Detailed Rationale

CRISIL Ratings has upgraded its corporate credit rating of Ideaforge Technology Limited (IFTL; part of Ideaforge Group) to ‘CRISIL BBB+/Stable’ from 'CRISIL BBB/Stable '

The rating upgrade reflects healthy and sustained improvement in the group’s credit risk profile, driven by improved business and financial risk profiles along with the expectation of CRISIL Ratings that the credit risk profile will continue to improve over the medium term. 

The group’s financial risk profile is robust marked by healthy networth and nil reliance on external debt. The group also has significant cash and cash equivalents of Rs ~300 crore as on March 31, 2024, providing financial flexibility.   

The improvement in the business risk profile is driven by the group’s continued strong market position in the unmanned aircraft systems (UAS), strong acceptance of the products in the market. The group achieved revenue of Rs 304 crore in FY 24 (against Rs 169 crore FY 23) and is expected to achieve revenue of more than Rs 350 crore during fiscal 2025. Growth in fiscal 2024 is supported by higher demand from end users indicated by significant L1 pipeline of over Rs 300 crore. A diversified product base and new product innovations, along with strong acceptance of the products in the market, will drive sales growth over the medium term. 

During Q1 FY25, the group has achieved sales of Rs.86 Crores with operating margins of 9.86%. Group’s operating margin is expected to improve during H2 of FY25 and remain higher than FY 24.

The ratings continue to reflect robust financial risk profile and experience of the promoters and established market position of the group in the unmanned aerial vehicle (UAV) industry. These strengths are partially offset by working capital intensive nature of operations and partial susceptibility of revenue and operating profitability to tender based business.

Key Rating Drivers & Detailed Description

Strengths:

• Robust Financial Risk Profile: Limited reliance on debt has led to a robust financial risk profile. Financial risk profile of the group is marked by healthy networth of Rs 576.92 crore and nil external debt as on March 31, 2024. Despite moderation in operating margin, debt protection metrics of the group continue to remain comfortable with interest coverage ratio over 15 times and net cash accruals to adjusted debt at nil times for fiscal 2024.

• Extensive experience of the promoters and established market position: The Group benefits from the promoters’ experience of close to decade and their strong understanding of market dynamics, which should continue to support business risk profile. Over the decades, the group has developed strong engineering and design capabilities which has helped it in meeting the changing demands from its customers. Further, group has maintained a strong focus on product development which has helped them develop a wide range of products and solutions in the drone industry resulting in an established market position and healthy market share. The group has multiple patents providing them technology edge over their competitors.

The company had an unexecuted order book of Rs. 54.2 crores of 30^th June 2024 and the company is working on L1 pipeline (It indicates opportunities where Ideaforge is only vendor under consideration) of Rs. 300 plus crores, which provides revenue visibility for the near to medium term. The company is adding new products to its portfolio and acquiring clients  in civil segment,  which  are expected to augment the revenues, going forward. Further, the favorable demand prospects across its end-user segments, given the Government’s thrust on the indigenization of production, augur well for the company’s long-term growth prospects.

 Weaknesses:

• Susceptibility to risks inherent in a tender-based business and customer concentration risk: Despite a presence spanning 18 years, revenue of IFTL  has been moderate over the years, mainly on account of project selection and bidding. Business performance depends on success in bidding for tenders invited by public sector undertakings and research establishments, which still accounted for major portion of revenue. With limited exports, IFTL derives majority of its revenues from the Indian defence sector. Accordingly, the continuous flow of orders from the defence sector which in turn is dependent upon defence budget, is critical for the company’s prospects. Apart from existing licensed production, IFTL focuses on development of new products in order to have different streams of revenue which can be translated into production orders and shall give revenue visibility over medium term. Moreover, the company has been making efforts towards exports and aims to secure export orders.

