IdeaForge Technology, India’s top drone manufacturer, is headed for an IPO as it looks to cut down on its debt, further develop its tech and establish a greater presence in international markets—especially the US.

Benzinga India spoke with CFO Vipul Joshi and Vice President of Engineering Rahul Singh to understand more about the business and what the company’s plans look like.

Diversification

The executives outlined a three-pronged approach to diversifying the company’s revenue stream. “One is about the civil-defence split, the second is international expansion, and the third is the services business,” said Singh.

One of IdeaForge’s major concerns may be that its topline is heavily reliant on the defence side of things, which brings in around 70% of its revenue. The executives said that while the company is putting in “considerable” effort into expanding into civil applications of drones such as mapping in agriculture, roads, power lines and other infrastructure, that does not necessarily imply a “shift from a profitable and fruitful business”.

The defence market for drones is likely to shrink in the coming years as civil applications in logistics and other areas are likely to grow quickly.

The executives said that they were at the nascent stages of offering software-as-a-service and drone-as-a-service applications, but expect the category to ramp up in the future, offering drones to customers without having to deal with the costs of owning them. The firm said it will also launch new tactical and logistics drones to expand its product portfolio.

One Eye On The US

IdeaForge is looking at diversifying geographically and in terms of its products. While the firm is looking to supplement its healthy pipeline of defence projects with civil applications, it is also looking to grab a foothold in overseas markets, particularly the US.

“I think our keen focus on unlocking the US market is of particular interest to us. Based on what we have done so far in terms of testing the market, we see a strong potential in being able to serve certain applications there,” said Singh, adding that geopolitical tensions between the US and China might provide headwinds for the firm’s expansion thereby teaming up with credible local partners.

“And once we unlock that in the near future, I think a lot of other developed markets may be a natural progression to leverage based on our success story in the US,” he said. The executives agreed that navigating the regulatory landscape outside their home turf will be a challenge, though they feel confident about doing so, having already faced India’s regulatory hurdles.

Besides having a presence in the US, IdeaForge also does business in Oman and plans to expand into Nepal, Bangladesh and Vietnam.

“The total unlocking of the real potential of the drone industry is yet to come, not just domestically but internationally as well,” said Singh. “There has been significant adoption on the consumer side, which the world has seen today. But on the enterprise and defence side, the adoption and its impact are just starting to be seen now. So we will be part of that. We will ride that wave and be part of driving that wave, both domestically and internationally, and strive to be a significant international player in this domain.”

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IPO Details

ideaForge’s IPO will be open for subscription from June 26 to June 29, with the price band for the IPO set at ₹638 to ₹672 per share. IdeaForge plans to raise approximately ₹570 crore through the IPO and aims for a post-issue implied market cap of up to ₹2,800 crore.

₹240 crore will be raised through a fresh equity issuance, while the rest will be an offer for sale by the company’s promoters, who currently hold 34% stake in the company and will continue to hold over 30% stake after the IPO.

The firm had a pre-IPO funding of ₹60 crore with investors such as 360 One, Think Investments, Tata AIG, and Motilal Oswal.

Out of the ₹240 crore raised through the IPO, ₹50 crore is expected to be used for debt repayment and ₹135 crore for working capital and ₹40 crore for investment in product development and general corporate purposes.

The company’s debt is expected to decrease to ₹35 crore after the fund utilisation.

IdeaForge’s Business

IdeaForge’s major edge over the competition is that it has patents across the entire stack of hardware and software involved in making drones. The firm’s proprietary tech and patents not only help create a barrier to entry, but also help bring down costs for the company.

“When you’re [saving costs thanks to proprietary tech] at scale level, the impact of the IP value as a part of your cost structure becomes more and more significant,” CFO Joshi told Benzinga India in an interview.

The company attributes much of its healthy profit margins to its patented intellectual property (IP) rights.

However, the firm’s profit after tax fell to ₹32 crore in FY23 from ₹44 crore a year ago, mostly because a large number of employee stock options were vested in the most recent financial year, the executives said.

The firm’s order book also fell to ₹1,92.3 crore in FY23 from ₹310.9 crore last year. The executives attributed this to a lag in billings and a few contracts not going through in expected timelines.

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