IdeaForge IPO: Best bet-for medium to long term

IdeaForge Technology Limited is tapping the capital markets with its fresh issue of Rs 240 crore and an offer for sale of 48,69,712 equity shares in a price band of Rs 638-672. The issue opens on Monday (June 26) and closes on Thursday the June 29.

The company is into the design, development, engineering and manufacturing of Unmanned Aerial Vehicles or ‘UAV’, popularly known as drones. In a development which seems timed to perfection, the export of drones for civilian end-use has been simplified and liberalisedrecently. This would be a shot in the arm for the company which is IPO bound.

The company on Friday allotted 37,92,894 equity shares to 31 investors. The allotment was fairly equitable with half of them or 15 entities being allotted 4.71 per cent of the anchor portion each or 1,78,464 equity shares. Effectively, half the investors were allotted 70.65 per cent of the anchor book. It has an almost equal mix of domestic institutions and FPIs with 50.59 per cent to domestic institutions and 49.41 per cent to FPIs.

The company would be the first standalone drone manufacturing company to list in the country. It has a dominant market share and the same is currently at 50 per cent or thereabouts. In what would be an interesting snippet, the companies’ promoters demonstrated their drone in a popular Bollywood movie “Three Idiots” in 2009. The promoters are graduates from IIT Mumbai. Their first sale of drones happened at the same time to a state police department. Since then, they have come a long way in terms of technology capability and won contracts not only in India but abroad. They compete with the best in class and drones manufactured by them have been sold for commercial or civilian end uses as well.They have developed and demonstrated 5G enabled technology as well on drones.

The companies’ customers have completed over 3.5 lakh flights using IdeaForge drones. A flight takes off every five minutes somewhere in India or the world by a drone manufactured by the company. This demonstrates their reach, number of drones in use and their reliability. The company has a very high gross profit and it was at 68.4 per cent for the year ended March 23.

There are various types of drones which are manufactured and sold by the company for both defence and civil uses. These are dependent on the application and also the terrain or environment in which the drones would be flying. These vary from altitude, long range, inspection and surveillance and also mapping. IdeaForge tailor makes drones for the application and also supplies the required software for the applications.

Drones are being used for various applications like surveillance, mapping, inspection and delivery. In terms of user case, they are used by enterprises for GIS, construction and real estate, counter drone, oil and gas, agriculture, public safety, utilities, mining, logistics, recreational, videography and passenger. One may say that the use cases are increasing rapidly.

Drones in defence are being used for offensive and defensive tactics. They are used for swarming, distraction, combat, extraction of people and also for sniping and patrolling. Import of drones have been banned other than for R&D, defence and security. This gives an even bigger opportunity for the company. Further the fast-paced technology driven lives of people today has an application of a drone in so many parts of one’s life today.

The company reported revenues of Rs 196.4 crore for the year ended March 23. It has a net profit of Rs 32 crore and a PAT margin of 17 per cent. It had EBITDA margins of 31 per cent. Its PAT margins were lower because of an adjustment of ESOP shares which was madeat the end of the financial year. This was a one-timeadjustment and would not appear next year. Had this not been considered the profit would be significantly higher.

The EPS for the year ended March 23 is Rs 8.55. On a fully diluted basis, the EPS stands reduced to Rs 8.12. At this EPS, the PE band is 78.57-82.56. This is based on fully diluted earnings and as per restated accounts. There is no peer for the company and hence the same cannot be compared.

Looking at the multiple growth which is expected in the drone industry at 17-18X in the next five years, first mover advantage by a tried and tested player, the share offers ample growth opportunity in the near term and long term. The active grey market with a very high premium in relation to the price band, adds plenty of comfort to investors who would be lucky in getting allotment. Readers are well advised to apply for the share and hold for the medium to long term.

(The author is the founder of Kejriwal Research and Investment Services, an advisory firm)