Mumbai, Sep 23 (NationPress) Private defence firms are expected to achieve revenue growth of 16-18 percent in the current financial year driven by robust domestic demand, as reported by Crisil on Tuesday.

This growth follows a remarkable 20 percent compound annual growth rate (CAGR) noted from fiscal 2022 to 2025. The ongoing momentum is bolstered by a significant government policy push that has attracted substantial private sector investments. Enhanced spending on research and development (R&D) and capital expenditures (capex) has fortified the capabilities of these companies, allowing them to secure larger contracts. The report indicates that profitability remains stable, with operating margins hovering between 18-19 percent.

The infusion of equity over the past three fiscal years is expected to keep balance sheets robust, despite an increase in working capital debt and ongoing capital expenditure, as highlighted in the report.

This analysis is based on data from more than 25 rated private defence firms by Crisil Ratings, which collectively account for almost half of the industry’s revenues.

Although public sector enterprises dominate India's defence sector, the revenue contribution from private companies is increasing. They have effectively leveraged the government’s strong push for domestic procurement and self-reliance, leading to increased military funding amidst geopolitical tensions, as mentioned in the report.

This environment has also attracted significant investments through initial public offerings and private equity, facilitating funding for innovation and R&D within the sector.

Jayashree Nandakumar, director of Crisil Ratings, stated: “In the last three fiscal years, defence firms have experienced equity infusions of approximately Rs 3,600 crore against a net worth of Rs 4,760 crore at the end of fiscal 2022, primarily through public offerings and private equity. While a third of these funds were directed towards working capital, nearly half was allocated to capex, R&D, and innovation, enhancing the capabilities of private defence firms, enabling larger order acquisition.”

With improved capabilities, order books are anticipated to strengthen, particularly with support from the Emergency Procurement Plan and key government initiatives such as Atmanirbhar Bharat, the Defence Acquisition Policy, and the Defence Production and Export Promotion Strategy. These policies promote both indigenisation and exports, as noted in the report.

Overall, order books are projected to reach around Rs 55,000 crore by the end of this financial year, up from Rs 40,000 crore at the conclusion of fiscal 2024. Key segments driving order book growth include electronic warfare systems, C4 (command, control, communications, computers, and intelligence) systems, and aerospace equipment and components.

A robust order book supports revenue visibility, hence revenues are expected to expand by 16-18 percent this fiscal year. With built-in price escalation clauses in contracts and healthy revenue growth, operating margins are projected to remain stable at around 18-19 percent, according to the report.