FINANCIAL ECONOMICS – ECO 641B

Bachelor of Science in
Economics, Mathematics, and Statistics

Submitted to
Dr. Aravindh P

Submitted by
Avi Agarwal (2140808)
Kanamarlapudi Vaishnavi (2140832)
Kurian Paulose (2140848)
Srikanth Rajkumar (2140869)
Sakshi Sagar Shah (2140886)

JANUARY,2024
 A Case Study on the IPO of IdeaForge

INTRODUCTION :

Initial Public Offering (IPO) is a significant event in the life of a company, marking its
transition from a private to a public entity. This research paper delves deep into IdeaForge's
IPO journey, analyzing the motivations behind the move, the intricacies of the process, and
the fascinating trajectory of its share price post-listing.
IdeaForge, a prominent company in the production of Unmanned Aircraft Systems (“UAS”)
made a significant move on June 26, 2023, by issuing its Initial Public Offering (IPO) in the
Indian market. Ideaforge is a market leader with a market share of approximately 50% in
fiscal 2022. Their UAVs have industry-leading specifications and capabilities that are
equivalent to those of other well-established worldwide companies in the UAV market. They
have been built to operate in various terrains and temperatures. Their products include Switch
UAV, Netra V4 UAV, and Ninja UAV to name a few. The main applications of UAVs are in
mapping, surveying, security, and surveillance.

Company logo

IdeaForge's decision to issue an Initial Public Offering (IPO) in October 2023 likely stemmed
from a combination of factors, including:
(i) Capital raising- IdeaForge, as a leader in India's drone market with potential for
future growth issued an IPO to:
• Fuel its ambitious growth plans: The Indian drone market is expected to boom
in the coming years, and IdeaForge wants to capitalize on this by expanding its
product offerings, building manufacturing capacity, and entering new markets.
• Reduce dependence on venture capital funding: As a fast-growing
company, IdeaForge might have been looking to diversify its funding sources
and gain access to a larger pool of capital through public markets.
 • Boost Brand Image and Visibility: Going public can significantly increase a
company's brand awareness and attract talent, partners, and potential
customers. This can be particularly beneficial for a niche tech company like
IdeaForge.

(ii) Strategic Advantages: Being a publicly traded company can also offer advantages
in terms of:

• Enhanced corporate governance

• Easier access to partnerships and collaborations

This research contributes to understanding the IPO process and its impact on the company’s
valuation and market dynamics.

OBJECTIVES :

1. Analyze the strategic drivers behind IdeaForge's decision to launch an IPO in 2023.
2. Investigate the post-IPO performance of IdeaForge's shares, employing data
visualization and analysis to identify trends and potential driving factors.
3. Evaluate the success of IdeaForge's IPO from various perspectives.
4. Draw insights and learnings from IdeaForge's IPO experience that can be applied to
future IPOs in the Indian drone market.
DATA DESCRIPTION:

The data utilized in our analysis comprises financial statements obtained from diverse
secondary sources, including the company’s websites and the red herring prospectus.
Additionally, specific stock values were sourced from TradingView websites. These data
sources provide essential information for evaluating the company’s financial performance and
stock market dynamics.

IPO PROCESS:

The journey of Ideaforge Technology’s successful IPO launch is as follows:

1. Hiring the right investment bankers: ideaForge chose JM Financial Limited and
IIFL Securities Ltd. as the book-running lead managers to handle the IPO process. These
investment banks played an important role in advising the firm on valuation, investor
outreach and regulatory compliance.
2. Drafting the red herring prospectus (RHP): This document contains details
regarding the company’s financials, financial management, prospects, the terms of the IPO
offer, and the intended use of the IPO proceeds. It serves as a comprehensive overview to
help potential investors make informed decisions.
3. SEBI filing and approval: The RHP and other necessary documents were submitted to
the Securities and Exchange Board of India (SEBI) for approval. After receiving approval
from SEBI, the company could now announce the launch date of the IPO.
4. Investor roadshows: The management team, along with the lead managers, embarked
on roadshows to meet with potential investors and showcase the company’s potential. This
helped generate interest and gather feedback.
5. Setting the price band: After considering market conditions and investor feedback,
the company and the lead managers determined the price band for the IPO shares. In
ideaForge’s case, the band was set at ₹638 to ₹672 per share.
6. Subscription window: The bidding process for the IPO opened, allowing investors to
submit bids for shares at a price within the established band. In ideaForge’s case, the
subscription window was open for three days, from June 26 to June 30, 2023. Throughout the
bidding period, the percentage of shares subscribed to by investors was continuously
monitored. ideaForge’s initial public offering (IPO) was met with extraordinary demand; in
the retail category, subscriptions amounted to 85.20 times, while in the Qualified Institutional
Buyers (QIB) category, they were a whopping 125.81 times. By June 30, 2023, the Non-
Institutional Investors (NII) portion had been subscribed by 80.58 times.
7. Share allotment and finalization: Based on the subscription levels and a predefined
allotment criterion, shares were allocated to eligible investors. In ideaForge’s case, the
allotment was finalized on July 5, 2023. Any excess funds from bids exceeding the allotted
shares were refunded to investors. The allotted shares were credited to their demat accounts.
8. Listing on stock exchanges: The company’s shares were officially listed on the
Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) on July 7, 2023.
This allowed investors to trade the shares freely on the market.

