India’s private defence companies are positioned for another year of strong expansion, with CRISIL Ratings projecting 16-18% revenue growth for FY2026. This growth builds on a compound annual growth rate (CAGR) of nearly 20% over FY2022-25, underscoring sustained momentum driven largely by strong domestic demand, favourable government policies, and increasing private participation in defence manufacturing and R&D.

Government initiatives such as the Emergency Procurement Plan, Atmanirbhar Bharat, the Defence Acquisition Policy (DAP), and the Defence Production and Export Promotion Strategy (DPEPP) have played a key role in boosting domestic manufacturing and indigenisation.

These measures, coupled with higher military spending amid geopolitical uncertainties, have created a conducive environment for private firms to expand capabilities and secure larger orders.

Private defence firms have demonstrated strong commitment to long-term growth, with equity infusions totalling ₹3,600 crore over the past three fiscals on a net worth base of ₹4,760 crore in FY2022. A significant portion of this funding has been channelled into R&D, innovation, and CAPEX, strengthening technological capabilities in areas such as aerospace systems, electronic warfare, and C4 (command, control, communications, computers, and intelligence). Around one-third of the funds have been directed toward working capital requirements, reflecting the high capital intensity of the sector.

The order book value of private defence companies is projected to reach ₹55,000 crore by the end of FY2026, up from ₹40,000 crore in FY2025. The expansion is aided by demand for electronic warfare systems, C4ISR solutions, and aerospace equipment and components. With built-in price escalation clauses in contracts and strong revenue pipelines, operating margins are expected to hold steady at around 18-19%, ensuring profitability despite high capital expenditure.

CRISIL notes that despite the sector’s capital intensity, balance sheets remain strong, thanks to prior equity infusions, IPO-driven funding, and private equity participation. For FY2026, companies are expected to spend ₹1,000 crore each on CAPEX and incremental working capital.

Most of this expenditure will be funded internally, keeping debt levels under control. The TOL/TNW ratio is projected at a stable 1.15 times as of March 31, 2026, while interest coverage is estimated at 5.5 times, reflecting strong repayment capacity and financial resilience.

Profitability is expected to remain stable, with operating margins in the 18-19% band, supported by healthy revenue growth and protective contractual clauses. The balance between innovation-driven expansion and revenue visibility ensures that companies avoid over leveraging, even as they commit to significant spending on modernization.

While public sector undertakings continue to dominate India’s defence industry, private companies are steadily expanding their market share. Their share of industry revenue is rising, supported by both direct domestic procurement orders and opportunities in exports. The government’s push for self-reliance is bringing private players deeper into the defence ecosystem, creating long-term structural growth opportunities.

Analysts caution that there are still risks on the horizon. Policy changes, semiconductor supply chain disruptions, and extended working capital cycles could challenge growth trajectory. Additionally, geopolitical shifts and global defence procurement cycles will influence demand patterns. However, the sector’s strong financial health, rising technological capabilities, and robust order book mitigate these risks in the near term.

India’s private defence sector is poised to maintain double-digit growth, with rising capabilities in aerospace, electronics, and systems integration aligning well with India’s strategic push for indigenisation and export-led defence growth. With healthy order pipelines, sustained government support, and efficient capital management, private defence firms are becoming an increasingly vital pillar of India’s defence industrial base.

Agencies