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Largest Drone manufacturer with 50% market share in India:

IdeaForge Ltd (IFL), a pioneer in Drone manufacturing in India with diversified product portfolio, enjoys market share of 50% as of FY22. It has 41 patent applications, with 20 filed internationally and 21 filed in India, as on June 2023. IFL ranked 7 th globally in the dual-use category (civil/ defence) drone manufacturers, as per Drone Industry Insights report, Dec 2022

Global Drone market to grow at 20% CAGR; regulatory tailwinds in domestic market:

Global Drone market is expected to grow at 20% CAGR over CY22-30 to reach ~USD91bn by CY30 (as per Lattice Report). It is rapidly expanding into various business segments like Enterprise, Logistics, Consumer and Passenger apart from Defence which would reduce latter’s share to 25% from 48% in CY22. While enterprise share would be maintained at >30%, logistics is expected to expand in a big way and contribute 36% share (<1% currently). Even domestic market is gaining traction and is expected to grow by 18x over FY22-27 to USD812mn. Ban on imports, government's industry friendly policies and push for Make in India is driving significant investments.

Robust product portfolio & strong customer relation:

IFL has one of the industry’s leading product portfolios with dual presence in both civil and defence applications. It enjoys long standing relationship with Government Departments, Defense forces and Indian companies and also has presence in Oman/USA. Its repeat customers contributed ~94% to revenues over FY21-23.

Financials: IFL’s revenue jumped >5x over FY21-23 to INR1.9bn, while PAT turned positive in last two years, with FY23 profit at INR320mn. EBITDA margin stood at 25% in FY23. High ESOP cost impacted the profitability of the company in all three years.

Issue Size: INR5.7bn IPO consists of fresh issue of INR2.4bn and OFS of INR3.3bn by promoters and investors, which would result in former’s stake reducing to 30.6% post-IPO. The market cap post listing would stand at INR28bn. The funds raised from the fresh issue would be utilized to repay debt, fund working capital and invest in product development.

View: 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 5x P/BV (peers avg: ~8x) 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. Hence we recommend

Subscribe. Further given the current buoyant market and high interest for defence stocks, the issue could see listing gains as well.

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