Ideaforge IPO gets investors interested in primary market: Should you subscribe?

The initial public offering (IPO) of IdeaForge Technology Ltd was subscribed 13.27 times on Day 2.Retail investors, employees, and non-institutional investors (NIIS) responded to the issue overall quite enthusiastically on the second day of the subscription.

The public issue that opened for subscription on Monday June 26, now closes on Friday, June 30 as Thursday, June 29 is a public holiday on the occasion of Bakri Id.

The drone manufacturer has set the price band for the IdeaForge IPO at ₹638 to ₹672 per equity share.

The company intends to raise ₹567 crore via the IPO, which would include a fresh issue of shares worth ₹240 crore and an offer for sale (OFS) of 48.69 lakh equity shares worth ₹327 crore by promoters and investors.

In a pre-IPO transaction, the company raised approximately ₹60 crore. As a result, the size of the new issuance has been cut from ₹300 crore to ₹240 crore.

IdeaForge Technology IPO:Issue over subscribed on Day 2; Retail portion booked over 36 times

Promoters Ashish Bhat, Amarpreet Singh, and Nambirajan Seshadri will participate in the OFS, while other selling shareholders include A&E Investment LLC, Agarwal Trademart Pvt Ltd, Celesta Capital II Mauritius, and others.

The company intends to use the net proceeds of the new issuance to settle debts, meet working capital needs, invest in product development, and for general corporate reasons.

JM Financial and IIFL Securities are the book-running lead managers for the ideaForge Technology IPO. Link Intime India is the IPO registrar.

Ideaforge IPO: Experts raise worries over orderbook. Company clarifies

What do brokerages say?

The issue has received a 'subscribe' rating from brokerage firms such Motilal Oswal, SBICAP Securities, Hem Securities, Hensex Securities, BP Equities, Choice Equity, Arihant Capital, Swastika Investmart, GEPL Capital, INDSEC Securities, and Marwadi Financial Services. Let's look at what a number of brokerages have to say.

GEPL Capital Pvt Ltd

By utilising its high client retention rate, the company, according to the brokerage, excels at preserving long-term commercial ties and generating strong margins. The business is well-positioned for sustainable long-term growth thanks to its early-mover advantage in the drone sector, a diverse product range, and a large client base. Additionally, the current import prohibition on drones opens up a sizable window for business expansion.

"IdeaForge Tech earning arrives at ₹31.99 crore for FY23. At upper price band of ₹672, company is looking for post issue market cap of ₹2,800 crore, Which implies a earning multiple (P/E) of 87.53(x).The Indian drone industry is projected to grow at an impressive80% CAGR from FY22 to FY27, with a potential market size of USD 2.7 billion in 2022, reaching USD 812 million. Hence, we recommend 'Subscribe' rating to the Issue for listing gains,"said the brokerage in its report.

SBI Securities

“At upper band, the business is trading at P/E multiple of 87.5x FY23 EPS. Looking at the unique growth story in Drone industry, the company is likely to attract the scarcity premium and will continue to trade at expensive valuations. Investors can ‘Subscribe’ to the IPO with long term investment horizon. Listing gains are likely due to smaller issue size and likely scarcity premium,” said the brokerage in its report.

Reliance Securities

According to the brokerage's analysis, the IPO is valued at the upper price band at 87.5x P/E, 61.2x EV/EBITDA, and 15.5x EV/Sales, which is reasonable considering the high teens margin profile and solid return ratios. Drone technology is also expected to experience rapid expansion over the next few years.

“Considering the healthy business prospects, indigenous design and technological capabilities, diversified product portfolio, ability to deliver customer centric offerings and huge potential for Drone industry itself, we recommend ‘subscribe’ to the issue,” said the brokerage.

Motilal Oswal

Given its complex/wide product offering, presence in a niche market, strong customer relationships, and high entry barriers, IdeaForge is favoured by the brokerage. On an after-issue basis, the issue is properly valued at 5x P/BV.

“We believe the company 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,” said the brokerage in its report.

Hem Securities

“Company’s strong relationships with a diverse customer base along with significant product development capabilities powering its software and solutions and product differentiators. Also, company’s in-house design to delivery capabilities and strong management capabilities with a demonstrated ability to deliver robust financial performance making issue an attractive destination to deploy funds in. Hence we recommend to ‘Subscribe’ issue,” said the brokerage in its report.