IdeaForge IPO fully booked on day 1; should you bid? Read what analysts say

Drone manufacturer IdeaForge Technology initial public offering (IPO) was fully subscribed on day 1, led by retail investors (4.6x), employees (3.3x), and non-institutional investors (1.1x). The Rs 567-crore public issue will close subscription on Thursday, June 29.
 

The company has priced the offer between Rs 638-672 apiece, with Rs 32 discount for employees. The management intends to utilise the net proceeds to repay debt, fund working capital requirements, invest in product development, and other general corporate purposes.
 

According to IPO watch, shares of IdeaForge enjoyed a premium of Rs 450 in grey markets, implying a likely listing price of Rs 1,122 on the upper price band. Upon listing, the company will join listed peers like MTAR Technologies, Data Patterns, and Astra Microwave Products.
 

Issue-wise, 75 per cent of the IPO is reserved for qualified institutional buyers (QIBs), 15 per cent for non-institutional investors, and 10 per cent for retail.
 

In fiscal year 2022-23 (FY23), the company's revenue from operations grew 17 per cent to Rs 186 crore as against Rs 159 crore in FY22. Ebitda (earnings before interest, tax, depreciation, and amortisation), however, declined 24 per cent year-on-year (YoY) to Rs 57 crore in FY23.
 

Key risks: Heavy reliance on the Indian government for projects, sustained negative cash flows from operating activities in the past, products are complex and technologically advanced, single manufacturing facility, and highly regulated industry, observed analysts.

Also Read: 7 IPOs this week but don't make these 10 mistakes in pursuit of gains
 

Here's what top brokerage houses suggest for IdeaForge IPO:
 

Motilal Oswal | Subscribe

Analysts said that the issue is fairly valued at 5x P/BV as against peer average of 8x on a post-issue basis. The company could benefit from the government's impetus to the defence sector and rising enterprise demand, they said. Moreover, their wide or complex product portfolio, presence in niche space, strong client relationship, and high entry barriers may make the public issue attractive.
 

Arihant Capital | Subscribe

The brokerage firm believes that the company's focus on expanding product portfolio to cater to new end-use applications and industries, indigenisation efforts, and strategic alliances with domestic and global drone players will drive growth ahead. With 50 per cent market share in the Indian drone industry, analysts expect the company to have an edge over market competitors.
 

Indsec Research | Subscribe

In the fiscal year 2022-23 (FY23), the company's order book stood at Rs 192 crore translating to a book/bill ratio of 1.03x. The company also reported Ebitda margin at 25.3 per cent due to one-time ESOP (employee stock ownership plan) expenses. Adjusted Ebitda margin, on the other hand, was at 34 per cent in FY23. Analysts foresee strong growth in the nascent drone market over FY23-30E, led by demand from logistics, defence, and agricultural markets.
 

Swastika | Subscribe

Though the company saw revenue growth CAGR (compounded annual growth rate) of 237.4 per cent in FY20-22; heavy dependence on government-funded projects, single source of revenue, and entry of other major players (such as the Adani Group through joint ventures with foreign drone companies) can act as major risks. That said, comparing both risks and opportunities, we recommend 'subscribe' for investors with high-risk appetite.
 

Marwadi Financial Services | Subscribe

Considering the FY23 annualised EPS of Rs 7.68 on a post-issue basis, the company may list at a P/E of 87.54x, whereas peers namely MTAR technology, Data patterns and Astra microwave products are trading at a P/E of 58.52x, 84.95x, 52.27x, respectively.