ideaForge listed on the bourses at a strong premium of 94 per cent
ideaForge’s initial public offering (IPO) had managed to attract the attention of investors across categories. From retail to qualified institutional buyers (QIBs), the IPO was subscribed a whooping 106.05 times. Due to the strong interest, it listed at a premium of nearly 94 per cent on the bourses back in July at Rs 1,305 per share.
However, since then, the story has been different for the maker of Indian unmanned aircraft systems (UAS). While it’s still trading above the IPO price band of Rs 638 to Rs 672, the current value of Rs 841.95 is around 35 per cent lower than the listing price. It even hit the low of Rs 791 in October.
The trajectory of its value on the bourses indicates a bout of price correction and discovery. Analysts point out that high valuation emerged as a concern for investors. While the IPO subscribers would have been able to book strong profits, investors entering post the listing of ideaForge did not find the shares as lucrative.
Discovery Of Valuation
Abhishek Jain, Head of Research at Arihant Capital, says that the shares have declined since its listing due to overvaluation. “The initial premium has been overshadowed by market apprehensions about the stock's high valuation,” he says.
Dissecting the IPO subscription data, the retail segment was subscribed 85.1 times, qualified institutional buyers (QIBs) subscribed 125.81 times and non-institutional investors by 80.5 times. Santosh Meena, Head of Research at Swastika Investmart, says that the initial enthusiasm of investors was driven by the fact that a pioneering drone maker was entering the stock market. “However, the stock is currently undergoing a phase of price discovery to determine its true value.”
According to Meena, another reason for the decline could be the weak performance of the company in the first quarter of FY24, which impacted its shares. In Q1, the consolidated profit of the company declined by 54 per cent year-on-year from Rs 41.25 crore to Rs 18.86 crore.
Over its fundamentals, some investors had even raised concerns at the time of its IPO subscription. In one of the comments on X, a user questioned why the order book of the company had shrunk despite operations in a sunrise sector. As per the financials, its order book declined from Rs 310 crore in FY22 to Rs 192 crore in FY 23.
The company subsequently issued a clarification. It said in a statement to Mint, “The drop in the order book can be attributed to a combination of factors, including the fulfilment of some large contracts and the delay in closing certain awaited deals. When large contracts are successfully delivered, they are reflected as revenue in our financial statements. This can lead to a temporary decrease in the order book as those contracts are no longer pending.” It added that some orders might not reflect in the order book due to the prolonged negotiation process.
Despite a correction in the last few months, analysts appear to be bullish about the fundamentals of the company and its future potential.
View On Fundamentals
Commenting on the fundamentals of the company, Meena says, “The company has a strong product line and strong brand recognition.” Founded in 2007, ideaForge competes majorly with Israeli drone makers for the market share.
Agreeing with Meena, Jain says, “While the stock has experienced fluctuations, there's optimism for the long term. The company boasts a healthy order book and trades at a modest multiple of earnings, indicating its potential as an attractive investment opportunity.”
As per Ace Equity data, the company’s financials have seen a massive upturn in the last few years. Its consolidated gross sales jumped from Rs 14 crore in FY20 to Rs 186 crore in FY23. After posting a loss of Rs 13.45 crore and Rs 14.63 crore in FY20 and FY21 respectively, it turned around to post profit after tax (PAT) of Rs 44.01 and Rs 31.99 crore in FY22 and FY23.
In a research note, Nuvama Institutional Equities exuded confidence in the prospects of the company. It noted, “Better performance, customer reliability and drone autonomy are the three pillars of growth for the company. 62 patents filled globally (25 granted), 0.4mn-plus flights taken by ideaForge’s customers.”
With the Q2 results of the company expected soon, investors and analysts will be closely watching the drone makers’ performance. The shares of the company have surged over 4 per cent in the last one week.