CRISIL: Private defence companies poised to grow 20%

Revenues of 25 private aerospace and defence companies rated by CRISIL Ratings are set to grow 20% this fiscal year propelled by higher government spending and concerted efforts to encourage private participation. Operating margins are likely to rise 50-60 basis points on sustained revenue growth, economies of scale and better fixed cost absorption, and should remain stable over the medium term, aided by price escalation clauses in contracts. While public sector undertakings dominate the Indian defence industry, revenue share of private players has been on the rise. Liberalisation in defence equipment manufacturing and increasing transparency in bidding guidelines have helped private entities secure more orders in domestic and overseas markets. Enhanced development and production capabilities of these players have also aided growth over the years. Jayashree Nandakumar, Director, CRISIL Ratings, said: “The orderbooks of aerospace and defence companies rated by CRISIL have swelled over the past few fiscals on the back of strong government impetus…” Strong revenue growth and order inflow are expected to encourage players to expand capacities and, thus, lead to higher working capital requirement. Gross current assets may increase further from the already high level of 450-500 days on average, driven by large inventory and receivables of around 230 and 120 days, respectively. Sajesh KV, Associate Director, CRISIL Ratings, said: “Players may undertake capital expenditures…this fiscal to expand their existing capacities by 12-14%…Nevertheless, strong balance sheets, healthy profitability and prudent funding are expected to keep credit profiles stable.” For Editorial Inquiries Contact: Editor Kym Bergmann at [email protected] For Advertising Inquiries Contact: Director of Sales Graham Joss at [email protected]