What you should know about ideaForge Technology Limited IPO?

Ideaforge Technology was Incorporated in 2007 to engage in the business of manufacturing Unmanned Aircraft Systems (UAS). UAS or drones are used extensively from mapping to army operations to minerals prospecting and even for delivery of pizzas. Ideaforge Technology Ltd manufactures UAS (Unmanned Aircraft Vehicles) for Mapping, Security & Surveillance; a fairly complex and high-tech project. Drones manufactured by Ideaforge are capable of a wide range of mining area planning, and mapping applications; apart from helping in the real estate businesses. Drones also assist the Indian defence forces and the Border Security Forces in conducting Intelligence, Surveillance, and Reconnaissance (ISR) operations along sensitive borders; where manual intervention cannot be risked.

The company operates through two principal software products viz. BlueFire Live and BlueFire Touch. BlueFire Live enables secure and live streaming of UAV video feed as well as exercising remote payload control. On the other hand, BlueFire Touch is a Ground Control Software (GCS) to plan and command mapping and surveillance missions as well as identifying target locations through waypoint-based navigation. Ideaforge Technology Ltd is an undisputed market leader in the UAS business with over 50% market share as of FY22. Book running lead managers to the IPO are JM Financial and IIFL Securities Ltd. Link Intime India Private Ltd will be the registrars to the issue.

Highlights of the IPO issue of Ideaforge Technology Ltd

Let us now look at the details of the IPO of Ideaforge Technology Ltd; the UAS company. The offer for sale (OFS) component of the IPO will entail the issue of 48,69,712 shares which at the upper end of the price band of ₹672 would result in an offer for sale component of ₹327 crore. The fresh issue component of the IPO entails the issue of 35,71,429 shares which at the upper end of the price band of ₹672 has a fresh issue value of ₹240 crore. Therefore, the overall size of the company IPO will entail the issue of 84,41,141 shares which at the upper end of the price band of ₹672 would result in total issue size of the issue at ₹567 crore.

The company was promoted by Ankit Mehta, Rahul Singh, and Ashish Bhat. Currently the promoters hold 60.62% of the company, which will get diluted post the IPO. The fresh portion of the IPO will be used for repayment / prepayment of loans taken by Ideaforge Technology Ltd and its subsidiaries and for meeting working capital needs of the company; apart from investing in new product development.

As per the terms of the offer, 75% of the net offer is reserved for the qualified institutional buyers (QIBs), while only 10% of the total issue size is reserved for the retail investors. The residual 15% is kept aside for the HNI / NII investors . The company has a par value of Rs10 per share and post the IPO, the stock of Ideaforge Technology Ltd will be listed on the NSE and on the BSE.

The minimum lot size for IPO application will be 22 shares and the table shows the required lots and number of shares for different category of investors.

Key dates for Ideaforge Technology Ltd IPO and how to apply?

The issue opens for subscription on 26th June 2023 and closes for subscription on 29th June 2023 (both days inclusive). The basis of allotment will be finalized on 04th July 2023 and the refunds will be initiated on 05th July 2023. In addition, the demat credits are expected to happen on 06th July 2023 and the stock will list on 07th July 2023 on the NSE and the BSE. Ideaforge Technology Ltd will be the first such high tech drone company to raise funds on the mainboard and will hold the key to more such start-ups on the mainboard.

Investors can apply either through their existing trading account or the ASBA application can be directly logged through the internet banking account. This can only be done through the authorized list of self-certified syndicate banks (SCSB). In an ASBA application, the requisite amount is only blocked at the time of application and the necessary amount is debited only on allotment. Investors can apply in the retail quote (up to Rs2 lakh per application) or in the HNI / NII quota (above Rs2 lakh). Minimum lot sizes will be known after pricing.

Financial highlights of Ideaforge Technology Ltd

The table below captures the key financials of Ideaforge Technology Ltd for the last 3 completed financial years.

Data Source: Company RHP filed with SEBI

There are few key takeaways from the financials of Ideaforge Technology Ltd which can be enumerated as under

1. The revenue growth has been extremely robust with most of the growth in the last two years. The profit performance has also been quite robust in the latest quarter with the net margins above 16%. The company was making losses in the year FY21 and FY21 but that was more due to lower scale and the impact of the pandemic rubbing off on their operations in a rather big way.
    
2. UAV or drone is a high tech business and is also a business with a high technology obsolescence. That is something the company must be wary of. However, the high tech space also ensures that the company is in a position to command relatively higher valuations.
    
3. One area where the company has lagged is in the rate of sweating assets as is evident from the rather low asset turnover ratio. But that is more due to the high upfront investments and we need time for the revenues to catch up.

While pricing of the IPO will matter here, what is more critical is the eventual PAT margins that will sustain. The P/E is around 100X based on historical weighted average EPS, but on forward EPS that should be lower. However, if the profit margins can be sustained above 20%, then valuations may not be the real challenge. There are some regulatory issues the company is grappling with, but that does not appear to be too major at this point of time. Like any high tech IPO, the risk remains high and it is meant for investors with a higher risk appetite as well as a longer holding period.