IdeaForge Technology Limited hits the capital markets with its new issue valued at Rs. 240 crore and an offer for sale of 48,69,712 shares in a price range of Rs. 638-672. The issue is published on Monday (June 26) and ends on Thursday, June 29.
The Company is engaged in the design, development, engineering and manufacture of unmanned aerial vehicles or “UAVs”, also popularly called drones. In what appears to be a perfectly coordinated development, the export of drones for civilian end use has recently been simplified and liberalized. This would be a win for the company going public.
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The company allotted 37,92,894 shares to 31 investors on Friday. The allocation was fairly fair as half of them or 15 companies were each allocated 4.71 percent of the anchor stake or 1,78,464 shares. In fact, half of the investors were allocated 70.65 percent of the anchor book. The mix of domestic institutions and FPIs is almost the same: 50.59 percent are domestic institutions and 49.41 percent are FPIs.
The company would be the first standalone drone manufacturing company in the country to be listed on the stock exchange. The market share is dominant and is currently around 50 percent. An interesting snippet: The company’s promoters demonstrated their drone in a popular Bollywood film “Three Idiots” in 2009. The promoters are graduates of IIT Mumbai. At the same time, the first sale of drones to a state police agency took place. Since then, they have made great strides in terms of their technological prowess and won orders not only in India but also abroad. They compete with the best in their class and the drones they manufacture have also been sold for commercial or civil end uses. They have also developed and demonstrated 5G-enabled technology in drones.
The companies’ customers have flown over 3.5 lakh flights using IdeaForge drones. Every five minutes, somewhere in India or around the world, a flight with a drone manufactured by the company takes off. This shows their range, the number of drones deployed and their reliability. The company reports a very high gross profit, which was 68.4 percent for the fiscal year ended March 23.
There are different types of drones manufactured and sold by the company for both defense and civilian use. These depend on the application and also on the terrain or environment in which the drones would be flying. These vary from altitude, long range, inspection and surveillance to mapping. IdeaForge manufactures customized drones for the application and also supplies the necessary software for the applications.
Drones are used for various applications such as surveillance, mapping, inspection and delivery. In terms of use case, they are used by companies for GIS, construction and real estate, anti-drone, oil and gas, agriculture, public safety, utilities, mining, logistics, leisure, videography and passenger. It can be said that the use cases are increasing rapidly.
Defense drones are used for attack and defense tactics. They are used for swarming, distraction, combat, human extraction, as well as sniping and patrolling. The import of drones has been banned except for research and development, defense and security. This presents the company with an even greater opportunity. In addition, the fast-paced, technology-driven life of people today means that drones are used in so many walks of life.
The company reported revenue of Rs. 196.4 billion for the fiscal year ended March 23. Net profit was Rs. 32 crore and a PAT margin of 17 percent. The EBITDA margin was 31 percent. PAT margins were lower due to a year-end adjustment to ESOP shares. This was a one-time adjustment and would not appear next year. If this had not been taken into account, the profit would have been significantly higher.
Earnings per share for the year ended March 23 are Rs 8.55. On a fully diluted basis, earnings per share decrease to Rs. 8.12. This EPS has a PE band of 78.57-82.56. This is based on fully diluted earnings and according to restated financial statements. The company has no competitor and therefore cannot be compared.
Given the expected 17- to 18-fold growth in the drone industry over the next five years and the first-mover advantage of a proven player, the stock offers ample growth opportunities in the short- and long-term. The active gray market, with a very high premium relative to the price range, offers plenty of convenience for investors lucky enough to get an allotment. Readers are well advised to apply for the stock and hold it for the medium to long term.
(The author is the founder of Kejriwal Research and Investment Services, a consulting firm)
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