Five years after the Ordnance Factory Board was split into seven separate defence public sector units, concerns are rising over whether reported financial growth masks underlying operational challenges. Investors are evaluating if new accounting standards and shifting private-sector partnerships accurately reflect the companies' long-term role in national military self-reliance.
October 2026 marks five years since the government reorganized the historic Ordnance Factory Board into seven independent Defence Public Sector Undertakings. While the goal of this reform was to improve efficiency and make these entities more commercially viable, the transition has drawn attention to how these companies report their performance and their evolving role in India’s defence supply chain.
A central point of debate for investors and analysts is the way these companies report revenue. Before the split, these factories operated as one government department, and the transfer of materials between them was considered internal movement. Under the current corporate structure, these same transfers are now recorded as commercial sales. This accounting shift has naturally led to higher reported turnover figures compared to the pre-reform era. Financial observers have noted that if these internal transactions are not carefully analyzed, the reported growth might appear more robust than the actual physical output suggests, potentially complicating the assessment of genuine production capacity.
The shift toward commercial metrics has also changed how success is measured. Historically, the performance of these facilities was focused on the reliability of hardware for the armed forces. Today, with the companies tracking performance based on earnings before interest, taxes, depreciation, and amortization, there is a perceived shift toward prioritizing short-term financial health. Critics warn that this new focus might inadvertently discourage the long-term, capital-heavy research and development needed to build complex, next-generation combat platforms in favor of high-margin but less complex production.
Another significant issue is the evolving relationship between the public and private sectors in defence manufacturing. Many prime contracts for major weapon systems are being awarded to private companies, which often leverage international technology transfers. In this new arrangement, state-owned factories are increasingly taking on the role of secondary suppliers, handling component manufacturing or assembly. While this model encourages private participation, there are ongoing concerns about whether the public sector is capturing the full value of the manufacturing techniques developed through decades of state investment.
Looking ahead, stakeholders are focusing on whether these seven entities can successfully move up the value chain from component suppliers to manufacturers of complex combat platforms. The key monitorables for investors will include the quality of the order book, the progress on indigenous research and development, and whether these companies can balance their new commercial mandates with the strategic necessity of maintaining India’s long-term military independence.