About the company

Ideaforge Technology Limited was incorporated in the year 2007 and is engaged in the business of manufacturing ‘Unmanned Aircraft Systems (UAS)”, commonly known as drones.

With a market share of approximately 50% in the FY 2022, the company is a market leader in the Indian UAS market. The company is ranked 7^th globally in the dual-use category (civil and defence) drone manufacturers as per the report published by Drone Industry Insights in December 2022.

The product portfolio of the company consists of both hardware and software necessary to operate the drone. Hardware includes the UAV (Unmanned Aerial Vehicle) i.e., the drone, batteries, charger etc. and the software includes the Ground Control Station (GCS) software and Auto-Pilot subsystem enabling better control and management of the drone. The company also provides industry-specific software.

In addition to the above product offerings, the company is in the process of developing UAVs as an “on-demand service solution”, which will mean UAVs will be deployed to enable operations at a short notice. This will drive access to UAVs for many applications such as Drones for First Response (DFR), progress monitoring, inspections etc. In DFR, drones will be able to reach the location of an incident to stream live video which will help in assessing the situation and take decisions, even before first responders on the ground are able to arrive on the scene of the incident.

It also has a support network in India for UAVs. In addition to the warranty services that it provides with the UAVs, they also provide after sales maintenance services to customers.

Further, “ideaForge care plan” provides customers with a wide range of support plans suited to their needs, which includes 24x7 support and replacement UAV options.

For the year ended 31^st March 2023, approximately 88% revenue was derived from the sale of products, 2.67% from the sale of services and balance pertains to other operating revenues. Approximately 75% of the revenue is derived from the Government of India indicating reliance on the government for majority of the business.

Some drones of the company are as follows:

Industry Outlook

Drones were initially created for military purposes but have evolved for enterprise and civil usage in the real estate, construction, mining, agriculture, telecommunications industries etc.

Drone technology is a sunrise sector, poised for exponential growth worldwide. The global drone industry stood at ~US$ 21.1 billion in Calendar Year (CY) 22. The industry is expected to grow very fast at a CAGR of 20% to US$51.4 billion in CY27 and further to US$ 91.3 billion by CY2030.

The drone industry in India is at a nascent stage. The Indian drone market is projected to grow from US$ 43 million by FY22 to US$ 812 million by FY27, exhibiting a growth CAGR of 80% over these years.

Government initiatives like the Production Linked Incentive (PLI) scheme and the New Drone Policy 2022 are expected to transform India into a global drone manufacturing hub by providing incentives to Indian Drone and Drone component manufacturing companies and encouraging entrepreneurs to strive towards building drones, components and software for the global market.

Objects of the offer

1. Repayment / prepayment of certain debt availed by the company (50 crore);

2. Funding working capital gap (135 crores);

3. Investment in product development (40 crore) &

4. General corporate purposes.

Financials

The revenue of the company grew from Rs. 34.72 crore in FY 2020-21 to Rs. 186.01 crore in FY 2022-23 at a CAGR of 131.46%. However, the earnings i.e., the EBITDA and Net Profit have not grown at par with the revenue. We can see a decline in both. The ROCE and ROE also have declined from FY 2021-22 to FY 2022-23. The cash flow from operations of the company is also negative for FY 2020-21 and FY 2022-23.

Valuation

On the upper price band of Rs. 672 per share, the PE ratio of the company is 78.6 and the PE ratio of the industry is 57.93, indicating an overvaluation. The P/BV ratio of the company is 7.74 and that of the industry is 7.34, indicating fair valuation.

Key Risks

1. The company has sustained negative cash flows from operating activities in FY21 and FY23 and may experience the same in the future.

2. The company has a long working capital cycle (300 days in FY23 and 512 days in FY21). This could have an adverse effect on our financial condition.

3. The products of the company may have unknown defects and errors. Recently, a FIR has been lodged against the company and its promoter concerning an explosion of the battery of a drone manufactured by the company, injuring four people.

4. Its business is dependent on single manufacturing facility and they are subject to certain risks in manufacturing process. Any slowdown or shutdown in manufacturing operations could have an adverse effect on business, financial condition and results of operations.

5. The company operates in a highly regulated industry. Any failure to comply with the applicable rules and regulations may adversely affect the business of the company.

IPO Details

1. The IPO opened for subscription on 26^th June 2023 and will close on 30^th June 2023.
2. The total issue is worth Rs. 567 crores, out of which, Rs. 240 crore is a fresh issue and Rs. 327 crores is offer for sale.
3. The price band of the issue is Rs. 638 to Rs. 672 per share.
4. An individual has to apply for a minimum of 1 lot consisting of 22 shares worth Rs. 14,784 and can apply for a maximum of 13 lots worth Rs. 192,192.
5. As of the time of writing of this blog, the Grey Market Premium is 75.89%.