FINANCIALS PRE IPO

The financials before they released the IPO on 10th July 2023 were as follows:
*in crores
2023 2022 2021
Total Income 196.402 161.448 36.335
Revenue from Operations 186.007 159.439 34.718
Total Expenses 155.61 111.271 50.839
Gross Profit 127.149 118.218 16.415
Gross Profit Margin(%) 68.36 74.15 47.28
EBITDA 57.48 75.13 9.25
PBT 40.79 50.17 14.5
PAT 31.987 44.006 14.626
RoE(%) 13.11 39.46 22.88
RoCE(%) 12.51 49.63 15.18
EPS 8.55 13.84 5.03
(March to March yearly results)

In conclusion, while there has been substantial growth in total income and revenue from
operations, the company has faced challenges in maintaining profitability and operational
efficiency, indicated by decreasing trends in EBITDA, PBT, PAT, ROE, ROCE, and EPS. The
company must analyze the factors contributing to these trends and implement strategies to
address them for sustained financial health.
FINANCIALS POST IPO

The Financials after the listing of the stock in the market:

Mar-23 Jun-23 Sep-23
Revenue from Operations 38.66 97.07 23.73
EBITDA 1.2 28.5 -7.86
PBT -0.48 25.07 1.34
PAT -5.42 18.86 0.89
EPS -2.54 4.95 0.21
(quarterly results in crores)

• The financial performance is volatile, with fluctuations in revenue, profitability, and

EPS.
• The negative values for EBITDA, PBT, PAT, and EPS in March and September raise
concerns about potential challenges or adverse economic conditions during those
periods.
• The positive values in June suggest a period of profitability and positive operational
performance.

OTHER INFORMATION THAT ATTRACTED ATTENTION ON THE IPO

*in crore
Revenue Split 2021 2022 2023
Revenue % Revenue % Revenue %
Civil 29.889 86.09% 31.773 19.93% 39.967 21.49%
Defence 4.829 13.91% 127.67 80.07% 128.62 69.15%

*in crores
Order Book Split 2023 2022 2021
Defense 185.199 305.534 128.478
Civil 7.072 5.341 7.918
Total 192.272 310.875 136.396
Observations:
• The company is experiencing a shift in revenue concentration, with the Civil
segment's revenue gaining more prominence in 2023 compared to 2022.
• The Defence segment, while showing fluctuations in revenue, remains a crucial
contributor to the company's overall revenue.
• The decrease in the Defence order book might indicate completion or delays in
existing projects or a decline in new orders, requiring attention to maintain future
revenue streams.
• Diversification efforts into the Civil segment are evident, and the company may need
to focus on strengthening its position in both segments to ensure stability and growth.

Price Trend:

Initial Surge (July 7, 2023): Debuted at a significant premium of 93-94% over the issue
price, reaching roughly Rs 1300-1305 per share, fueled by overwhelming investor demand
(106x IPO subscription).

Volatility and Dip (August - September 2023): Navigated temporary fluctuations, dipping as
low as Rs 1180 (10% below listing), potentially influenced by profit-booking and broader
market corrections.

Steady Growth (September 2023 - December 2023): IdeaForge's price journey from
September to December 2023 wasn't a smooth, ascending escalator. Instead, it was a gradual
yet consistent upward climb punctuated by a few temporary dips and fluctuations:
.
Current Stand (January 5, 2024): As of today 5th January, the company’s shares are trading
at Rs 830.60, reflecting a significant downward correction from its peak.

