India’s Defence Industry Poised For High Growth With 25-27 Per Cent Profit Margins: ICRA

This growth is attributed to strong execution progress on the back of a robust order book position and order book/operating income (OB/OI) ratio at 4.4 times as of FY2025 end.

Government of India various initiatives such as Atmanirbhar Bharat has enhanced domestic Defence production capabilities, encouraging investments and expanding exports.

Source : ABPLIVE AI

Entities in the Indian Defence sector are expected to witness robust growth momentum, with expected revenue expansion of 15-17 per cent in FY2026, according to a report by Investment Information and Credit Rating Agency (ICRA).

This growth is attributed to strong execution progress on the back of a robust order book position and order book/operating income (OB/OI) ratio at 4.4 times as of FY2025 end.

"As per ICRA's analysis, entities across the entire spectrum of Defence production - land, naval, aeronautical, armaments & ammunition and ICT2 - will benefit from the sustained expansion in budgetary outlay since 2015, which is expected to translate into healthy order inflows as the Government continues to increase domestic procurement," said Suprio Banerjee, Vice President and Co-Group Head, Corporate Ratings, ICRA.

With rising localisation, the operating margins of companies will remain healthy in FY2026. "The weighted average operating margins are expected to remain healthy at 25-27 per cent for FY2026, supported by economies of scale, rising localisation, with entities beginning to undertake the production of more value-accretive system-level products, compared to the earlier sub-component/assemblies manufacturing," Banerjee added.

Government of India various initiatives such as Atmanirbhar Bharat has enhanced domestic Defence production capabilities, encouraging investments and expanding exports.

These initiatives have led to increased Defence procurement from domestic vendors from 61 per cent in FY2017 to about 75 per cent in FY2025e, while exports have seen growth more than 15 times and at a healthy CAGR of 41 per cent to Rs. 23,622 crore during FY2017-FY2025e period.

Additionally, the government has also raised the budgetary outlay for the sector with a thrust towards capital outlay, which has grown at a CAGR of 8.29 per cent over the previous five years to Rs. 1.92 lakh crore in FY2026 BE.

"While revenues and profitability have grown on a sustained basis during FY2015- 25, working capital management has remained a challenge for the private players in this segment," Banerjee noted. 

(This report has been published as part of the auto-generated syndicate wire feed. Apart from the headline, no editing has been done in the copy by ABP Live.)