ideaForge Tech IPO review (May apply)

• IPO Details
• Stock Price
• Docs
  • RHP
  • DRHP
  • Anchor Investor Link
• Reviews
• Subscription
• Calculator
• News
• GMP
• Allotment
• BoA
• Messages

Review By Dilip Davda on June 23, 2023

•    ITL is one of the Indian leaders in Unmanned Aircraft Systems (UAS). 
•    It has many firsts to its credit and has posted growth in its top lines. 
•    Its bottom line for FY23 has marked declining trends. 
•    Based on its FY23 performance, the issue appears aggressively priced. 
•    Well-informed/cash surplus investors may park funds for long-term rewards. 

PREFACE:
ITL is a venture from IITian technocrats who have gone a long way to achieving their current status in the UAS segment with indigenous technology and are now poised to gallop on a fast-forward mode. The Pandemic propelled this segment and increased usage is auguring well for this segment which has bright prospects ahead. The fall in the bottom line for FY23 is attributed to ESOP plans that impacted the balance sheet. It has many firsts to its credit and the management is confident of maintaining the trends.

ABOUT COMPANY:
Ideaforge Technology Ltd. (ITL) is the pioneer and the pre-eminent market leader in the Indian unmanned aircraft systems ("UAS") market, with a market share of approximately 50% in Fiscal 2022 (Source: 1Lattice Report). It had the largest 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 Fiscal 2023 (Source: 1Lattice Report). 

ITL's customers have completed over 350,000 flights using its UAVs as of March 31, 2023 (Source: 1Lattice Report). It ranked 7th globally in the dual-use category (civil and defence) drone manufacturers as per the report published by Drone Industry Insights in December 2022 (Source: 1Lattice Report). It has grown at a CAGR of 131.47% in terms of revenue from operations over the last three Fiscals, with a Return on Capital Employed of 12.51% in Fiscal 2023.

ITL's UAVs are equipped with industry-leading specifications and capabilities, comparable to those of other established global players in the UAV industry (Source: 1Lattice Report). 

In addition to being among the first few players in India to enter the UAV market, it also has the distinction of being the first company to indigenously develop and manufacture vertical take-off and landing ("VTOL") UAVs in India in 2009 (Source: 1Lattice Report).

It has one of the industry's leading product portfolios targeted at civil and defence applications (dual use) (Source: 1Lattice Report). ITL has a broad range of products with feature-based differentiation such as weight class (approximately 2-7 kg), endurance class (25-120 minutes flying time), take-off altitude ranges (up to 6,000 meters), communication range (approximately 2-15 km), payload types, etc. Beyond the UAVs, it undertakes a full integration of payloads, communication system and packaging. 

The company also build its own software stack required for flight safety, autopilot sub-system, battery, power and communication in UAVs. It believes, this integration of complex technologies while optimizing for performance, reliability and autonomy, not only creates entry barriers for new entrants but also helps it to differentiate from other players in the market. ITL caters to domestic and international customers across defence and civil sectors, primarily for applications in surveillance, mapping and surveying. As of May 31, 2023, it had 288 permanent employees, 5 consultants, 232 contractual employees, and 31 contractual labourers.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden combo IPO of fresh equity shares worth Rs. 240 cr. (approx. 3571458 shares at the upper cap) and 4869712 shares (worth Rs. 327.25 cr. at the upper cap) by way of an Offer for Sale (OFS) to mobilize Rs. 567.25 cr. (approx. 8441170 shares) at the upper cap. It has announced a price band of Rs. 638 - Rs. 672 per share of Rs. 10 each. The issue opens for subscription on June 26, 2023, and will close on June 30, 2023. The minimum application to be made is for 22 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. The issue constitutes 20.26% of the post-IPO paid-up capital of the company. The company has reserved 13112 shares for its eligible employees and offering them a discount of Rs. 32 per share. From the residual portion, it has allocated not less than 75% for QIBs, not more than 15% for HNIs and not more than 10% for Retail investors. 

The company has done a pre-IPO placement of 892857 equity shares at a price of Rs. 672 per share and mobilized Rs. 60 cr. and hence the fresh share issue size is reduced to Rs. 240 cr. against Rs. 300 cr. originally planned.

From the net proceeds of the fresh equity issue, the company will utilize Rs. 50.00 cr. for repayment/prepayment of certain borrowings, Rs. 135.00 cr. for working capital, Rs. 40.00 cr. for product development and the rest for general corporate purposes. 

JM Financial Ltd. and IIFL Securities Ltd. are the joint Book Running Lead Managers and Link Intime India Pvt. Ltd. is the registrar of the issue. 

Having issued initial equity shares at par, the company issued further equity shares in the price range of Rs. 80.73 to Rs. 41976.00 between March 2009 and June 2023. It has also issued bonus shares in the ratio of 225 for 1 in December 2022. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. NIL, Rs. 0.04, Rs. 0.99, Rs. 1.16, Rs. 2.63, Rs. 38.48, Rs.43.00, Rs. 43.81, Rs. 75.22, Rs. 91.16, Rs. 92.96, Rs. 97.81, Rs. 97.83, and Rs. 185.71 per share. 

Post-IPO, ITL's current paid-up equity capital of Rs. 38.10 cr. will stand enhanced to Rs. 41.67 cr. Based on the upper cap of the IPO price band, the company is looking for a market cap of Rs. 2800.23 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, ITL has (on a consolidated basis) posted a turnover/net profit - (loss) of Rs. 36.34 cr. / Rs. - (14.63) cr. (FY21), Rs. 161.45 cr. / Rs. 44.01 cr. (FY22), and Rs. 196.40 cr. / Rs. 31.99 cr. (FY23). For FY23 though its top line grew, its bottom line declined.

For the last three fiscals, ITL has posted an average EPS of Rs. 7.60 and an average RoNW of 9.83%. 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 cap). Thanks to hefty premiums collected for the issuance of shares between 2011-2023 that helped in posting such attractive NAVs.

ITL's ROE marked volatility as it was - (22.88%) in FY21, 39.46% in FY22 and 13.11% in FY23. Similarly, its RoCE too marked such a volatile move as it was - (15.18%) for FY21, 49.63% for FY22 and 12.51% for FY23. For the said periods, its PAT margins were - (42.13%), 27.60% and 17.20% respectively.

If we attribute FY23 earnings to post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of 87.50. Thus the issue pricing is very aggressive and is asking for fancy premium considering the hype created by the Drone segment.  

DIVIDEND POLICY:
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. 

COMPARISON WITH LISTED PEERS:
As per the offer document, ITL has shown MTAR Tech, Data Patterns and Astra Micro as their listed peers. They are currently trading at a P/E of 56.65, 81.37, and 41.66 (as of June 23, 2023). However, they are not truly comparable on an apple-to-apple basis. 

MERCHANT BANKER'S TRACK RECORD:
The two BRLMs associated with the offer have handled 49 public issues in the past three years, out of which 15 issues closed below the offer price on the listing date.

ideaForge Technology IPO FAQs