Causes of Price Trend:

Initial Surge (July 7, 2023):

The stock debuted with a substantial 93-94% premium above its issue price, soaring to
around Rs. 1300-1305 per share due to immense investor interest, reflected in a staggering
106x IPO subscription.

• Oversubscription (106x): Unprecedented IPO demand propelled the price to a

premium, reflecting investor enthusiasm for the company's prospects.
• Sector Boom: Tailwinds from a bull run in the drone technology sector amplified
excitement towards IdeaForge's potential.
• Strong Brand Recognition: As a pioneer in Indian drone technology, IdeaForge
attracted investors seeking exposure to this high-growth market.

Volatility and Dip (August - September 2023):

Experienced brief volatility, dropping to Rs 1180 (10% under listing) possibly due to profit-
taking and wider market adjustments.

• Profit-booking: Short-term investors who entered at the IPO might have sold shares
for quick gains, causing a temporary price correction.
• Market Fluctuations: Broader market downturns in the technology sector could have
negatively impacted IdeaForge's price.
• Valuation Uncertainty: As a new and untested stock, some investors might have
exercised caution, leading to temporary adjustments.

Steady Growth (September 2023 - December 2023):

ideaForge's price didn't follow a steady upward trajectory but rather showed a gradual,
consistent rise interrupted by occasional temporary declines.

• Financial Performance: Amidst a volatile market landscape, IdeaForge showcased

consistent revenue growth and profitability over successive quarters. This steady
trajectory reassured investors, offering a stable foundation and fostering increased
confidence in the company's resilience and potential to navigate market challenges.
• Order Backlog Surge: The surge in IdeaForge's order backlog wasn't merely a
numerical increase; it represented a growing demand for its cutting-edge drone
solutions across various sectors. This influx not only underlined the company's robust
market positioning but also signalled its capacity to meet burgeoning industry needs.

Current Stand (January 5, 2024):

As of January 5th, the company's shares are being traded at Rs 830.60, indicating a notable
decrease from its highest point.

• Market Correction: Broader market downturns, potentially unrelated to IdeaForge

itself, likely contributed to the significant price drop.
• Profit-taking: Continued profit-booking from early investors could have further
pushed the price down.

CONCLUSION :

The outcome of ideaForge's IPO indicates the greater headwinds in store for the drone
technology sector. The industry, according to ideaForge's RHP, witnessed growth at a CAGR
of 19% over 2018-2022 and is expected to grow at 20% until 2027. Given the broader
industry-wide trends, ideaForge seems poised to become a large national and potentially
international player. Primarily driven by civil and defense use cases, ideaForge claims they
have a 50% market share in the UAS space. The one area for caution is in its financials:
declining profitability and low return on equity ratio. However, this can be explained by their
large investor funding. ideaForge raised funding from several leading companies from the
tech giants Infosys and Qualcomm along with leading venture capitalist Celesta Capital.
All considered, ideaForge, since its inception in 2007 from the garages around IIT Bombay,
has risen to become one of the leading firms in its industry and one of the most successful
IPOs this financial year.

REFERENCES:
https://ideaforgetech.com/
https://www.investopedia.com/terms/i/ipo.asp
https://www.5paisa.com/stock-market-guide/ipo/why-do-companies-go-public-launch-ipo
https://www.fortunebusinessinsights.com/industry-reports/unmanned-aerial-vehicle-uav-
market-101603
https://www.adityabirlacapital.com/abc-of-money/understanding-the-ipo-process-in-india
https://www.businesstoday.in/markets/company-stock/story/ideaforge-technology-shares-
doubles-investor-wealth-on-debut-time-to-book-profit-388698-2023-07-07
https://economictimes.indiatimes.com/topic/ideaforge
https://www.screener.in/company/IDEAFORGE/consolidated/

CONTRIBUTIONS:

Kanamarlapudi Vaishnavi (2140832)- Introduction, Objectives, data description

Avi Agarwal (2140808)- Explanation of the possible causes of the trend
Kurian Paulose (2140848) – Process of IPO & price fixation
Sakshi Sagar Shah (2140886)- Data collection, plotted and checked price trends
Srikanth Rajkumar (2140869) – compilation of Analysis