Unstable past performance, unassuming promoter stake and absurd issue pricing make the IPO a risky proposition.
Sixteen year-old company not eligible for making an IPO on its own financial performance is adopting a `technical route’ to float its maiden public issue. If the company’s prospects are promising, why so many big shareholders are offloading their stake and making their cost of residual holding negative?
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IDEAFORGE TECHNOLOGY OFFER AT A GLANCE |
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| Offer Type | Book Built |
| Platform | Main Frame |
| Fresh Issue | Rs 240 Cr (35,71,429 equity shares) |
| Offer for Sale | 48,69,712 equity shares (Rs 327 Cr) |
| Face Value | Rs 10 |
| Price Band | Rs 638 – 672 |
| Mkt/Bid Lot | 22 Nos. |
| Imp Market Cap | Rs 2,800 Cr |
| Imp Equity Cap | Rs 41.67 Cr |
| Implied Free Float | 69.81% |
| Lead Manager | JM Financial and IIFL Securities |
| Registrar | Link Intime |
| Listing At | BSE, NSE |
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INDICATIVE ISSUE SCHEDULE |
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| Opening :26-Jun-2023 | Closing :29-Jun-2023 |
| Allotment :04-Jul-2023 | Refunding :05-Jul-2023 |
| Demat Credit :06-Jul-2023 | Trading :07-Jul-2023 |
The Offer
The Navi Mumbai-registered, ideaForge Technology Ltd (iFTL) is coming out with its maiden public issue valued Rs 567 Cr (84.41 lakh equity shares). The IPO consists of a fresh issue of Rs 240 Cr (about 35.71 lakh shares at the cap price) from the company and an offer for sale of 48,69,712 equity shares (Rs 327 Cr) by one promoter, five individual shareholders and eight corporate shareholders of the company. The offer is being made through the book-building route with a price band of Rs 638-672 for Rs 10 paid-up share.
Applicants should bid for a minimum lot of 22 shares and multiples thereof. The shares are proposed to be listed on the main frame of BSE and NSE on Friday, July 07, 2023. JM Financial and IIFL Securities are acting as lead managers to the offer while Link Intime will be the registrar to the issue. The bidding opens on Monday, June 26 and closes on Thursday, June 29, 2023.
Of the net proceeds of the fresh issue, the company proposes to utilize Rs 50 Cr for repayment/prepayment of borrowings, Rs 135 Cr for funding working capital requirements and Rs 40 Cr for product development. The balance amount is earmarked for general corporate purposes.
Lineage
The 2007-registered iFTL was a loss-making company until fiscal 2021. The company could wipe out its accumulated deficit only in fiscal 2022. It had an average operating profit of at least Rs 15 Cr calculated on a restated and consolidated basis during the preceding three fiscals (2023, 2022 and 2021). However, it did not have an operating profit in each of these preceding three fiscals and accordingly, it did not satisfy the IPO eligibility conditions specified in Regulation 6(1) of the SEBI ICDR Regulations. The company is now floating its IPO by meeting the conditions as detailed under Regulation 6(2) of the SEBI ICDR Regulations.
According to SEBI regulation, an issuer not satisfying the condition stipulated in sub-regulation (1) shall be eligible to make an initial public offer only if the issue is made through the book-building process and the issuer undertakes to allot at least seventy five per cent of the net offer to qualified institutional buyers and to refund the full subscription money if it fails to do so.
Further, not more than 15% of the Net Offer shall be available for allocation to Non-Institutional Investors of which one-third of the Non-Institutional Portion will be available for allocation to Bidders with an application size of more than Rs 200,000 and up to Rs 1,000,000 and two thirds of the Non-Institutional Portion will be available for allocation to Bidders with an application size of more than Rs 1,000,000 and under-subscription in either of these two sub-categories of Non-Institutional Portion may be allocated to Bidders in the other sub-category of Non-Institutional Portion. Further, not more than 10% of the Net Offer shall be available for allocation to Retail Individual Bidders.
Coming to the people behind iFTL, the company was incorporated by Ankit Mehta, Rahul Singh and Ashish Bhat in Navi Mumbai in the year 2007 with an initial capital of Rs 1 lakh and the company was incubated at Society for Innovation and Entrepreneurship, Bombay. As on the date of the Red Herring Prospectus, the three original promoters hold 10,817,264 Equity Shares, which constitutes 28.39% of the issued, subscribed and paid-up Equity Share capital.
In 2009 iFTL received first angel investment from Sujata Vemuri along with Ravi Bhagavatula. The company received Angel Investment from Centre for Innovation, Incubation and Entrepreneurship, Indian Institute of Management, Ahmedabad in 2015. It received first round of institutional investment from Celesta Capital II Mauritius, Celesta Capital II-B Mauritius, Qualcomm Asia Pacific Pte Ltd and Infosys Ltd in 2017. Last year, it received second round of institutional investment from Florintree Enterprise LLP, Infina Finance Private Ltd and Export Import Bank of India.
