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Taking off to grab larger opportunities

IdeaForge Technology Ltd (ideaForge) is an early entrant into the drone industry in India and the 1st company in India to locally develop vertical take-off and landing (VTOL) drones. Its core strength is in new technology & product development, which has resulted in launch of improved drone versions. It is one of the few OEMs globally to have its own proprietary autopilot sub-system and ground control software like BlueFire Touch, ground control station software, enabling safe and autonomous surveillance/ mapping operations. It is also focusing on expanding its footprint globally in the global market and initially targeted the US market, where it aim to market its products in segments such as public safety, law enforcement agencies and other use cases around enterprises. Global drone market is likely to report 20% CAGR from CY22-30E, while Indian market is expected to report 80% CAGR from FY22-27E, driven by increasing use cases. We believe the company is well placed to be a key beneficiary of positive government policy, increasing usage of drones across sectors such as Defence, Logistics, Public safety, Infrastructure etc. We expect revenue/EPS CAGR of 24%/26% between FY24-27E. Initiate with Buy rating and TP of INR 845 valuing at 40x FY27E EPS.

* Capitalised early on Indian drone market: ideaForge is a pioneering force in India's drone industry, having introduced its first vertical take-off and landing (VTOL) UAVs in 2009. The company stands out globally as one of the few original equipment manufacturers (OEMs) with proprietary state-of-the-art UAV platforms, proprietary subsystems like autopilot and a full software stack including ground control software (BlueFire Touch) and live streaming & payload control software (BlueFire Live).

* Strategic focus on new product development: ideaForge's vertically integrated approach spans design, development, engineering, manufacturing, delivery, and support, enabling comprehensive control over its product lifecycle. With 72 patents filed globally (43 granted, 29 pending), ideaForge’s business is built around core technology creation as compared to the traditional build-to-print and transfer of technology models prevalent in the Indian industry. We expect focus on product development/upgradation will benefit ideaForge, resulting in revenue CAGR of 24% between FY24-27E.

* Strong long-term relationships with customers: Another advantage that sets ideaForge apart is a deep understanding of customer operations and requirements. With 265 customers globally, ideaForge’s UAVs have completed 5,00,000+ flights in the hands of customers in challenging environmental, terrain and operational conditions. We believe this will also open service revenue opportunity going forward and additionally help in getting future orders as well from clients.

* Expanding footprint in international markets: ideaForge has been strategically focusing on exploring new market opportunities. Its efforts in the US are in the advanced stages of customer demonstrations. Success in the US market will also open up opportunities in other geographies like Africa.

* Outlook and valuation: ideaForge’s core strength of, technical know-how and new technology and product development capability is supplemented by increasing adoption of drone usage by defence and non-defence space. Strong long-term client relationships and focus on exports augur well for the company to capitalise on upcoming opportunities. We believe there will be slowdown in near term, mainly due to delay in order booking, however we believe order inflows will start picking up from 2HFY25 onwards, which will lead revenue pickup from FY26E. Initiate with TP of INR 845.

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