Private defence companies poised to grow 20% this fiscal


Strong balance sheets to sustain credit profiles amid large capex, high working capital intensity
Revenues of 25 private aerospace and defence companies rated by CRISIL Ratings are set to grow 20% to ~Rs 13,500
crore this fiscal (refer to Chart 1 in Annexure), propelled by higher government spending and concerted efforts to
encourage private participation.
Operating margin is likely to rise 50-60 basis points on sustained revenue growth, economies of scale and better fixed
cost absorption, and should remain stable over the medium term, aided by price escalation clauses in contracts.
While public sector undertakings dominate the Indian defence industry, revenue share of private players has been on the
rise. Liberalisation in defence equipment manufacturing and increasing transparency in bidding guidelines have helped
private entities secure more orders in domestic and overseas markets. Enhanced development and production
capabilities of these players have also aided growth over the years.
Says Jayashree Nandakumar, Director, CRISIL Ratings, “The orderbooks of aerospace and defence companies
rated by CRISIL have swelled over the past few fiscals on the back of strong government impetus, including the
Atmanirbhar Bharat initiative, Defence Acquisition Policy and the Defence Production and Export Promotion
Strategy, which favour indigenisation and exports. Order book to operating income1

is expected to improve to
around 4.5 times in fiscal 2025 to ~Rs 50,000-51,000 crore, from 3.5 times in fiscal 2023, driving revenue growth.”
Strong revenue growth and order inflow are expected to encourage players to expand capacities and, thus, lead to higher
working capital requirement. Gross current assets may increase further from the already high level of 450-500 days on
average, driven by large inventory and receivables of around 230 and 120 days, respectively.
Says Sajesh K V, Associate Director, CRISIL Ratings, “Players may undertake capital expenditure (capex) of Rs
650-700 crore this fiscal to expand their existing capacities by 12-14% and require an additional Rs 600-700 crore
to meet the incremental working capital expenses. Nevertheless, strong balance sheets, healthy profitability and
prudent funding are expected to keep credit profiles stable.”
Interest coverage ratio is likely to remain comfortable at 4.7 times this fiscal as against 4.5 times the previous fiscal (refer
to Chart 2 in Annexure). The total outside liabilities to tangible net worth (TOL/TNW) ratio is, in fact, projected to improve
to 1.2 times, as on March 31, 2025, as against 1.75 times a year earlier.
That said, changes in defence policies, geopolitical uncertainties and semiconductor supplies will bear watching on the
road ahead.


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