Sector Spotlight: Defence & Aerospace in India — A Growing Investment Theme
India’s defence production reached an all-time high of ₹1.51 lakh crore in FY 2024–25 and defence exports rose to ₹23,622 crore (about US$2.76 billion), a 12.04% increase over FY 2023–24. These headline figures reflect a structural shift: domestic production is expanding rapidly and export orientation is rising. Private-sector firms now account for a growing share of production and exports, with the private sector contributing roughly ₹15,233 crore of FY25’s export total (≈64.5% of exports). The export-to-production ratio makes the point: ₹23,622 crore in exports against ₹1.51 lakh crore production implies exports are already ~15.6% of output, signalling a meaningful pivot from a pure domestic market to international customers. (Calculation: 23,622 / 151,000 ≈ 0.156 ≈ 15.6%.)
Tata’s helicopter push — a concrete example of capability building
A recent, high-visibility step is the Airbus–Tata initiative: Tata Advanced Systems Limited (TASL) will establish India’s first private-sector helicopter final assembly line (FAL) for the Airbus H125 at Vemagal, Karnataka. The facility is intended to produce “Made in India” H125 helicopters with the first delivery targeted for early 2027, and Airbus/Tata plan to make these helicopters available for export across the South Asian region. This is emblematic: multinational OEMs are now embedding India into their global supply chains via local private partners. That facility matters for investors for three reasons: it demonstrates transfer of production technology and higher value-added assembly work being done in India; the prospect of recurring revenue through local MRO (maintenance, repair & overhaul) and spares; and an export angle that turns domestic capex into foreign-currency earning streams.
Policy tailwinds — why private capacity is scaling fast
The policy architecture since DPrP/Make-in-India reforms and subsequent defence production policies has explicitly incentivised private participation, technology partnerships, and exports. Government measures include liberalised FDI limits in defence manufacturing, faster approvals for transfers of technology, and focused industrial corridors (e.g., Uttar Pradesh Defence Industrial Corridor) that have attracted investment proposals exceeding ₹33,896 crore—evidence of concentrated capex commitments in manufacturing hubs. These policy moves lower barriers for players like Tata, Adani and others to scale production and invest in higher-value segments (airframes, avionics, helicopters). Public investment and clearer procurement roadmaps — together with predictable issuance of indigenisation lists and export targets — improve demand visibility. The Ministry of Defence and Invest India have set medium-term export targets (multi-year goals to increase defence exports to several times FY24 levels by the end of the decade), which encourages private capex with a market-access rationale.
Capital, margins and investment economics
From an investment lens, defence and aerospace manufacturing have these financial characteristics: high up-front capital expenditure (plant, tooling, certification), long inventory and receivable cycles (project timelines, government payment schedules), but attractive long-term margins once certification, ramp and aftermarket services are in place. Companies that capture assembly, spares and MRO chains can move from single-digit to mid-teens operating margins over time (company-specific, depending on product mix and localisation). Export contracts priced in USD also provide an FX hedge for rupee-based manufacturers when global demand is stable.
For investors, key ratios to watch are order-book to revenue (visibility), gross margin trajectory (localisation vs imported content), capex intensity (capex / sales) and free cash-flow conversion post-ramp. Defence firms with steady service revenues (MRO, training, spares) typically show stronger FCF conversion than pure systems integrators dependent on episodic contracts.
Export potential and global positioning
India’s aim to be a global defence supplier is supported by competitive labour costs, a maturing supplier base, and strategic pricing for markets in Asia, Africa and Latin America. Helicopters like the H125 — a versatile, proven platform — can open channels to civil and parapublic buyers (police, coast guard, EMS) in neighbouring markets. If TASL’s Karnataka FAL scales as planned, it can help create a local export hub for light helicopters — a product category with steady demand and recurring aftermarket revenue.
Risks and what investors should monitor
Key risks include payment and certification delays (government procurement cycles), dependence on imported critical subsystems (which affects margin potential), and geopolitical export controls that can limit market access for certain platforms. Investors should monitor order backlog transparency, localisation percentages (import content vs indigenised value), capex schedules, and government procurement guidelines (which materially affect demand timing).
Conclusion
India’s defence and aerospace sector has moved from policy promise to measurable scale: record production and export numbers, large greenfield investments in corridors, and concrete OEM-partner projects such as Tata’s H125 assembly line in Karnataka. For investors, the sector offers long-duration structural growth driven by policy support, export demand and private-sector scale-up — but it demands careful due diligence on order books, margins and execution timelines. The next few years will reveal which companies convert plant capex into sustainable free cash flow and export footprints; those that do are likely to outperform as India deepens its role as a global defence manufacturer.
The image added is for representation purposes only
