IDEAFORGE TECHNOLOGY LIMITED IPO OPENS FOR SUBSCRIPTION

This will be a busy week for investors - especially those who are interested in IPOs. Three IPO are lined up in this week - the first one that opens for subscription this week is ideaForge Technology. It opens for subscription today (26th June) and closes on 29th June. In this article, we will share all the relevant information that would help you decide whether to subscribe or invest in the IPO for the long term. Let us get started.

ideaForge Technology Limited IPO: Key Details

Below are the key details related to ideaForge Technology IPO

• Issue Size: Rs 551 crore to Rs 567 crore
• Price Band: Rs 638 - Rs 672
• Issue Details: Fresh issue of Rs 240 crore and remaining Offer For Sale (OFS)
• Market Cap: At the upper price band, Rs 2,800 crore

ideaForge Technology: Business and Products

The company was incorporated in 2007, and they are in the business of manufacturing Unmanned Aircraft Systems (UAS). They are pioneers and market leaders in this category with a market share of approximately 50% (FY22). As of December 2022, ideaForge ranked 7th globally in the dual-use category (civil and defense) drone manufacturers. 

The company has grown at an exceptional CAGR of 137.47% in terms of revenue from operations over the last three financial years. They are one of the few original equipment manufacturers (OEMs) globally to have its own proprietary autopilot sub-system and ground control software. 

They have filed 41 patent applications, which comprise of 20 applications filed internationally and 21 patent applications filed in India, as on June 17, 2023.

Some of their products are as below:

• NINJA: NINJA UAV is their lightest UAV, built for security and surveillance applications during day and night with swappable payloads.
• RYNO: It is their micro-category survey-grade UAV, and is equipped with an advanced mapping payload and a state-of-the-art post-processed kinematic (PPK) module. 
• Q4i: Their small category VTOL UAV is one of the most economical UAVs built with military-grade standards. Q4i UAV can be used for anti-terrorism, border security, intelligence, surveillance and reconnaissance (ISR) operations, crime control, and disaster management. 
• NETRA V4+: It is an intelligent and portable VTOL UAV, which is built for use in a wide range of mission-critical applications. NETRA V4+ is mostly used for coastal patrol, anti-smuggling, search and rescue, disaster, and emergency analysis.

ideaForge Technology: Industry overview

Below are some key numbers related to the Drone industry in India and outside:

• The global drone industry is expected to increase at a fast pace at a CAGR of ~20% from CY22-30, reaching US$ ~91.3B by CY30.
• The drone industry in India is at a nascent stage. Therefore, the requirements are continuously evolving. As of CY22, the potential market size for the Indian drone industry was approximately US$ 2.71B.
• The Indian drone industry is expected to grow owing to driving factors such as the government's regulations such as New Drone Policy 2021/2022 and PLI scheme etc to transform India into a worldwide hub for drones by creating a favorable and supportive ecosystem. 
• By CY27, drone software and services are expected to hold a larger share of the drone market than drone hardware. 

ideaForge Technology: Listed Peers

The company has some national and international competitors. In India, the peers are Asteria Aerospace Pvt Ltd, DCM Shriram Ltd, and Adani Defence and Aerospace. Outside India, its peers are Lockheed Martin Corporation and Autel Robotics Corp. Ltd. 

Its listed peers include companies like MTR Technologies, Data Patterns India, and Astra Microwave Products. Its comparison with listed peers is as below:

• In terms of revenue (FY23), ideaForge is the smallest player. Astra Microwave has the largest topline, nearly four times more than ideaForge.
• The average EPS (Basic) of listed peers is approximately 21, whereas ideaForge has EPS far below the average mark (8.55%).
• Return on Net Worth (RoNW) is also the lowest for ideaForge among all listed peers. 

ideaForge Technology: Financials

One of the crucial parameters to consider while evaluating an IPO is the financial data of the last three financial years. Let us look at how the company has performed in the last three financial years:

• The revenue from operations reported by the company for FY21, FY22, and FY23 was Rs 34.72 crore, Rs 159.44 crore, and Rs 186.01 crore, respectively. The top line has multiplied 5X in this period.
• Company EBITDA was negative in FY21, and they have made a complete turnaround by reporting EBITDA of Rs 75.13 crore in FY22 and Rs 57.49 crore in FY23.
• The company reported a loss of Rs 14.63 crore in FY21. In FY22 and FY23, the company reported a profit of Rs 44.09 crore and Rs 31.99 crore, respectively.
• For the last three financial years, the company posted an average EPS of Rs 7.60 and an average RoNW of 9.83%. 
• Its ROE was (22.88%) in FY21, 39.46% in FY22, and 13.11% in FY23. Similarly, its RoCE was volatile and was (15.18%) for FY21, 49.63% for FY22, and 12.51% for FY23.
• The debt to equity ratio in FY23 was 0.27. It has come down significantly from 0.77 in FY21. 

What are the competitive strengths of ideaForge Technology?

As per the company, their competitive strength is as below:

• They have a first-mover advantage as they are among the first few companies in India to enter the UAV market and the first organization to indigenously develop and manufacture VTOL UAVs in India in 2009.
• The company has a diversified product portfolio with a robust technology stack and a track record of successful outcomes in critical use cases.
• As of May 31, 2023, they have served a diverse base of 265 customers. About 35% of the total customers are repeat customers who have placed at least two orders with the company.
• They are a vertically integrated company equipped with an in-house product development center, which allows them to design, develop, engineer, and manufacture UAVs. 

Risks associated with the ideaForge Technology business

Below are the risks the company has highlighted in its RHP documents:

• They have a significant working capital gap. If they are unable to borrow or raise additional financing or furnish bank guarantees in the future, it would impact the business.
• They have sustained negative cash flows from operating activities in the past and may experience earnings declines or operating losses, or negative cash flows from operating activities in the future.
• The company had a lengthy working capital cycle in the past. If they continue to experience lengthy working capital cycles in the future, it will impact the business.

The IPO is opened for subscription, and in the first few hours only, the subscription is over 100% - driven by 4.38 times subscription in the retail category. However, you may still go ahead and subscribe, as the allotment is random.