• Increasing private sector participation: Due to relaxation in foreign direct investment (FDI) and The Production-Linked Incentive (PLI), there has been increase in number of players who are entering in drone manufacturing. This may result in competition in the sector, given the huge investments required and IFTL’s established position in the sector and its strategic relationship with its customers, competition is not expected to significantly impact the company in the medium term backed by their established track record of flying time over the past years.

• Volatility in operating margin: Operating margin has been volatile ranging from -88%(FY20) to 47% (FY24) over the five years mainly due to product mix (higher sale of product with lower margins)  , expenses towards amortization product development and higher spend on talent acquisition to manage increased operations and fuel future growth potential. CRISIL Ratings will monitor movement in operating profitability over the medium term.

Outlook: Stable
CRISIL Ratings believes group will continue to benefit from the extensive experience of its promoters and their established relationships with customers, cutting edge technology & products along with healthy financial risk profile.

About the Group

IFTL was incorporated in 2007. The company is engaged in the business of manufacture and marketing of unmanned aerial vehicle (UAV) systems such as wide range of megaphone drone, Q series drone, switch UAV drone which are used for mapping, surveillance & security, survey and inspection purposes.
 

IFTL has now incorporated a subsidiary in USA to expand into US market and other newer geographies.

Key Financial Indicators

Any other information: Not Applicable

Annexure - Details of Instrument(s)

Annexure – List of entities consolidated

Note for Media:
This rating rationale is transmitted to you for the sole purpose of dissemination through your newspaper/magazine/agency. The rating rationale may be used by you in full or in part without changing the meaning or context thereof but with due credit to CRISIL Ratings. However, CRISIL Ratings alone has the sole right of distribution (whether directly or indirectly) of its rationales for consideration or otherwise through any media including websites and portals.

About CRISIL Ratings Limited (A subsidiary of CRISIL Limited, an S&P Global Company)

CRISIL Ratings pioneered the concept of credit rating in India in 1987. With a tradition of independence, analytical rigour and innovation, we set the standards in the credit rating business. We rate the entire range of debt instruments, such as bank loans, certificates of deposit, commercial paper, non-convertible/convertible/partially convertible bonds and debentures, perpetual bonds, bank hybrid capital instruments, asset-backed and mortgage-backed securities, partial guarantees and other structured debt instruments. We have rated over 33,000 large and mid-scale corporates and financial institutions. We have also instituted several innovations in India in the rating business, including ratings for municipal bonds, partially guaranteed instruments and infrastructure investment trusts (InvITs).
 
CRISIL Ratings Limited ('CRISIL Ratings') is a wholly-owned subsidiary of CRISIL Limited ('CRISIL'). CRISIL Ratings Limited is registered in India as a credit rating agency with the Securities and Exchange Board of India ("SEBI").
 
For more information, visit www.crisilratings.com 
 

About CRISIL Limited

CRISIL is a leading, agile and innovative global analytics company driven by its mission of making markets function better. 

It is India’s foremost provider of ratings, data, research, analytics and solutions with a strong track record of growth, culture of innovation, and global footprint.

It has delivered independent opinions, actionable insights, and efficient solutions to over 100,000 customers through businesses that operate from India, the US, the UK, Argentina, Poland, China, Hong Kong and Singapore.

It is majority owned by S&P Global Inc, a leading provider of transparent and independent ratings, benchmarks, analytics and data to the capital and commodity markets worldwide.

For more information, visit www.crisil.com

Connect with us: TWITTER | LINKEDIN | YOUTUBE | FACEBOOK

CRISIL PRIVACY NOTICE
 
CRISIL respects your privacy. We may use your contact information, such as your name, address and email id to fulfil your request and service your account and to provide you with additional information from CRISIL. For further information on CRISIL's privacy policy please visit www.crisil.com.

DISCLAIMER

This disclaimer is part of and applies to each credit rating report and/or credit rating rationale ('report') provided by CRISIL Ratings Limited ('CRISIL Ratings'). For the avoidance of doubt, the term 'report' includes the information, ratings and other content forming part of the report. The report is intended for use only within the jurisdiction of India. This report does not constitute an offer of services. Without limiting the generality of the foregoing, nothing in the report is to be construed as CRISIL Ratings provision or intention to provide any services in jurisdictions where CRISIL Ratings does not have the necessary licenses and/or registration to carry out its business activities. Access or use of this report does not create a client relationship between CRISIL Ratings and the user.

