Introduction

Hey everyone! I am here to cover a highly promising IPO. This IPO belongs to Idea Forge, which is the undisputed leader in the Indian drone market with a 50% market share. The IPO is set to open on June 26th, and in this blog, I want to discuss the company’s business model, leadership, future growth prospects, key risks, and IPO details, including valuation.

The journey of Idea Forge began in 2004 when two IIT Bombay students, Ankit Mehta and Rahul Singh, came up with the idea of a quadcopter for their college project. They built their first prototype in 2004 and continued working on the technology. They eventually collaborated with DRDO to develop autopilot technology, which is the brain of a drone.

This is the same drone used in the movie 3 idiots starred Amir khan.

In 2007, they established Idea Forge. What started as a fun college project has now become India’s largest drone company, capturing 50% of the market share. In fact, Idea Forge is ranked seventh globally in the civil and defense drone manufacturing category as of December 2022. This means that Idea Forge is not only a leader in India but also a significant player worldwide.

Key Strengths

One of the biggest strengths of Idea Forge is its vertically integrated solution. They design, develop, and manufacture everything in-house, including hardware and software. They are one of the few regional equipment manufacturers globally to have their own proprietary autopilot subsystem and ground control software. The autopilot software enables the drone to be controlled remotely and provides autonomous flight completion with intelligent features like return on home on low battery, high wind, communication loss, and battery imbalance.

Due to their continuous focus on product development and innovation, Idea Forge has filed 41 patent applications so far, including 20 international patents and 21 applications in India. Looking at their product portfolio, they offer a wide range of UAVs (Unmanned Aircraft Systems). One of their UAVs is the Switch UAV, which offers up to a 15-kilometer operational range with 120 minutes of flight time and 25 times optical zoom. It is used for long-range surveillance and high-altitude operations. They also have other UAVs like the Ninja UAV, Netra V4 UAV, Q41 UAV, Rhino UAV, and Q6 UAV, which find applications in various categories.

Business Model

Now, let’s understand the applications of these drones. Broadly, we can categorize their usage into mapping and security/surveillance. Under mapping, drones are used for land surveys, clear demarcation of boundaries, field management, planning, establishing accurate land records, and more. In the mining sector, drones ensure worker safety. In construction and real estate projects, land mapping and surveying are crucial for project planning and operational efficiency. In terms of security and surveillance, drones play a vital role in anti-terror activities by providing 360-degree coverage to identify potential threats and track terrorists. They are also used in border security and crime control operations.

Idea Forge has served 265 customers so far, including central armed police forces, state police departments, disaster management forces, forest departments, private contractors of smart cities, and CE Info Systems, which is the payment company of MapIndia, among others. The company has a manufacturing facility in Navi Mumbai, covering an area of 21,000 square feet.

Leadership

As for the leadership, Mr. Ankit Mehta, an IIT Bombay alumnus with a dual degree program of B.Tech and M.Tech, is the co-founder and CEO of Idea Forge. Mr. Rahul Singh, another co-founder, is the VP of Engineering and holds a degree in mechanical engineering from IIT Bombay. Lastly, Mr. Ashish Bhat is the co-founder and VP of R&D, holding a bachelor’s degree in electrical engineering from IIT Bombay. The fact that all three co-founders are from IIT Bombay speaks volumes about their expertise and pedigree.

Future growth

Now, let’s delve into the future growth prospects of Idea Forge. The growth of drones can be divided into two segments: defense and civil. In the defense sector, drones are critical for modern warfare, as they can precisely attack and destroy heavy artillery worth millions of dollars. Drones find usage in intelligence, surveillance, target acquisition, reconnaissance, combat, and logistical support. In the Indian context, drones play a crucial role in border surveillance, especially considering the incursions and security challenges faced with neighboring countries like Pakistan and China. The Indian government has banned the import of foreign drones to promote domestic manufacturing, and this has created an opportunity for indigenous drone companies like Idea Forge.

