ideaForge Technology IPO opens today: Here's what brokerages say about the issue

The Rs 567 crore-initial public offering (IPO) of ideaForge Technology kicks-off for subscription on Monday, June 26 and can be subscribed till Thursday, June 29. The drone manufacturer has announced to sell its shares in the fixed price band of Rs 638-672 apiece during the three-day stake sale.

Incorporated in 2007, ideaForge Technology is engaged in the business of manufacturing unmanned aircraft systems (UAS) for mapping, security and surveillance. These drones are capable of a wide range of mining area planning, and mapping applications. ideaForge UAVs help construction and real estate boost their operations.

The issue includes issuance of fresh equity shares worth Rs 240 crore and an offer for sale (OFS) of 4,869,712 equity shares amounting to Rs 326.44 crore by promoters and existing shareholders. Investors can make a bid of a minimum of 22 equity shares and its multiples thereafter.

Ahead of its IPO, ideaForge Technology mopped up Rs 254.88 crore from 31 anchor investors by allocation of 37.92 lakh equity shares at Rs 672 per share which saw participation from marquee investors including Nomura, Invesco, HSBC, Goldman Sachs among others. It also undertook a pre-IPO placement of 8,92.857 shares at a price of Rs 672 apiece amounting to Rs 60 crore.

Watch: ideaForge Rs 567 crore IPO opens; check price band, GMP, subscription status. See the journey of IIT Bombay alumni-founded company

ideaForge Technology has reserved 13,112 shares in the public issue for its employees, who will get a discount of Rs 32 apiece for the issue. Not more than 75 per cent of the net offer is reserved for qualified institutional bidders (QIBs), while non-institutional investors will get 15 per cent of the offer. Retail bidders will be allocated with the remaining 10 per cent of the offer.

Mumbai-based ideaForge has been ranked seventh globally in the dual-use category (civil and defense) drone manufacturers as per the report published by Drone Industry Insights in December 2022, while it is the largest in the country. It is backed by marquee investors such as Infosys, Qualcomm, Celesta, Florintree, EXIM Bank and Indusage Technology Venture among others.

Net proceeds from the fresh issue will be utilized towards repayment or prepayment of certain debt availed by the company; funding working capital requirements; investment in product development; and general corporate purposes.

JM Financial and IIFL Securities are the book-running lead managers to the issue, while Link InTime India has been appointed as the registrar to the issue. Shares of ideaForge Technology will be listed on both BSE and NSE, which is likely to be scheduled on Friday, July 7.

Majority of the brokerage firms are positive on the issue citing the rising demand of drones, niche business model and positive outlook for the sector. However, a few have a word of caution for the issue citing its expensive valuations, lack of long-term contracts and high competition in the industry. Here's what a host of brokerage firms said about the IPO of ideaForge Technology:

Choice Broking
Rating: Subscribe with caution
ideaForge is operating in a sunshine sector, which has a bright long-term outlook. The adoption of drone applications in other sectors is not encouraging, which is getting reflected in the order book of the company. Also, the competition is huge in this market. However, there are no peers having product profiles similar to ideaForge in the listed space, said Choice Broking.

"At a higher price band, it is demanding a P/E multiple of 87.5 times, which is at significant premium to the prevailing valuations of the peers. We feel all the positives like dominant market position, medium-term growth outlook is getting factored-in the demanded valuation. Sluggish order book is also not providing comfort," it added with a 'subscribe with caution' rating.

Swastika Investmart
Rating: Subscribe with caution
The company has experienced a remarkable revenue growth CAGR of 237.48 per cent between FY 20-22. This growth has been supported by a favourable business environment, increased orders, and government initiatives like the PLI scheme for drones, said Swastika Investmart, assigning a subscription rating for aggressive investors.
 
"However, there are risks to consider. IdeaForge heavily relies on government-aided projects, which poses a significant risk due to its dependence on a single source of revenue. The entry of other major players into the market, such as the Adani Group, through joint ventures with foreign drone companies, adds further competition," it added.

Hensex Securities
Rating: Subscribe
ideaforge primarily cater to customers with applications for surveillance, mapping and surveying. Ideaforge ranked 7th globally in the dual-use category drone manufacturers as per the report published by Drone Industry Insights in December 2022, said Hensex Securities with a 'subscribe' rating. "It has sustained negative cash flows from operating activities in the past," it cautioned.

Motilal Oswal Finance Services
Rating: Subscribe
"We like IFL given its complex/wide product portfolio, presence in niche space, strong client relationship and high entry barriers. The issue is valued at 5 times P/BV on a post issue basis, which is fairly valued. We believe IFL could benefit from government impetus on the defence space as well as rising enterprise demand, "said Motilal Oswal with a subscribe rating for the issue.

Marwadi Financial Services
Rating: Subscribe
Considering the FY23 Annualized EPS of Rs 7.68 on a post issue basis, the company is going to list at a P/E of 87.54 times with a market cap of Rs 2,800. crore whereas its peers namely MTAR technology, Data patterns and Astra microwave products are trading at a P/E of 58.52 times, 84.95 times, 52.27 times, said Marwadi Financial Services in its IPO note.

"We assign 'subscribe' rating to this IPO as the company is pioneer and the pre-eminent market leader in the Indian UAS industry, with first-mover advantage and strong relationships with a diverse customer base. Also, it is available at reasonable valuation considering the future growth potential of the company," it said.

Mehta Equities
Rating: Subscribe
The company has plans for expansion in Bangladesh, Vietnam, Nepal and USA as they offer promising growth opportunities. With their hardware and software capabilities, ideaForge is well-positioned to explore business services revenue through 'drone as a service' offerings and capitalize on the vast logistics industry, said Mehta Equities.

"The company's potential for strategic alliances with global and domestic players across different segments of the drone industry further adds to its growth prospects.  Based on the industry fancy demand and growth in the recent performance, the issue fetches the first mover listing advantage in the segment," it added with subscribing the issue for listing gain only.

Stoxbox
Rating: Subscribe for listing gains
The business model aids companies like ideaForge to maintain long-term business relations with customers along with attaining healthy margins due to inherently high customer retention. It has all the right ingredients such as the first mover advantage in the drone industry, diversified product portfolio, wide range of customers to sustain business performance in the long run, said Stoxbox.

Sector tailwinds such as a ban of imports from drone manufacturers opens up a large opportunity for the company. As of 2022, the potential market size for the Indian drone industry was approximately $2.7 billion, with the Indian drone industry estimated to grow at an 80 per cent CAGR in the FY22-27 period to $812 million, it said with a 'subscribe for listing gains' tag.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Business Today)

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