Private aerospace and defence companies are expected to post a revenue growth of 20 per cent to reach approximately Rs 13,500 crore this fiscal, said a report by CRISIL Ratings. This, it added, will be propelled by higher government spending and concerted efforts to encourage private participation.
The operating margin is 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, it said.
CRISIL analysed 25 private aerospace and defence companies to report the findings. It said that even as public sector undertakings dominate the Indian defence industry, revenue share of private players has been on the rise. What has helped private entities secure more orders in domestic and overseas markets is the liberalization in defence equipment manufacturing and increasing transparency in bidding guidelines. Enhanced development and production capabilities of these players have also aided growth over the years, per the report.
“The order books of aerospace and defence companies rated by CRISIL have swelled over the past few fiscals on the back of strong government impetus, including the Atmanirbhar Bharat initiative, Defence Acquisition Policy and the Defence Production and Export Promotion Strategy, which favour indigenisation and exports. Order book to operating income is expected to improve to around 4.5 times in fiscal 2025 to ~Rs 50,000- Rs 51,000 crore, from 3.5 times in fiscal 2023, driving revenue growth,” said Jayashree Nandakumar, Director, CRISIL Ratings.
Further, it added that strong revenue growth and order inflow are expected to encourage players to expand capacities and, thus, lead to higher working capital requirements. 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.
“Players may undertake capital expenditure (capex) of Rs 650- Rs 700 crore this fiscal to expand their existing capacities by 12-14 per cent and require an additional Rs 600- Rs 700 crore to meet the incremental working capital expenses. Nevertheless, strong balance sheets, healthy profitability and prudent funding are expected to keep credit profiles stable,” said Sajesh KV, Associate Director, CRISIL Ratings.
That said, CRISIL added, changes in defence policies, geopolitical uncertainties and semiconductor supplies will bear watching on the road ahead.
From: financialexpress
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