Ideaforge Technology IPO (May Subscribe)

IdeaForge Technology Limited (May Subscribe)

IdeaForge Technology Limited (ideaForge) was incorporated on February 8, 2007. This Company is the pioneer and the pre-eminent market leader in the Indian unmanned aircraft systems (“UAS”) market, with a market share of approximately 50% in FY22. The company manufactures Unmanned Aircraft Vehicles for Mapping, Security & Surveillance. These drones are capable of a wide range of mining area planning, and mapping applications.

IdeaForge UAVs help construction and real estate boost their operations. Ideaforge technology also assists defence forces in conducting Intelligence, Surveillance, and Reconnaissance (ISR) operations along borders. They had the most significant operational deployment of indigenous UAVs across India, with an ideaForge-manufactured drone taking off every 5 minutes on average for surveillance and mapping as of FY23.

Their product portfolio consists of (a) hardware, which primarily includes UAVs, payloads, batteries, chargers and communication, (b) software and embedded subsystems, which include the GCS software, and (c) solutions, which enables industry/application-specific software that enhances the value.

Key Highlights

• The company has been ranked 7th globally in the dual-use category (civil and defense) drone manufacturers as per the report published by Drone Industry Insights in December 2022.
• The Company has a broad range of products with feature-based differentiation such as weight class (approximately 2-7 kg), endurance class (25-120 minutes flying time), take-off altitude range (up to 6,000 meters), communication range (approximately 2-15 km), payload types, etc.
• IdeaForge’s in-house capabilities to design, develop, engineer and manufacture have enabled them to develop better products basis evolving demands of their customers, thereby enhancing customer experience with their products. Their UAVs have also been tested in extreme conditions which are prevalent across India and high altitudes areas, deserts, and glaciers. Further, the Company stand to benefit from the tailwinds of Aatmanirbhar Bharat and the Production Linked Incentive Scheme (PLI Scheme) across verticals, which would cater to internal security especially for Indian defense forces. IdeaForge has grown at a CAGR of 137.47% in terms of revenue from operations over the last 3 Fiscals, with a ROCE of 12.51% in FY23.  It has posted growth in its top lines but for FY23, its bottom line marked decline due to ESOP impact. 
• In addition to being among the 1st few players in India to enter the UAV market, IdeaForge also has the distinction of being the 1st company to indigenously develop and manufacture vertical take-off and landing (VTOL) UAVs in India in 2009. They are also the 1st company to participate in the demonstration of 5G enabled UAVs at the Indian Mobile Congress in 2018.
• ideaForge has raised funding from various investors including Infosys Ltd, Qualcomm Asia Pacific Pte. Ltd., Celesta Capital II Mauritius, Celesta Capital II-B Mauritius, Florintree Enterprise LLP, Export Import Bank of India and Infina Finance Pvt Ltd over the years.
• The Indian drone market is projected to grow from USD 43 mn by FY22 to USD 812 mn by FY27, exhibiting a growth CAGR of 80% over FY22-27. By implementing drone indigenization initiatives in use cases such as Defence, commercial, homeland security, and counter UAV sectors, India has the remarkable opportunity to target approximately 1.8 lakh crore of total domestic manufacturing potential.

Key Risks

• IdeaForge operates in an industry that is highly regulated and is subject to change. If it fails to comply with the applicable regulations and rules prescribed by the Government of India and the relevant statutory or regulatory bodies, the Company’s business, financial condition, cash flows, and results of operations will be adversely affected.
• Company is a licensed manufacturer of Unmanned Aerial Vehicles under the Industries (Development and Regulation) Act, 1951, and any non-compliance of, or a failure to satisfy the terms and conditions under such license could lead to the cancellation of the license
• IdeaForge is highly dependent on global vendors for the supply of components and may not be able to reduce its dependency on such imports.
• Their products are complex and technologically advanced and could have unknown defects or errors

Valuation

The Company is the pioneer and the pre-eminent market leader in the Indian UAS industry, with a first-mover advantage and strong relationships with a diverse customer base. The issue is currently quoting at PE of 82.75x for FY23 at a diluted EPS of 8.12.  Thus, the issue pricing is very aggressive and is asking for a high premium considering the hype created by the Drone segment. Only cash surplus risk takers may consider Subscribing to the issue from a long-term perspective.

Disclaimer: The views expressed in the blog are purely based on our research and personal opinion. Although we do not condone misinformation, we do not intend to be regarded as a source of advice or guarantee. Kindly consult an expert before making any decision based on the insights we have provided.