IPO-Bound ideaForge’s FY23 Net Profit Slumps 27% To INR 32 Cr On ESOP Expenses

IPO-bound drone major ideaForge’s profit after tax (PAT) declined 27.3% to INR 32 Cr in the financial year 2022-23 (FY23) from INR 44 Cr reported in the previous fiscal year, as per the startup’s red herring prospectus (RHP) filed with the Securities and Exchange Board of India (SEBI).

The company’s bottom line took a hit despite its operating revenue rising 16.7% to INR 186 Cr in FY23 from INR 159.4 Cr in FY22.

IdeaForge is set to open its IPO subscription next week on June 26 and is looking to raise INR 567 Cr from the IPO.

In a press conference about its IPO, ideaForge’s officials attributed the decrease in profit to employee stock ownership plans (ESPOs). The ESOPs, the officials said, also weighed on the startup’s EBITDA.

ideaForge’s adjusted EBITDA margin contracted to 46% in FY23 from 51% in the previous fiscal. However, adjusted EBITDA grew over 4% year-on-year (YoY) to INR 85.2 Cr during the year under review. 

The startup calculated its adjusted EBITDA as EBITDA plus share-based payments to employees.

Meanwhile, ideaForge’s order book also declined to INR 192.3 Cr at the end of FY23 from INR 310.9 Cr a year ago. The startup attributed this decrease to the time difference between receiving drone orders and their shipping. 

Currently, ideaForge receives the biggest chunk of orders from the defence segment. In FY23, the defence segment contributed 69% to its revenue while the civil segment contributed 21%. The startup also earned 9% of its revenue from the Centre’s production linked incentive (PLI) scheme for drone manufacturing.

ideaForge provides drones to Indian defence forces, while in the civil segment, its drones are used by forest departments, state police departments, disaster management forces, among others.

While defence continues to be the biggest source of revenue for ideaForge, its cofounder and CEO Ankit Mehta said that with the easing of regulations, the civil segment is also expected to pick up pace going ahead.

“Regulations were the biggest challenge in that (civil) space and as they catch up and as more use gets validated, we will see acceleration on that side progressively happening and that’s a trend globally that you can see as far as the civil business is concerned,” said Mehta. 

ideaForge’s total revenue stood at INR 196.4 Cr in FY23 as against INR 161.4 Cr in FY22. 

It must be noted that as per its DRHP, ideaForge clocked a total revenue of INR 143.4 Cr in the first six months of FY23, while PAT stood at INR 45.2 Cr.

On the expenses front, ideaForge saw a 38.5% jump in total expenditure to INR 155.6 Cr in FY23 from INR 112.3 Cr in the previous year, with the cost of materials consumed accounting for the biggest chunk of expenses. 

The drone startup spent INR 95.7 Cr towards the cost of materials consumed during the year under review as against INR 51.4 Cr in FY22.

Besides, it spent INR 50.9 Cr on employee benefits expenses as against INR 26.8 Cr in FY22.

ideaForge’s depreciation and amortisation expenses also jumped almost 62% YoY to INR 11.8 Cr in FY23.

The IPO Path

Amid several startups delaying and withdrawing their IPOs, ideaForge filed its DRHP with the SEBI in February this year. Last month, the company received the market regulator’s approval for its IPO. 

On June 19, the startup filed its RHP after raising INR 60 Cr in a pre-IPO funding round from institutional investors including Tata AIG General Insurance, Motilal Oswal Mutual Fund, Think Investments PCC, and 360 One Asset Management.

Earlier, ideaForge’s IPO comprised a fresh issue of shares worth INR 300 Cr and an offer for sale (OFS) of 48.7 Lakh shares. After the pre-IPO placement, its OFS element remains the same but fresh issue of shares has been reduced to INR 240 Cr.

Founded in 2007 by IIT Bombay graduates Ankit Mehta, Ashish Bhat, Rahul Singh, Vipul Joshi, and Amardeep Singh, ideaForge claims that its drones have completed over 3.5 Lakh flights. The startup has filed for 62 patents so far and has been granted 25 of them.

ideaForge has set a price band of INR 638-672 per share for its IPO, and its subscription will close on June 29, 2023. At the upper end of the price band, the startup’s investors would raise about INR 327 Cr through the OFS.

ideaForge is looking to utilise the IPO proceeds for repaying debt and make investments in product development.

The startup said it will soon expand its offerings into two product categories – tactical UAV and middle-mile logistics drones. Besides, ideaForge said it will continue focusing on improving its current offerings and building several SaaS capabilities.