Key Points

The rating agency expects the private defence companies to register a robust 16-18 per cent growth. This follows a 20 per cent compound annual growth rate (CAGR) logged between fiscal 2022 and 2025.The strong growth momentum, according to the rating agency, is supported by a significant policy push by the government, which drew in sizeable private investments.

The investments in research and development (R&D) and capital expenditures (capex) have strengthened players' capabilities, enabling them to secure larger orders.

Coming to profitability, the rating agency sees it to be stable with the operating margin range-bound at 18-19 per cent.

Equity infusions over the past three fiscals are expected to keep balance sheets healthy, despite incremental working capital debt and capital expenditure (capex) plans.

The rating agency had analysed over 25 private defence companies, together contributing to nearly half of the industry revenues.

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

This, in turn, has attracted significant capital inflows through initial public offerings and private equity investments, enabling the comfortable funding of innovation and R&D in the sector.

Jayashree Nandakumar, Director, Crisil Ratings, said that over the past three fiscals, defence companies have seen equity infusions of Rs 3,600 crore on a networth base of Rs 4760 crores at the end of fiscal 2022, largely through public offerings and private equity.

"While a third of such monies went into working capital funding, almost half were utilised for capital expenditure, R&D, and innovation, thus enhancing capabilities among private sector defence companies, enabling them to secure larger order," Nandakumar said.

With enhanced capabilities, order books will continue to strengthen, particularly 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 Rs 55,000 crore at the end of this fiscal from Rs 40,000 crore at the end of fiscal 2023-24. The segments aiding the order book expansion include electronic warfare systems, C4 (command, control, communications, computers and intelligence) systems, and aerospace equipment and components, among others, the rating agency said.

- ANI