IPO Analysis: ideaForge Technology Limited

IPO Rating: Apply for long term

About the issue:

Incorporated in 2007, ideaForge Technology Limited is engaged in the business of manufacturing Unmanned Aircraft Systems (UAS). The company is coming out with its initial public offering (IPO) of equity shares with a face value of Rs 10 per equity share. The price band of the issue has been fixed at Rs 638 to Rs 672 per equity share. The issue size is Rs 567 crore at a higher price band.

The IPO opening date is June 26, 2023, and it will be closing on June 29, 2023. The issue is likely to be listed on the exchange on July 07, 2023. The IPO market lot size is 22 Shares and in multiple thereof. A retail-individual investor can apply up to a maximum of 13 lots (286 shares or Rs 192,192) at the upper price band.

Objects of the Issue

The Company proposes to utilise the Net Proceeds towards funding the following objects:

1. Repayment/prepayment of certain indebtedness availed by the company;
2. Funding working capital requirements,
3. Investment in product development, and
4. General corporate purposes.

Promoter holding

The pre-issue shareholding is 33.37 per cent, post the IPO the promoter stake will be 30.19 per cent.

About the company:

Ideaforge Technology Ltd (ITL) is the pioneer and market leader in the Indian unmanned aircraft systems (UAS) business, with a market share of around 50 per cent in Fiscal 2022. As of Fiscal 2023, it had the highest operational deployment of indigenous UAVs across India, with an Ideaforge-manufactured drone taking off every five minutes on average for surveillance and mapping.

As of March 31, 2023, ITL's clients had conducted over 350,000 flights with their UAVs (Source: 1Lattice Report). According to a survey issued in December 2022 by Drone Industry Insights, it ranks seventh globally in the dual-use category (civil and defence) drone manufacturers. In terms of revenue from operations, it has risen at a CAGR of 131.47 percent over the last three fiscal years, with a Return on Capital Employed of 12.51 percent in Fiscal 2023.

ITL's UAVs have industry-leading specifications and capabilities, equivalent to those of other prominent worldwide UAV operators. In addition to being one of the first few players in India to enter the UAV business, it was the first company in India to develop and produce vertical take-off and landing (VTOL) UAVs in 2009.

It offers one of the industry's most comprehensive product portfolios for civil and defence applications (dual use). ITL offers a diverse range of products distinguished by features such as weight class (about 2-7 kg), endurance class (25-120 minutes flying time), take-off altitude ranges (up to 6,000 metres), communication range (roughly 2-15 km), payload kinds, and so on. It integrates payloads, communication systems, and packaging in addition to UAVs.

In addition, the company created its own software stack for flight safety, autopilot subsystem, battery, power, and communication in UAVs. It believes that integrating complicated technologies while optimising reliability, efficiency, and autonomy not only creates entry hurdles for new entrants but also helps it differentiate from other market participants. ITL serves domestic and international customers in the defence and civil sectors, especially for applications in surveillance, mapping, and surveying.

Financial

On the financial performance front, for the last three fiscals, ITL has (on a consolidated basis) posted a revenue/net profit (loss) of Rs 36.34 crore /Rs 15 crore (FY21), Rs 161.45 crore/Rs 44.01 crore (FY22), and Rs 196.4 crore/Rs 31.99 crore (FY23).

Valuation and Outlook

If we attribute FY23 earnings to post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of 87.50x. The issue is priced at a P/BV of 7.74 based on its NAV of Rs. 86.81 as of March 31, 2023, and at a P/BV of 4.48 based on its post-IPO NAV of Rs. 150.08 per share (at the upper band). The company has not declared any dividends for the reported periods of the offer document. It will adopt a prudent dividend policy post-listing, based on its financial performance and future prospects.

The issue pricing is very aggressive and is asking for fancy premium considering the hype created by the Drone segment.  However, the company is the Indian leader in the UAS segment, well placed to offer comprehensive solutions such as software and hardware to customers, a wide range of products portfolio across applications in various industries and long stand relationship with customers. Hence, we recommend to subscribe the issue for the long term.