India’s defence sector is projected to experience robust revenue growth of 15-17% in FY2026, according to a report by the Investment Information and Credit Rating Agency (ICRA).

This surge is primarily attributed to strong execution progress, underpinned by a healthy order book and an order book to operating income (OB/OI) ratio of 4.4 times at the end of FY2025.

Entities across the entire spectrum of defence production—including land systems, naval, aeronautical, armaments, ammunition, and ICT—are expected to benefit from the sustained expansion in government budgetary outlays since 2015. This ongoing support is translating into steady and healthy order inflows as the government continues to prioritise domestic procurement.

The sector’s operating margins are anticipated to remain strong, with weighted average margins estimated at 25-27% for FY2026. This is supported by economies of scale, increasing localisation, and a strategic shift towards manufacturing more value-accretive system-level products, rather than focusing solely on sub-components or assemblies.

The rise in localisation is a direct result of government initiatives such as Atmanirbhar Bharat, which have significantly enhanced India’s indigenous defence production capabilities, spurred investments, and expanded export opportunities.

These policy measures have resulted in a notable increase in defence procurement from domestic vendors, rising from 61% in FY2017 to approximately 75% in FY2025.

Defence exports have also seen remarkable growth, expanding more than 15 times at a compound annual growth rate (CAGR) of 41%, reaching ₹23,622 crore during the period from FY2017 to FY2025. Furthermore, the government has raised the sector’s budgetary outlay, with a particular emphasis on capital expenditure, which has grown at a CAGR of 8.29% over the past five years to reach ₹1.92 lakh crore in the FY2026 Budget Estimate.

Despite these positive trends in revenue and profitability, working capital management continues to pose challenges, particularly for private sector players.

Nevertheless, the overall outlook for India’s defence sector remains highly positive, driven by strong policy support, rising localisation, and expanding export markets, positioning the industry for sustained growth in the coming fiscal year.

Based On ANI Report