, in an industry that remains both capex- and working-capital-intensive. The operating income to gross block ratio of players stood at 1.8–2 times in the past three fiscals ending fiscal 2025. Moreover, anticipation of fresh orders, supported by overall industry buoyancy, will continue to sustain research and development spends," noted Crisil in its report.

The expansion comes as the government’s Emergency Procurement Plan, Atmanirbhar Bharat, Defence Acquisition Policy, and Defence Production and Export Promotion Strategy continue to encourage indigenisation and exports.

Despite the capital- and working-capital-intensive nature of the business, credit profiles are expected to remain stable. Crisil said that according to its projections, companies are likely to spend around ₹1,000 crore each on capex and incremental working capital this year, funded largely through internal accruals. Debt levels are therefore unlikely to rise significantly.

“Balance sheets remain strong, supported by past equity infusions,” noted Sajesh K V, Associate Director, Crisil Ratings. “We expect the total outside liabilities-to-net worth ratio to stay steady at ~1.15 times, with interest coverage improving to 5.5 times this fiscal.”

However, Crisil flagged potential risks, which include policy-level changes in defence procurement, supply-chain constraints in semiconductors, and lengthening working capital cycles.