IPO: IdeaForge Technology

In a nutshell

• Quality: IdeaForge Technology's three-year average ROE and ROCE are 9.9 and 15.7 per cent, respectively. Also, its operating margins and cash flow from operations were highly volatile in the last three financial years.
• Growth: As the market leader in the unmanned aerial vehicle (UAV) segment (more than 50 per cent share), it will benefit from the increased demand for UAVs for monitoring and surveying. However, the exponential growth in terms of revenue and net profit in FY22 was a one-off, led by the demand in the defence sector. Thus, it might not see similar growth in the coming years.
• Valuation: The stock will trade at a P/E and P/B of 87.5 and five times, respectively. Note that there are no listed companies that exclusively manufacture drones.
• Overview: The IPO proceeds will be used to deleverage, fund working capital and invest in product development. It is vulnerable to regulatory changes as government contracts are its primary revenue streams. However, higher demand for monitoring and surveying using drones from both the private sector and the government augurs well for future growth.

About the company

IdeaForge Technology is a leading licensed unmanned aerial vehicle (UAV) manufacturer for the government and primarily caters to customers in the defence and civil space.

Strengths of IdeaForge Technology

• Market leadership: IdeaForge Technology is the market leader in the Indian drone industry with more than 50 per cent market share.
• First-mover advantage: It was among the first few Indian companies to enter the UAV market.
• Strong relationships with a diverse customer base: In the last five years, the company generated around 98 per cent of its revenue from repeat customers. As of May 2023, it had a diverse customer base of 265 customers from the defence and civil space.

Weaknesses of IdeaForge Technology

• In FY23, approximately 96 per cent of its orders were from the government. Thus, it is highly vulnerable to adverse regulatory changes.
• Due to a lengthy working capital cycle (301 days in FY23), it has high working capital requirements.

Disclaimer: This is not a stock recommendation. Do your due diligence before investing.

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