Private defence firms to sustain 15-16% revenue growth on Atmanirbhar push: Crisil
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India's private defence sector is expected to maintain strong growth momentum this fiscal, with revenues projected to rise 15-16% to nearly ₹20,000 crore, supported by a robust order book of around ₹50,000 crore and the government's push for self-reliance in defence manufacturing, according to a report by Crisil Ratings.
The report said growth this fiscal is likely to remain in line with last year's performance, driven by the Centre's Atmanirbhar Bharat initiative, which aims to source 75% of India's defence requirements domestically.
An analysis of 24 private defence companies, accounting for about 42% of the sector's revenue, showed that the industry has delivered a compound annual growth rate (CAGR) of 26% over the past five years. The expansion has been aided by higher defence capital expenditure and government initiatives such as Innovations for Defence Excellence (iDEX), the Positive Indigenisation List, the Technology Development Fund and the Development-cum-Production Partner (DcPP) programme.
According to Crisil, private defence manufacturers are increasingly moving up the value chain, shifting from offset-driven export orders and sub-assembly supplies to high-value indigenous production and system integration.
"From offset-fulfilment obligations and sub-assembly supplies, companies are now serving as system integrators, securing orders in electronic warfare and intelligent systems used in rocket warheads, drones, aerial bomb systems, radars, satellites and surveillance platforms," said Jayashree Nandakumar, Director, Crisil Ratings.
The changing order-book profile improved operational capabilities and price-escalation clauses for key raw materials are expected to support operating margins of 18-19% this fiscal, unchanged from last year and around 400 basis points higher than fiscal 2020 levels, the report noted.
To cater to rising demand, private defence companies are expected to increase capital expenditure to ₹1,500-1,600 crore this fiscal from around ₹1,000 crore last year. Working capital requirements are also projected to rise to ₹1,600-1,800 crore as higher-value orders involve longer testing and approval cycles.
Despite the increased funding needs, Crisil expects credit profiles to remain stable due to strong internal accruals and equity infusions. The sector raised nearly ₹3,900 crore through equity between fiscals 2022 and 2025, strengthening balance sheets.
"Credit profiles are expected to remain stable, supported by adequate debt protection metrics," said Pallavi Singh, Associate Director, Crisil Ratings. Interest coverage is estimated at 4.3-4.5 times, while the debt-to-Ebitda ratio is expected to remain at 2.2-2.3 times this fiscal.
The report, however, highlighted execution-related risks. High-margin system integration projects are subject to stringent testing and approval processes, which can lead to delays of five to six months. For the companies analysed, a six-month delay could extend the working capital cycle by 35-40 days from the base level of 240-250 days.