With regard to the company’s track record, iFTL reportedly demonstrated NETRA, exhibiting the product launch of India’s first quadcopter drone at DefExpo in 2009. Same year, it developed one of the world’s smallest and lightest autopilots. The company claims to have sold its first drone to a state police department in 2010. It reportedly received Rs 39 Cr capital contract from Government of India entities in 2014. Nevertheless, the company has posted credible working results only for the last couple of years.
Key Management
Promoter Ankit Mehta (40), an M Tech from IIT Bombay, is the Chief Executive Officer and Whole-Time Director of the company. He is reportedly responsible for driving business growth, strategy, global expansion and investor relations. Another promoter, Rahul Singh (38) who is a B Tech from IIT Bombay, is designated as Vice President–Engineering and Whole-Time Director. He is responsible for driving innovation and for product and technology roadmap. The third promoter, Ashish Bhat (39) who is also a B Tech from IIT Bombay, is designated as Vice President–Research & Development and Whole-Time Director. The company has two non-executive nominee directors representing Celesta Capital II Mauritius and Florintree Enterprise LLP
Stakeholders
Currently, of the pre-issue equity capital of Rs 38 Cr, the three core promoters hold 28.39% at an average cost of less than a rupee. Sujata Vemuri and Ravi Bhagavatula who are classified as promoter group hold 5.58% at an average price of less than Rs 2 per share. Seventy public shareholders collectively hold 66.03% at different costs.
Post public offer, of the enlarged equity of 416.7 lakh shares, promoters Ankit Mehta and Rahul Singh would hold 36.87 lakh and 35.83 lakh shares respectively at an average cost of about a rupee per share. Ashish Bhat would hold 33.89 lakh shares a negative cost (-31 a share). Promoter group’s Sujata Vemuri will have 8.58 lakh shares at an extremely negative cost of -156 per share and Ravi Bhagavatula will hold 10.61 lakh shares at nil cost.
Post IPO, the twelve selling shareholders under the pubic category, will hold more than 57.50 lakh shares at an extremely negative cost which could jeopardise the stock price in the secondary market after the lock-in period of six months.
Business Profile
The company is claimed to be the pioneer and the pre-eminent market leader in the Indian unmanned aircraft systems (UAS) market, with a market share of approximately 50% in fiscal 2022. It has one of the industry’s leading product portfolios targeted at civil and defence applications. It has a broad range of products with feature-based differentiation such as weight class (approximately 2-7 kg), endurance class (25-120 minutes flying time), take-off altitude range (up to 6,000 meters), communication range (approximately 2-15 km), payload types, etc.
Beyond the UAVs, it undertakes a full integration of its payloads, communication system and packaging. It also builds its own software stack required for flight safety, autopilot sub-system, battery, power and communication in its UAVs. Its product portfolio consists of (a) hardware, which primarily includes UAVs, payloads, batteries, chargers and communication system, (b) software and embedded sub-systems, which include GCS the software and autopilot sub-system, and (c) solutions. iFTL primarily caters to customers with applications for surveillance, mapping and surveying. The company manufactures the products at its facility in Navi Mumbai.
Financial Track
The sixteen years old iFTL is yet to put up a consistent performance. From Rs 35 Cr in fiscal 2021 the company’s revenue surged to Rs 159 Cr in fiscal 2022. The trend somewhat continued during the first half of fiscal 2023. But, the performance in the second half raised serious doubts about the company’s future.
For the first half of fiscal 2023 the company posted Rs 140 Cr revenue on which it had an operating profit of Rs 62 Cr. But, in the second half, it could add only Rs 46 Cr revenue and incurred a heavy loss at the operating level. For whole year, operating profit was Rs 15 Cr lower than the first half profit!
The company’s order book, which stood at over Rs 310 Cr in fiscal 2022, depleted to Rs 192 Cr at the end of fiscal 2023. Cost of imports, which were at Rs 26 Cr surged to Rs 47.71 Cr in fiscal 2023. From Rs 66.52 Cr positive net cash generation is fiscal 2022, the company’s operations resulted in a negative cash flow of Rs 53 Cr in fiscal 2023.
