Private Defence Companies Revenue to Surge by 20% in FY 2024-25: CRISIL

Private Defence Companies Revenue to Surge by 20% in FY 2024-25: CRISIL

Dil Bar Irshad | June 25, 2024 | 05:16 PM IST | Breaking News | Follow on Google News

Private Defence Companies Revenue to Surge by 20% in FY 2024-25: CRISIL

Private Defence Companies Revenue to Surge by 20% in FY 2024-25: CRISIL

Key Highlights:

1. Private defence companies’ revenue to rise by 20% to Rs 13,500 crore.
2. Operating margins to improve by 50-60 basis points due to economies of scale.
3. Order book to operating income ratio to improve significantly, driven by government policies.

Private defence companies are expected to see a 20% increase in revenue during the financial year 2024-25, reaching approximately Rs 13,500 crore, according to a report by CRISIL Ratings. This growth is fueled by increased government spending and initiatives to boost private sector involvement in the defence industry.

The report notes that the operating margin for these companies is anticipated to improve by 50-60 basis points, supported by sustained revenue growth, economies of scale, and better absorption of fixed costs. Price escalation clauses in contracts are also expected to contribute to stable margins over the medium term.

Traditionally dominated by the public sector, India’s defence sector has seen a rising revenue share for private players. Government efforts to liberalize defence manufacturing and enhance transparency in bidding processes have enabled private entities to secure more orders both domestically and internationally. This has been further supported by enhanced development and production capabilities.

Jayashree Nandakumar, Director at CRISIL Ratings, highlighted that the order books for aerospace and defence companies rated by CRISIL have grown significantly in recent years. This growth is driven by strong government initiatives such as the Atmanirbhar Bharat initiative, the Defence Acquisition Policy, and the Defence Production and Export Promotion Strategy, which promote indigenization and exports. The order book to operating income ratio is expected to improve to around 4.5 times in fiscal 2025, from 3.5 times in fiscal 2023, translating to an estimated Rs 50,000-51,000 crore.

The sector’s robust revenue growth and order inflow are expected to lead to capacity expansions and higher working capital requirements. The Interest Coverage Ratio (ICR) for private defence companies is projected to remain comfortable at 4.7 times this fiscal, up from 4.5 times the previous year. Companies may undertake capital expenditures of Rs 650-700 crore to expand capacities by 12-14% and require an additional Rs 600-700 crore for incremental working capital.

Sajesh K V, Associate Director at CRISIL Ratings, mentioned that strong balance sheets, healthy profitability, and prudent funding are expected to maintain stable credit profiles. However, the report also cautioned that changes in defence policies, geopolitical uncertainties, and semiconductor supply issues will be crucial factors for the industry moving forward.

(references from ANI)

Dil Bar Irshad

Dil Bar Irshad is a seasoned journalist, hails from Jammu Kashmir's Doda, covers political, social, business stories, index stories.