Lots of tailwinds for drone companies including OEMs like Ideaforge , Dynamatic etc and tier 1 companies like Tonbo
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Ideaforge appoves the QIP of Rs.500cr at a floor price of Rs.835.86 . MCap : Rs. 3700cr.
Of the up-to-₹500 Cr raise, ₹165 Cr goes to working capital, ₹120 Cr to repaying borrowings, ₹90 Cr to product development, and the balance to general corporate purposes. More than half is going towards improving the balancesheet.
What to watch next: the final issue price and discount taken, the allottee list when disclosed, and whether Q1/Q2 FY27 receivable days actually improve once the working capital lands. a lot depends on how the revenue growth sustains going forward especially with the new Rs.20k Cr drone-related orders expected from govt.
https://nsearchives.nseindia.com/corporate/IDEAFORGE_07072026202229_Approval_of_PPD.pdf
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It seems TASL and NIBE defence emerge as winners for1500 cr fast track procurement of loitering munitions.
Thanks for the update @Midhunjoe . In the last concall , the management had mentioned that they will be expanding into this segment .They currently donot have proven capability in this area. This segment has a lot of growth potential in general given the usage of such drones in the recent conflicts.
From the concall:
“A major strategic theme for the next phase of expansion of our capabilities beyond ISR. Drones have moved from being just in surveillance and intelligence roles into offensive and tactical operations. Loitering munitions, long-range strike platforms, Kamikaze systems, swarming and air launched effects are no longer futuristic concepts. They are becoming part of active military planning. We are approaching this opportunity with intent, but also with discipline. We are now extending our technology base into combat drone capabilities, including long-range strike platforms, loitering munitions and Kamikaze systems through a combination of in-house development and strategic partnerships.”
from the investor deck, it is not clear how zolt and switch can act as kamikaze? is it through lighter versions of existing air frame? anybody having more color on it?
Initiated a new position here. Was watching this one for quite some time and even early April but did not do it sadly. I am seeing how drone companies are being valued globally especially ones that are heavily into RnD. Was not as so keen, inspite of respecting their RnD due to their sole focus on ISR which has changed now.
Ideaforge and Zen are the 2 players who I feel are really focused in this space (public side) and it is not that difficult to go from ISR to kamikaze drones as the physics and tech is mostly solved. Drone companies these days like Anduril, Shield AI are at many multiples of their order book. ideaforge even getting a small pie of that 20,000 crore deployment would take it far.
The new QIP that is mostly for balance sheet strengthening showcases anticipation of orderbook momentum too.
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Despite Ideaforge not getting a share in the pie as per the news paper reports , they have capabilities that will stand in good stead . The highest value and margins,I believe rests with the Tier 1 suppliers rather than the OEMS . Ideaforge due to their years of experience and being a pure play drone manufacturing company has the advantage of in-house IPs , hardware and software stack. The defense forces would demand indigenous systems , IP and software which many of the newer operators (assemblers of Chinese equipment) would find hard to deliver.
The offensive capabilities in their ISR drones (Kamikaze/Loitering munitions) is under development (Zolt and Switch platforms are the ideal fit , I believe).
If they get even a minor share of the massive push in the defense procurement of UAS and C-UAS (the entire 52000 cr procurement is one way or the other related to drones and anti drones) that would be game changing for Ideaforge. They need to quickly build capabilities in HALE and MALE drones which they don’t have at present. The fund raise is in the right direction .
Disc: Holding
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In 1 of their videos, I remember seeing the capability to drop ammunition so Ideaforge might have some basic capabilities. The long pole for loitering and kamakazi drones would be the long process of getting the license for ammunition related development and testing/certification cycles. Going with a partner who has the ammunition license would speed up the process.
They also have the NATO Stock Number for SWITCH which can also be another opportunity for them as NATO countries also start to focus on the changing battlefields : Ukraine’s drone playbook is wreaking havoc in Russia — and upending where NATO wants to invest
Disc: Holding
QIP done at 795rs.
No HNI or surprise names. Mutual funds mostly defence oriented.
Maybe due to company’s inability to continuously generate healthy profits.
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Yes @atishay_jain1 ,most of the QIP allotments are to MF and some foreign hedge funds. 1 of the entities, BENGAL FINANCE AND INVESTMENT PVT LTD , is referred in some of the listings as investment firm of investor Ashish Kacholia.
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Would appreciate if anyone could shed light on the following questions. I believe these are majorly the risk factors Ideaforge has.
- Execution risk :
- Will the company be upto the task when rapid scale up is required. It did manage to supply an emergency order placed by the Army last year. However the company has scaled to only about ~ 300 Cr since inception (company has been operating since 2008)
- Ideaforge does not plan on taking a weapon/explosives licence hence will have to partner with a company that does in order to foray into the offensive drones (kamikaze). Will this materialize and if so what sort of profit sharing model will both parties agree to.
- Management is confident that existing drones can be successfully integrated with explosive payloads. We have to believe the management but what’s the probability of success ?
- Can Ideaforge foray into the larger drones (MALE, HALE) where i i believe we still depend on international partnerships such as Isreal. Big players like Adani, L&T, Tata & HAL operate in this segment. What sort of CAPEX & IP is required to enter here. Is it even worth it ?
- Civil adoption of drones in India is something i am sceptical about.
