Synopsis: PSU defence companies like HAL, BEL and BDL enjoy strategic advantages over private peers due to preferential access to large defence orders, mobilisation advances and lower cash conversion cycles of around 215–250 days, compared with 390–460 days for private players.
India’s defence sector includes both public sector undertakings (PSUs) and private companies, each playing an important role in meeting the country’s military and security needs. With rising defence spending, policy support, and a push for self-reliance, the industry has gained greater attention from investors and policymakers alike.
In this context, comparisons between PSU defence companies and private defence firms have become more frequent, especially around issues such as scale, access to orders, technology, and long-term strategic importance.
Industry overview
India’s defence industry has grown rapidly in recent years, with domestic production reaching record highs and the country shifting from a major importer to a significant global supplier of military equipment. Through policies like “Make in India” and “Atmanirbhar Bharat,” the government has boosted manufacturing by both public and private firms, encouraged innovation, expanded exports, and strengthened the defence ecosystem.
As part of its long-term strategy, India has set ambitious goals to increase annual defence production to around Rs. 3 lakh crore and defence exports to about Rs. 50,000 crore by the end of the decade, reflecting its drive towards self-reliance and a competitive position in global defence markets.
India’s defence sector is witnessing increasing private sector participation, particularly in land systems and ICT (Information, communication and technology) based segments like cybersecurity, AI, drones, and software for defence platforms. However, Defence Public Sector Undertakings continue to dominate high-entry-barrier segments such as naval platforms, aerospace, and armaments.
These segments involve strategic sensitivity, long development cycles, and close coordination with the Ministry of Defence, which historically favours DPSUs. As a result, large and complex orders in aircraft manufacturing, missiles, submarines, and warships are still largely awarded to PSU players, while private companies tend to operate as subsystem suppliers or focus on niche electronics and components.
Order book visibility
PSU defence companies enjoy stronger order book visibility because they are preferred execution partners for critical national defence programmes. Companies like Hindustan Aeronautics, Bharat Dynamics, and Bharat Electronics consistently receive repeat and long-tenure orders from the government.
Private players, despite improving capabilities, face limited access to these marquee projects and often depend on smaller contracts, export orders, or subcontracting roles. This structural difference provides PSUs with more predictable revenues and long-term production planning visibility.
Cash flow structure
A key strategic advantage for PSU defence companies lies in cash flow timing. DPSUs receive mobilisation advances and milestone-based payments from the government at early stages of project execution. This significantly reduces their need to fund inventory and work-in-progress using their own balance sheet. In contrast, private defence companies generally do not receive such advances and must finance their operations upfront.
As a result, private players rely heavily on equity fundraising through Qualified Institutional Placements and preferential allotments to support working capital, increasing their capital intensity and balance sheet risk.
Cash conversion cycle: PSU vs private players
The difference in funding structure is clearly visible in the cash conversion cycle (CCC). PSU defence companies operate with materially lower CCC compared to private peers. Hindustan Aeronautics has a cash conversion cycle of around 250 days, Bharat Dynamics about 215 days, and Bharat Electronics roughly 229 days. While these numbers are still high by general manufacturing standards, they are far more manageable within the defence sector context.
Private defence companies, on the other hand, show significantly stretched CCCs. Paras Defence operates at about 391 days, Data Patterns at 428 days, Astra Microwave Products around 460 days, and Apollo Micro Systems close to 450 days. This indicates that cash remains locked in inventory and receivables for much longer periods, increasing reliance on external funding.
Working capital intensity and execution risk
Working capital days further underline the structural gap. PSU companies exhibit tighter working capital cycles, with Hindustan Aeronautics at about 121 days, Bharat Dynamics at 207 days, and Bharat Electronics at 85 days. These relatively lower figures reflect advance receipts, better receivable cycles, and stronger bargaining power with suppliers.
Private companies face much higher working capital days, with Paras Defence at 297 days, Data Patterns at 372 days, Astra Microwave at 283 days, and Apollo Micro Systems at 258 days. Such elevated working capital requirements increase execution risk, especially during rapid order book expansion, as any delay in payments or cost overruns can strain liquidity.
While both PSU and private defence companies operate in a sector characterised by long operating cycles and high inventory requirements, PSU defence companies clearly enjoy a structural and strategic advantage. Preferential access to large orders in naval, aerospace, and armaments, coupled with mobilisation advances and lower cash conversion cycles, allows DPSUs to scale with lower financial stress. Private defence companies remain well-positioned for growth, particularly in electronics and exports, but their higher capital requirements and longer cash cycles make efficient working capital management critical for sustaining long-term growth.
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