In the civil sector, drones have a wide range of applications. The government uses drones for monitoring infrastructure, such as power, communication networks, ports, airports, railways, bridges, and more. Construction companies utilize drones for monitoring project structures and city planning, providing valuable analytical data for crowd and traffic management. Drones are also used in agriculture for crop health management, treatment, field soil analysis, and damage assessment.

In the media and entertainment industry, drones are used for aerial shots, reducing operating costs compared to traditional methods like helicopters. Drones also play a significant role in geographic information systems (GIS) for mapping, surveying, and identifying property ownership. The logistics sector is another area where drones can revolutionize delivery services, particularly in the e-commerce sector.

According to reports, the Indian drone market is projected to grow from $43 million in FY22 to $812 million by FY27, representing around 80% compound annual growth rate (CAGR) between 2022 and 2027. Within this sector, Idea Forge stands out as the undisputed leader with a 50% market share, showcasing the strength of the company’s position. Idea Forge benefits from being a first mover with strong relationships with key clients. Its complete indigenous capability, including in-house design, development, and manufacturing, creates a robust moat. The company has filed 41 patent applications, with 10 patents granted in India and 15 granted outside India.

Idea Forge aims to develop UAVs offering longer flight times and larger payload carrying capacity. They also have plans to focus on developing medium-sized logistics drones with a payload capacity of over 100 kilograms and a range of more than 100 kilometers, which could be a game-changer. Additionally, they have launched “Drone as a Service,” a ready-to-fly network of drones that allows users to schedule or request on-demand flights without the hassle of owning hardware, software, or manpower.

While Idea Forge currently caters to the Indian market, they have plans to expand into international markets. They are already present in Oman and the USA and are evaluating expansion opportunities in Bangladesh, Vietnam, and Nepal. Furthermore, the company aims to expand its presence in the United States, which is the largest market for drones globally.

IPO Details

Now, let’s look at the IPO details. Idea Forge’s IPO is scheduled from June 26th to June 29th, with an issue size of ₹567 crore ($76 million). Out of this, there is a fresh issue of ₹240 crore ($32 million), and the remaining ₹327 crore ($44 million) is an offer for sale. The company plans to utilize ₹50 crore ($6.7 million) for debt repayment, ₹135 crore ($18 million) for working capital, ₹40 crore ($5.4 million) for product development, and the rest for general corporate expenses. The price band for the shares is set between ₹638 ($8.5) to ₹672 ($9) per share, and one lot consists of 22 shares. At the higher price band, the company would have a market cap of ₹2,800 crore ($378 million) and a P/E ratio of 87, which is relatively high.

It’s important to note that the IPO valuation appears to be on the higher side. However, considering the immense growth potential in the drone sector and Idea Forge’s leadership position, it may command a premium. The allocation chances for this IPO might be low due to the high gray market premium and interest it has generated. If you don’t receive the IPO allotment and the share price jumps significantly on listing day, I suggest keeping an eye on this stock, adding it to your watchlist, and waiting for the right time to invest.

Conclusion

To summarize, Idea Forge is the undisputed leader in the Indian drone market with a 50% market share. The company has a strong business model, excellent leadership, and a wide range of applications in both the defense and civil sectors. While there are risks to consider, such as volatile order books, negative cash flow, dependency on global vendors, compliance issues, and rising competition, the IPO appears to be very promising.

Long-term investors who can’t get the IPO allotment should keep an eye on Idea Forge for potential investment opportunities in the future. However, it’s essential to assess the valuation and invest at a reasonable price. Considering the interest it has generated and the growth potential of the sector, this IPO is expected to receive a great response.

Disclaimer: The views expressed in this blog are for educational purposes only. This is not professional advice. Consult your financial advisor before investing.

The post Idea Forge IPO : Undisputed Leader in Indian Drone Market first appeared on Rupee Sprout - Planting Financial Seeds in the Indian Market.