The report is a statement of opinion as on the date it is expressed, and it is not intended to and does not constitute investment advice within meaning of any laws or regulations (including US laws and regulations). The report is not an offer to sell or an offer to purchase or subscribe to any investment in any securities, instruments, facilities or solicitation of any kind to enter into any deal or transaction with the entity to which the report pertains. The recipients of the report should rely on their own judgment and take their own professional advice before acting on the report in any way.

CRISIL Ratings and its associates do not act as a fiduciary. The report is based on the information believed to be reliable as of the date it is published, CRISIL Ratings does not perform an audit or undertake due diligence or independent verification of any information it receives and/or relies on for preparation of the report. THE REPORT IS PROVIDED ON “AS IS” BASIS. TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAWS, CRISIL RATINGS DISCLAIMS WARRANTY OF ANY KIND, EXPRESS, IMPLIED OR OTHER WARRANTIES OR CONDITIONS, INCLUDING WARRANTIES OF MERCHANTABILITY, ACCURACY, COMPLETENESS, ERROR-FREE, NON-INFRINGEMENT, NON-INTERRUPTION, SATISFACTORY QUALITY, FITNESS FOR A PARTICULAR PURPOSE OR INTENDED USAGE. In no event shall CRISIL Ratings, its associates, third-party providers, as well as their directors, officers, shareholders, employees or agents be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees or losses (including, without limitation, lost income or lost profits and opportunity costs) in connection with any use of any part of the report even if advised of the possibility of such damages.

The report is confidential information of CRISIL Ratings and CRISIL Ratings reserves all rights, titles and interest in the rating report. The report shall not be altered, disseminated, distributed, redistributed, licensed, sub-licensed, sold, assigned or published any content thereof or offer access to any third party without prior written consent of CRISIL Ratings.

CRISIL Ratings or its associates may have other commercial transactions with the entity to which the report pertains or its associates. Ratings are subject to revision or withdrawal at any time by CRISIL Ratings. CRISIL Ratings may receive compensation for its ratings and certain credit-related analyses, normally from issuers or underwriters of the instruments, facilities, securities or from obligors.

CRISIL Ratings has in place a ratings code of conduct and policies for managing conflict of interest. For more detail, please refer to: https://www.crisil.com/en/home/our-businesses/ratings/regulatory-disclosures/highlighted-policies.html. Public ratings and analysis by CRISIL Ratings, as are required to be disclosed under the Securities and Exchange Board of India regulations (and other applicable regulations, if any), are made available on its websites, www.crisilratings.com and https://www.ratingsanalytica.com (free of charge). CRISIL Ratings shall not have the obligation to update the information in the CRISIL Ratings report following its publication although CRISIL Ratings may disseminate its opinion and/or analysis. Reports with more detail and additional information may be available for subscription at a fee.  Rating criteria by CRISIL Ratings are available on the CRISIL Ratings website, www.crisilratings.com. For the latest rating information on any company rated by CRISIL Ratings, you may contact the CRISIL Ratings desk at crisilratingdesk@crisil.com, or at (0091) 1800 267 1301.

CRISIL Ratings uses the prefix 'PP-MLD' for the ratings of principal-protected market-linked debentures (PPMLD) with effect from November 1, 2011, to comply with the SEBI circular, "Guidelines for Issue and Listing of Structured Products/Market Linked Debentures". The revision in rating symbols for PPMLDs should not be construed as a change in the rating of the subject instrument. For details on CRISIL Ratings' use of 'PP-MLD' please refer to the notes to Rating scale for Debt Instruments and Structured Finance Instruments at the following link: https://www.crisilratings.com/en/home/our-business/ratings/credit-ratings-scale.html