This continues the momentum seen over fiscal 2022-25, when the sector recorded a compound annual growth rate (CAGR) of roughly 20%.
The growth trajectory has been fuelled by sizeable investments in research and development (R&D) and capital expenditure (capex), which have strengthened capabilities and allowed private firms to secure larger orders.
Operating margins are expected to remain stable, ranging between 18-19%, reflecting both revenue growth and built-in price escalation clauses in contracts, the report said.
Healthy funding and equity infusions underpin stability
Despite high working capital needs and ongoing capex plans, balance sheets of private defence companies remain healthy. Over the past three fiscals, equity infusions totaling around Rs 3,600 crore have been made on a net worth base of approximately Rs 4,760 crore at the end of fiscal 2022, largely through public offerings and private equity, according to Jayashree Nandakumar, Director at Crisil Ratings.
“While a third of such monies went into working capital funding, almost half were utilized for capital expenditure, R&D, and innovation, thus enhancing capabilities among private sector defence companies, enabling them to secure larger orders,” Nandakumar said.
Rising private share in India’s defence industry
Though public sector undertakings still dominate India’s defence sector, private companies are steadily increasing their revenue share. Strong government initiatives such as the Emergency Procurement Plan, Atmanirbhar Bharat, the Defence Acquisition Policy, and the Defence Production and Export Promotion Strategy have encouraged indigenization and exports, creating opportunities for private players.
These policies, combined with military spending driven by geopolitical uncertainties, have attracted significant capital inflows through IPOs and private equity, providing ample funding for innovation and R&D.
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Order books and revenue visibility
Private defence firms are projected to see their order books rise to around Rs 55,000 crore by the end of this fiscal, up from roughly Rs 40,000 crore at the end of fiscal 2024. Key segments driving this growth include electronic warfare systems, C4 (command, control, communications, computers, and intelligence) systems, and aerospace equipment and components.
A strong order book translates into higher revenue visibility, supporting the forecast 16-18% growth. Operating margins are expected to remain range-bound at 18-19%, benefiting from both built-in contract price escalation clauses and the healthy growth trajectory.
Capex and working capital intensity remain high
The sector continues to be both capex and working capital intensive. Over the past three fiscals ended 2025, the operating income to gross block ratio stood at 1.8-2 times. With expectations of fresh orders and ongoing R&D investment, companies are likely to maintain high capex and working capital spends.
“Companies are expected to incur Rs 1,000 crore towards capital expenditure and an equal amount for incremental working capital this fiscal. Majority of this will be funded through internal accruals and hence debt levels are unlikely to go up in the current fiscal,” said Sajesh K V, Associate Director, Crisil Ratings.
Balance sheets remain fortified by prior equity infusions, keeping the total outside liabilities to tangible net worth (TOL/TNW) ratio stable at about 1.15 times as of March 31, 2026. Interest coverage is seen healthy at 5.5 times, compared to 5.2 times in the previous fiscal.
Watchpoints for the sector
As per the report, analysts caution that changes in defence policies, semiconductor supply constraints, and elongation in working capital cycles will require close monitoring. However, for now, the combination of strong government backing, rising private sector capabilities, and solid funding ensures that India’s private defence industry is poised for continued double-digit growth.
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