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ideaforge Tech Consolidated Financials (in Cr) |
|||||
| Period Ended |
Mar-23 |
Sep-22 | Mar-22 | Mar-21 |
Mar-20 |
| Months |
12 |
6 | 12 | 12 |
12 |
| Revenue |
186.01 |
139.55 | 159.44 | 34.72 |
14.00 |
| Operating Profit |
47.09 |
62.07 | 73.12 | -10.87 |
-12.51 |
| OPM% |
25.3 |
44.5 | 45.9 | -31.3 |
-89.4 |
| Other Income |
10.4 |
3.89 | 2.01 | 1.62 |
2.32 |
| EBIDTA |
57.49 |
65.95 | 75.13 | -9.25 |
-10.19 |
| EBIDTA % |
32.1 |
46 | 46.5 | -25.5 |
-62.4 |
| Interest |
4.84 |
1.11 | 17.67 | 1.67 |
0.47 |
| Depreciation |
11.86 |
5.36 | 7.28 | 3.58 |
2.78 |
| Tax |
12.13 |
17.31 | 7.97 | 0 |
0 |
| Net Profit |
31.99 |
45.21 | 44.01 | -14.63 |
-13.45 |
| Equity (Implied) |
41.67 |
0.09 | 0.09 | 0.09 |
0.09 |
| Reserves (Implied) |
583.72 |
318.19 | 163.18 | 59.62 |
67.99 |
| Borrowing |
86.50 |
22.67 | 5.68 | 50.57 |
5.30 |
| Fixed Assets |
73.60 |
50.70 | 45.30 | 27.20 | 21.50 |
Valuation
iTFL has proposed a price band of Rs 638 – 672 for Rs 10 paid up share. The cap price discounts the company’s latest earnings 87 times, which is the highest among the listed defence electronics peers. The current market mood may be conducive for the ineligible issuers to adopt the `technical route’ and pave the way for the existing shareholders to exit with handsome gain.
But, certainly, the inconsistent track record of the company, the abysmally low financial stake of the promoters, the negative cost of holding of many large existing investors, the high allocation of issue quantity to institutional investors in order to fulfil the SEBI regulations and the short lock-in period (30 days – 18 months) weigh against the IPO price.
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How ideaForge compares with stocks catering to Defence and Electronics sectors |
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Financials |
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| (Amount in Cr) |
ideaForge |
Data Patt | MTAR Tec | Astra Mic |
DCX Syst |
| Market Cap |
2800 |
10229 | 6032 | 3328 |
2497 |
| Borrowing |
86.5 |
0.7 | 143.4 | 185.5 |
509.5 |
| Fixed Assets |
73.6 |
113.4 | 354.6 | 169 |
20.5 |
| Revenue |
186 |
453 | 574 | 816 |
1254 |
| Other Income |
10 |
9 | 19 | 5 |
30 |
| EBIDTA |
57 |
181 | 173 | 153 |
113 |
| Interest |
5 |
8 | 15 | 31 |
26 |
| Net Profit |
32 |
124 | 103 | 73 |
72 |
| Equity Cap |
42 |
11 | 31 | 17 |
19 |
| Reserves |
584 |
1156 | 589 | 625 |
547 |
|
Stock Features |
|||||
| Current Price (Rs) |
672 |
1827 | 1961 | 384 |
258 |
| Face Value (Rs) |
10 |
2 | 10 | 2 |
2 |
| Book Value |
150 |
208 | 202 | 74 |
59 |
| Promoter Stake % |
30.19 |
42.41 | 46.63 | 7.17 |
71.73 |
| Debt/Equity |
0.14 |
0 | 0.23 | 0.29 |
0.9 |
|
Profitability |
|||||
| OPM % |
25.3 |
37.9 | 26.8 | 18.1 |
6.7 |
| Net Margin % |
16.3 |
26.8 | 17.4 | 8.9 |
5.6 |
| Cash EPS |
10.52 |
23.65 | 39.69 | 11.19 |
7.6 |
| Earnings Per Share |
7.68 |
22.14 | 33.62 | 8.46 |
7.41 |
|
Return |
|||||
| RONW % |
9.4 |
10.6 | 16.7 | 11.4 |
12.6 |
| ROCE % |
10.7 |
14.8 | 20.3 | 15.6 |
10.4 |
|
Discounting |
|||||
| Price/Earnings |
87.5 |
82.5 | 58.3 | 45.4 |
34.8 |
| Price/Cash EPS |
63.9 |
77.2 | 49.4 | 34.3 |
34.0 |
| Price/Book Value |
4.5 |
8.8 | 9.7 | 5.2 |
4.4 |
| Price/EBIDTA |
48.7 |
56.5 | 34.8 | 21.7 |
22.1 |
| Price/Revenue |
15.1 |
22.6 | 10.5 | 4.1 |
2.0 |
| Price/Fixed Assets |
38.0 |
90.2 | 17.0 | 19.7 |
122.0 |
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Distribution |
|||||
| Dividend % |
0 |
225 | 30 | 80 |
0 |
| Yield % |
0 |
0.3 | 0.2 | 0.4 |
0 |
| Pay-out % |
0 |
20.3 | 8.9 | 18.9 |
0 |
Concerns
- The company is highly dependent on global vendors for the supply of components. If critical components or raw materials become scarce or unavailable, then the company may incur delays in manufacturing and delivery of products which could affect the operations.
- The company has a poor track record of corporate governance. There have been instances of regulatory non-compliances and delays.