ideaForge IPO: All you need to know

One of the foremost players in the Indian drone manufacturing space, ideaForge Technology, is coming up with its initial public offering (IPO). The IPO will open for subscription on June 26 and continue till June 29. The company is looking to raise Rs 567 crores through the issue.

ideaForge IPO Details

• ideaForge IPO Date: 26th June - 29rd June 2023
   
• ideaForge IPO Price band: Rs 638 - Rs 672
   
• ideaForge IPO Issue Size: Rs 567 crores (Fresh Issue of Rs 240 crore and an OFS of 4,869,712 shares)
   
• Reservation: QIB - 75%, Retail Investors - 10% and  NII - 15% (QIB - Qualified Institutional Buyers, NII - Non - Institutional Investors)
   
• Minimum Order Quantity: 22 shares

ideaForge IPO: Issue objective

HMA Agro expects to utilise the net proceeds from the IPO to:

• Repayment/prepayment of certain debt
• Fund working capital requirements of the company
• Research & Development
• General corporate purposes

ideaForge IPO : About ideaForge

• Founded in 2007, ideaForge is the largest drone manufacturer of India with a market share of 50% as of FY 22. Notably, the company has filed 41 patents with 20 filed internationally and 21 filed in India, highlighting its innovation prowess.
• The company’s product offerings includes hardware such as Unmanned Aircraft Vehicles (UAVs), software for managing these vehicles and custom made solutions for consumers. Additionally, the company is also developing an on-demand service for UAVs which will allow it to deliver it to its customers on a short notice.
• The company caters mainly to defence and civil customers. Over the years both these revenue streams have witnessed substantial jump, the growth from the defence sector has been especially stark. While revenues from the civil sector increased from roughly Rs 30 crores in FY 21 to Rs 40 crores in FY 22, defence sector revenues propelled from a mere Rs 4.8 crores in FY 21 to roughly Rs 129 crores in FY 22.
• Notable investors in ideaForge include some marquee names such as Infosys,  Qualcomm, Celesta Capital and Export Import Bank of India.

ideaForge IPO : Industry Overview

• With a multitude of uses across sectors, the company believes that applications of drone usage will only increase in India in the coming years. Apart from the obvious usage in the defence sector, the company also highlighted that drones have applications in power systems, communication networks, ports, airports, railways, bridges and public safety among others.
• The company believes that Government support in the form of favourable policies, subsidies and incentives is expected to lead to substantial growth for the drone sector in India. This can be gauged from the fact that the government has earmarked plans to invest about $600 million in the sector over the next three years to create about 10,000 jobs.
• ideaForge expects the global drone industry to witness a significant leap in the coming years. As of 2022, the global drone market stood at $21.1 billion with it expected to grow at a CAGR of 20% to touch $51.4 billion by 2027 and $91.3 billion by 2030. Taking this into account, the exports market also remains a lucrative space where a leading player like ideaForge can mark its presence significantly.
• ideaForge remains upbeat about the growth in the Indian drone industry. The company expects that the drone market is expected to rise from about $43 million in FY 22 to $812 million in FY27. ideaForge, which is the largest drone manufacturing country of India, remains well positioned to benefit from this growth.
• Further, the government’s Production Linked Incentive (PLI) scheme for drone manufacturers was launched in 2021. ideaForge is one of the 23 beneficiaries of this scheme. Under this scheme  a total incentive of US$ 15M is spread over three financial years. Notably, with this incentive and the rising demand for drones in India, the company expects the annual sales of the industry to grow from a miniscule $8 million in FY21 to $110 million in FY 24.

ideaForge IPO: Listed Peers

Although the company has no listed peers in India who are exclusively engaged in the drone manufacturing space, there are some companies who can be loosely attributed as peers as they are involved in manufacturing of electronics products and exposure to the defence sector. Let’s have a look at how ideaForge compares against them.

(as of FY 23)

ideaForge IPO: Financials

• ideaForge has been witnessing consistent revenue growth over the years. Impressively, revenues more than quadrupled in the past three years. Notably, in FY 21, the company reported revenues of Rs 34.7 crores, FY 22 saw revenues of Rs 159.5 crores and FY 23 revenues jumped to Rs 186 crores.
• Over the past three fiscal years, the company also became profitable. From a loss of roughly Rs 15 crores in FY21, the company reported profits of Rs 44 crores and Rs 32 crores, in FY 22 and FY 23, respectively. Rising revenues and efficient expense management helped the company to become profitable.
• However, a yearly dip in key return ratios between FY 22 and FY23 remains a concern. Return on Equity (RoE) and Return on Capital Employed (RoCE) stood at 13.11% and 12.51% compared to 39.46% and 49.63% in FY23 and FY22, respectively. Falling profits at both the net and operating levels can be attributed as the primary reason for this de-growth.

ideaForge IPO: Risks

Working capital issue: Drone manufacturing is a capital intensive industry. Effective capital management is required for manufacturing, maintenance of inventory and purchase of critical components. In such a scenario, any adverse development such as delay in receiving payments or prepayment to suppliers could negatively impact the company’s order fulfilment capabilities and in turn hurt its revenues.

Raw materials import: ideaForge is highly dependent on global vendors for raw materials. Any untoward occurrences either geopolitically or with respect to government policies on import substitution can throw a spanner in the works production wise for the company. 

Regulatory environment: Since the company operates in the highly sensitive defence sector among other industries, its products and services are always under a regulatory scanner.

Notably, in the process of getting approvals for its drones to fly, its UAVs have to meet a number of stringent requirements. Not ending there, for foreign sales, the company has to also receive approval from the Directorate General of Foreign Trade too as UAVs fall under the list of Special Chemicals, Organisms, Materials, Equipment, and Technologies.

Additionally, there can be any other regulatory developments too which the company has to adhere too which can also hurt its efficiency.

This is not investment advice. Investments in the securities market are subject to market risk, read all the related documents carefully before investing. Past performance is not indicative of future returns.