Defence revenue seen rising 15–17% in FY26, Icra says strong order book and localisation to lift margins, capital outlay hits Rs 1.92 lakh crore

NEW DELHI: India’s defence manufacturing sector is expected to witness 15–17% revenue growth in FY2025–26, driven by a strong execution pipeline, robust order book position, and sustained government focus on domestic procurement, according to a report released by Icra on Tuesday.The industry’s order book to operating income (OB/OI) ratio stood at 4.4 times as of FY25-end, indicating solid revenue visibility going into the next financial year.“Entities across land, naval, aeronautical, armaments and ICT verticals are expected to benefit from continued budgetary support and localisation efforts, which will boost order inflows and execution,” said Suprio Banerjee, Vice President & Co-Group Head, Corporate Ratings, Icra, ANI reported.Icra projected that the sector’s operating margins will remain strong at 25–27% in FY26, supported by scale, localisation, and a shift towards value-accretive system-level production rather than component assembly.The Atmanirbhar Bharat initiative has played a pivotal role in strengthening India’s domestic defence production capacity. As a result, procurement from domestic vendors rose from 61% in FY2017 to 75% in FY2025 (estimated).India’s defence exports have also surged 15-fold, registering a CAGR of 41% to reach Rs 23,622 crore between FY2017 and FY2025e, the report said.The Centre has backed this growth with a consistent increase in capital spending. The budgetary outlay for defence has risen at a CAGR of 8.29% over the past five years, reaching Rs 1.92 lakh crore in the FY26 Budget Estimate.Despite healthy topline and profitability trends from FY2015–25, Icra flagged working capital management as a continued challenge, particularly for private sector players in the defence space.

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