Top News

Positive Outlook for Defence Sector Growth

New Delhi, June 18: Recent reports indicate that companies within India's defence industry are poised for significant growth, with projected revenue increases of 15-17% for FY26.

This optimistic revenue forecast is largely attributed to effective execution and a strong order backlog, with the order book to operating income (OB/OI) ratio standing at 4.4 times by the end of FY25, as per an analysis by ICRA.

Over the years, the government has rolled out various policy measures aimed at bolstering domestic defence production, fostering investment, and enhancing exports, with the 'Atmanirbhar Bharat' initiative at the forefront.

Key initiatives include the relaxation of foreign direct investment (FDI) regulations in the defence sector, the continuation of the defence offset policy, the establishment of two Defence Industrial Corridors, and a strong push for indigenisation through five 'Positive Indigenisation Lists' and the online portal 'SRIJAN'.

Furthermore, the government has increased the budget allocation for the defence sector, with capital outlay growing at a compound annual growth rate (CAGR) of 8.29% over the last five years, reaching Rs 1.92 lakh crore in the FY2026 budget estimates.

As a result of these initiatives, spending on defence procurement from domestic suppliers has risen from 61% in FY2017 to approximately 75% in FY2025, while exports have surged over 15 times, achieving a CAGR of 41% to Rs 23,622 crore from FY2017 to FY2025.

According to Suprio Banerjee, Vice President and Co-Group Head of Corporate Ratings at ICRA, all sectors of defence production—including land, naval, aeronautical, armaments, and ICT2—are expected to benefit from the ongoing increase in budgetary allocations since 2015, leading to robust order inflows as the government prioritizes domestic procurement.

The average operating margins are projected to remain strong at 25-27% for FY2026, bolstered by economies of scale and increased localisation, as companies shift towards producing more complex system-level products rather than just sub-components or assemblies, Banerjee noted.

While the land and ICT segments are likely to attract more private sector involvement, defence public sector undertakings (DPSUs) will continue to lead in the naval, aerospace, and armaments sectors.