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Client concentration risk : Key reason for the revenue fall post IPO was the heavy dependence on the Govt on its revenues. Although there seems heavy momentum in the pace & volume of drone orders from the Govt side ($2 Bn drone order), will the same momentum continue in the future. On a positive note the US plans on spending ~ $50 Bn + this year and drones seem like a vital element in modern warfare. We are nowhere close to that number, so going with that logic the market size seems huge.
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Competition : Indian players in this space : Paras defence, Zen tech, Adani, L&T , Tata & HAL & other private start ups. When it comes to defence, ultimately the indian govt will not compromise and would go with the best product. International players like Israel are more experienced (from my view). Does Ideaforge truly have something proprietary that sets it apart. It says that it has xx amount of flight hours, hence the software is robust since it has lots of training data. Is this truly a moat ?
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Skin in the game : Promoter shareholding honestly is low and has been reducing post IPO.
The recent QIP gives some confidence that institutional guys see some potential in the same, however these questions have been bugging me.
Disc : Holding
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On point 1, recent 500 raise seems to be posturing towards balance sheet strength for executing these orders.
Point 2 - That is the truth about every drone company be it Anduril, Shield AI in the US, Zen Tech in India and I dont expect that to change. Does not make it bad imo. The government may be sporadic, but they have the cash and they know how important drones are in modern combat.
Point 3 - Valid concern. While Ideaforge has great IP, the bigger players could always tie up with foreign companies and make it “Made in India”. Zen (Ashok Atluri) spoke of this before and how, you cant rely on foreign govt in times of war which I agree and I hope the govt sees the same.
Point 4 - Not an issue. Looks professionaly managed anyway
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Just got to know that they have received 151cr as grant from GoI for development of YETI platform. This is very encouraging but at the same feeling skeptical because they have not marketed this on their media handles which they generally do. Anybody having real insights? whether the hover trails were successful? why less marketing?
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Thanks 
. On a secondary note, Ideaforge seemed cheap on a forward PE basis as compared to the other companies like Paras & Zen.
Depends on the order book over anything else. As you pointed out zen went 20,000 crore on a 1600 cr order book peak. If Ideaforge just gets something similar, not hard for it to become a 1-2B usd company.
Past is different ofc but ideaforge hit 1200 rs in 2023 before the middle east crisis and when the ukraine war did not fully transform into drone based battles. Just from that point of view, I think ideaforge has much more fuel if they execute
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Ideaforge Annual Report Notes
- Ideaforge since inception built their core UAV tech from 1st principles in India , rather than depending on assembling imported kits and subsystems. This approach helped them create in-house capabilities across flight control, navigation, payload, communication, software and manufacturing.
- They have built capabilities across EO, IR , Photogrammetry, LiDAR , hyper spectral and multispectral, SAR etc.
- Their software stack include Bluefire touch (for UAV and autopilot subsystems), Bluefire Live (realtime streaming and payload control), resilient common. systems to thrive in jamming and spoofing enviornment , FLYT cloud and GPS Pro.
- Combat capabilities are still under development and for munitions they have identified partners to tie up with.
- During operation Sindoor , Indian Army used Ideaforge platforms for ISR (Intelligence, Surveillance and Reconnaissance) and these UAVs have since been inducted into the forces.
- Ideaforge recognized early that UAV industry is pivoting from hardware to the intelligence layer that powers it .
- Ideaforge has been able to integrate EW resilience across their ISR platforms for the forces.EW variants of their UAV platforms advanced towards serial production.
- Their medium range VTOL , ZOLT was procured by the defense forces as part of EP-6 cycle worth 92 cr.
- Developed multi UAV swarming capabilities enabling coordinated and autonomous drone operations.
- Ideaforge has strategic investments in Galaxeye , which was in headlines lately on their launch of Mission Drishti , world’s first Opto SAR Earth Observation satellite. Ideaforge and Galaxeye have tied up to develop All weather Foliage penetration (FOPEN) radar and Synthetic Aperture Radar (SAR) payloads .
- Ideaforge also has strategic investments in California based Vantage Robotics (Nano and Micro drones),Tech Eagle Innovations (Logistics VTOLs) , Nautical Wings Engineering (Advanced Propulsion systems and Composite materials).
My take
Bulk of the business is from the armed forces . The management has guided an EBITDA margins of 50-55% going forward. Since the business is dependent on the defense procurement it could be choppy . Ideaforge has good capabilities for a company of its size . There is a massive tailwind for drones and anti drone systems across the world . With their capabilities in software and IP they could engage meaningfully as an OEM and even as a Tier 1 supplier to OEMs. If the defense forces are particular on indigenous IP and systems then (not sure about this since as per recent reports a major order was won by NIBE which I believe is essentially assembled) Ideaforge stands to gain.
They need to develop capabilities in HALE and MALE systems which they don’t have at present as well as Counter UAS systems. Global players like Aerovironment has capabilities across the spectrum of UAS and CUAS systems . The recent fundraise of c. 500 Cr is in the right direction. The top management pedigree is top notch , if they can convert their promise and capabilities into sustainable delivery then this business can create wealth. But they need to move fast and build scale preferably through inorganic route .
Ideaforge was listed at c. Rs 1200 in 2023 and is currently trading at C. Rs 850 and 4200 cr mkt cap.
Disclosure : Invested .
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