Pvt defence firms to continue double-digit growth in FY26: Crisil Ratings

The strong growth momentum comes on the back of a significant policy push by the government, which has been drawing sizeable private investments for the sector

Private defence companies are likely to report 16-18 per cent revenue growth this year, led by rising investments and strong domestic demand, according to Crisil Ratings. The double-digit growth expectation follows a 20 per cent compound annual growth rate (CAGR) logged between FY22-FY25.

Strong government boost

The strong growth momentum comes on the back of a significant policy push by the government, which has been drawing sizable private investments for the sector. The investments in research and development (R&D) and capex have strengthened players' capabilities, enabling them to secure larger orders. 

   

Profitability is likely to remain stable, with operating margins range-bound at 18-19 per cent. Jayashree Nandakumar, director, Crisil Ratings, said: "Over the past three financial years, defence companies have seen equity infusions of ₹3,600 crore on a net worth base of ₹4,760 crore at the end of FY22, largely through public offerings and private equity. While a third of such monies went into working capital funding, almost half was utilised for capital expenditure, R&D, and innovation, thus enhancing capabilities among private sector defence companies and enabling them to secure larger orders."

 

Crisil Ratings analysed over 25 private defence firms, which together contribute to nearly half of the industry revenues.

Revenue share of private firms rising

Although public sector undertakings dominate India’s defence industry, the revenue share of private companies has been on the rise. The private sector has capitalised on the strong government impetus to domestic procurement and self-reliance, which is reflected in higher capital outlays, in addition to military spending stemming from geopolitical uncertainties.

Order book to remain healthy

According to Crisil, order books will continue to strengthen, supported by the Emergency Procurement Plan and key government initiatives including Atmanirbhar Bharat, the Defence Acquisition Policy, and the Defence Production and Export Promotion Strategy. These policies encourage both indigenisation and exports. 

 

Overall order books are estimated to reach ₹55,000 crore by FY26-end from ₹40,000 crore at the end of FY24. The segments aiding order book expansion include electronic warfare systems, C4 (command, control, communications, computers and intelligence) systems, and aerospace equipment, Crisil said.

Strong performance to drive capacity additions

Strong operating performance and a healthy order book are likely to drive capacity additions and higher working capital. Moreover, expectations of fresh orders, supported by industry buoyancy, will also sustain R&D spending.

 

“Companies are expected to incur ₹1,000 crore towards capital expenditure and an equal amount for incremental working capital in FY26. The majority of this will be funded through internal accruals, and hence debt levels are unlikely to go up,” said Sajesh K V, associate director, Crisil Ratings.