ideaForge Technology

IPO Size: Rs. 567 cr 

• Rs. 327 cr offer for sale (OFS) by the promoters (34% to drop to 30%), investors Indusage (6% to reduce to 1.4%), Celesta (13% to shrink to 9%), Qualcom (3.6% to reduce to 0.8%) among others.
• Rs. 240 cr fresh issue for working capital (Rs. 135 cr), debt repayment (Rs. 50 cr of Rs. 87 cr gross debt), product development (Rs. 40 cr).

Price band: Rs. 638-672 per share

• Rs. 60 cr Pre-IPO placement undertaken at Rs. 672 per share on 7^th Jun 2023
• Only 10% for retail, 15% for HNIs and 75% for institutional investors (as loss in FY21)

M cap: Rs. 2,800 cr, implying 20% dilution

IPO Date: Mon 26^th Jun to Thu 29^th Jun 2023 (closing postponed to Fri 30th Jun as 29th Jun is declared market holiday), Listing Fri 7^th Jul 2023

Grey Market Premium (GMP): We are strongly against ‘grey market premium’ as it is an unofficial figure, against SEBI guidelines.

Pioneer in Unmanned Aircraft System (UAS) Industry

ideaForge, a 15 year old company, started by 3 IIT-B founders, is a full stack integrated UAS, with 25 patents (10 in India, 15 outside India) and manufacturing facility in Navi Mumbai, which can scale up 3x from the current level. Company enjoys 50% market share in Indian UAS industry, due to first mover advantage, having the largest operational deployment of indigenous UAVs (unmanned aerial vehicles) across India, with 1 flight taking off every 5 minutes for surveillance mapping. Globally, ideaForge ranks 7th in dual-use (civil plus defence) drone manufacturers.

UAV (or popularly drone) is a component of UAS, which encompasses the entire system, including ground control stations, software, communication systems, implying company’s capabilities beyond hardware. It is also a beneficiary of Government’s PLI scheme.

Financial Turnaround in FY22

FY23 revenue rose to Rs. 186 cr, from meagre Rs. 14 cr in FY20 and Rs. 35 cr in FY21. Defence accounted for 70% of FY23 revenue, and nearly 95% of Rs. 192 cr order book, as of 31.3.23. Adjusted EBITDA (excluding Rs. 28 cr share-based payments) stood at Rs. 85 cr in FY23, implying 46% margin, up from negative 10% in FY21. FY23 PAT, excluding share-based payment, stood at Rs. 60 cr, implying 32% net margin. Excluding Rs. 10 cr interest income on Rs. 130 cr cash equivalents, company’s core net margins in FY23 were impressive at 27%. Current margin may improve going forward on (i) operating leverage due to scale (ii) higher indigenization (iii) drone-as-a-service etc.

Strong Player in a Sun-rise Industry

Drones are the future, with the Indian market projected to grow at 80% CAGR till 2027, given multiple use cases in defence and civil. To support local manufacturing under ‘AtmaNirbhar’ Bharat, in Feb 2022, Indian Government banned import of drones (except for defence with conditional nod). Such industry tailwinds with regulatory impetus for the nascent UAS industry can immensely benefit indigenous players like indeForge. A strong business model, able management and first mover advantage makes ideaForge the best-placed to capture this gigantic opportunity.  

Room for Valuation to Expand

M cap of Rs. 2,800 cr and enterprise value of Rs. 2,700 cr, imply historic PE multiple of 47x, on adjusted PAT of Rs. 60 cr. Paras Defence, with similar topline, but lower margins (FY23 revenue of Rs. 222 cr and PAT of Rs. 36 cr), is ruling at a m cap and PE multiple of Rs. 2,371 cr and 66x respectively. BSE SME-listed drone pilot trainer DroneAcharya Aerial, which has undertaken Rs. 34 cr IPO, via fresh issue in Dec 2022, is commanding m cap of Rs. 417 cr, on FY23 revenue of Rs. 19 cr and PAT of Rs. 3.4 cr, implying historic PE of 123x. ideaForge’s valuation is also lower than Hyderabad-based drone maker Zen Technologies, having Rs. 219 cr revenue in FY23 with Rs. 50 cr PAT, trading at a PE multiple of 74x. Thus, IPO valuation is not at all demanding, given financial performance and sector opportunity.  

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