Ideaforge Technology Limited — Q3 FY25 earnings call

Call held 29 Jan 2025

Management summary

Ideaforge Technology reported a challenging Q3 FY25 with significant revenue and profit declines, primarily due to delays in large government procurement and slower-than-expected conversion of its L1 pipeline. Despite the near-term headwinds, the company highlighted an increased L1 opportunity pipeline, global recognition for its drone technology, and progress in next-generation product development and Drone-as-a-Service initiatives, expressing confidence in long-term growth once market conditions normalize.

Highlights

  • L1 opportunity pipeline increased to INR 400+ crores from INR 300 crores earlier, indicating growing future prospects.

  • SWITCH MINI UAV obtained the coveted 'Fit for Indian Military Use' certificate, showcasing product quality and customer requirement integration.

  • Ideaforge was placed 3rd amongst the world's top dual-use drone manufacturers in the Drone Industry Insights' Global Drone Review 2024, elevating its global standing.

  • Next-generation products NETRA 5 and SWITCH V2 are ready for customer demonstrations and will be officially unveiled at Aero India 2025.

  • Significant strides made in Drone-as-a-Service (DaaS) efforts, including the launch of FLYGHT Franchisee and new solutions for power line infrastructure and mining sector.

Concerns

  • Consolidated revenues for Q3 FY25 were INR 17.6 crores, a significant decline from INR 90.9 crores in Q3 FY24.

  • EBITDA for Q3 FY25 was negative INR 12.6 crores, and PAT was negative INR 24 crores.

  • Demand-to-order conversion was below industry expectations due to national general elections and delays in larger government procurement opportunities.

  • FY25 revenue guidance will be revised downwards due to delays in large order conversions and execution challenges in the remaining fiscal year.

Key financials

2 periods

Q3 FY25

  • Consolidated Revenue
    ₹17.6 Cr
    YoY -80.6%
  • Gross Profit
    ₹8.1 Cr
  • Gross Profit Margin
    46%
  • EBITDA
    ₹-12.6 Cr
  • PAT
    ₹-24 Cr

9M FY25

  • Consolidated Revenue
    ₹141 Cr
    YoY -33.5%
  • Gross Profit
    ₹45.9 Cr
  • Gross Profit Margin
    32.6%
  • EBITDA
    ₹-14.1 Cr
  • PAT
    ₹-36.6 Cr

What they filed

Q1 FY27: revenue up 436.7%, net profit up 89.0% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue37 18 20 13 41 +10%32 +79%141 +594%69 +437%
EBITDA-16 -17 -22 -19 -11 +29%-27 −52%62 +382%2 +112%
Net profit-14 -24 -26 -24 -20 −43%-34 −41%60 +333%-3 +89%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Order book

high confidence

Total value

₹21 Cr

as of 2024-12-31 quantified

Inflow this quarter

₹16.8 Cr

Execution

some of it would have happened already, and some of it is going to happen within this or the next quarter mostly

Composition

  • Civil and some Defense (run-rate) (client type)

Pipeline

L1 awaiting loa

L1 opportunity pipeline

Order book of INR 21 crores as of Dec 31, 2024, with an L1 pipeline of INR 400+ crores. New order booking in Q3 FY25 was INR 16.8 crores. Execution of current order book expected within this or next quarter.

Source: Prepared remarks

Guidance & targets

Revenue

  • FY25 Revenue Growth Revenue · FY25 · Low confidence Revision overall (implied downward)

    Previously flattish and a slight growth versus FY '24 → Revision overall (implied downward)

    Yes, Hardik, we were expecting that some of these large opportunities will come much earlier in the time frame. And the expectation was that they will get into the bidding phase in the quarter prior to this. But that, as we all know, has not happened. And therefore, while they will potentially be available for bidding this quarter, but closure will be difficult, and the execution, of course, will be even more challenging in this time frame that is remaining right now. So yes, there will be a revision overall on that.

    — Ankit Mehta

R&D

  • Absolute R&D Expense R&D · FY25 · Medium confidence Increase from INR 53 crores

    From INR 50 crores, INR 53-odd crores today

    So on an absolute level, there should be an increase from the INR 53-odd crores we had in FY '24, right? Yes, there will be, yes.

    — Ankit Mehta

Order Inflow

  • L1 Pipeline Conversion (International) Order Inflow · very soon · Medium confidence At least one imminent conversion
    Yes. So from the L1 pipeline, there is at least one that is imminent. We will announce it the moment we have it in our hands very soon.

    — Ankit Mehta

  • Large Indian MOD Opportunities Order Inflow · Q4 FY25, Q1/Q2 FY26 · Medium confidence Bidding phase in Q4 FY25, conclusion in Q1/Q2 FY26
    The large opportunities from Indian MOD, they will get into the bidding stage in this quarter. So, conclusion of those will happen in the first, max, second quarter of the next year.

    — Ankit Mehta

What to watch in Q4 FY25

L1 Pipeline Conversion (Imminent Deal)

very soon (Q4 FY25)
Current At least one imminent deal in L1 pipeline
Target Announcement of specific order win

Why it matters

Direct impact on near-term revenue and signals execution capability for the growing L1 pipeline.

Yes. So from the L1 pipeline, there is at least one that is imminent. We will announce it the moment we have it in our hands very soon.

Risks & concerns

  • Delay in Large Government Procurement Opportunities

    high

    Substantial delay in government coming up with impending larger procurement opportunities due to national general elections.

    Management acknowledged

  • Slower-than-expected Conversion of L1 Pipeline

    high

    L1 pipeline conversion is taking longer due to 'peripheral issues around governments' and 'government changes' in international markets.

    Management acknowledged

  • Execution Challenges for Remaining FY25

    high

    Closure and execution of orders will be difficult in the remaining timeframe of FY25 due to prior delays.

    Management acknowledged

  • Competition in the Drone Market

    medium

    Analyst raised concerns about increased competition and slow market adoption, but management asserted their technological superiority and niche focus.

    Analyst downplayed

Q&A highlights

6 direct
FY25 Revenue Guidance Revision Direct
Yes, Hardik, we were expecting that some of these large opportunities will come much earlier in the time frame... So yes, there will be a revision overall on that.

Management confirmed a downward revision of FY25 revenue guidance due to delays in large order conversions, impacting investor expectations.

Asked by Hardik Rawat

L1 Pipeline Delays and International Focus Direct
Yes, absolutely. So while the L1 pipeline has actually gone up in the last quarter, but conversion is still taking more time because of several challenges in the, you can say, dynamics of those deals... So, a lot of this L1 pipeline is actually emanating from our international efforts right now.

Highlights the challenges in converting the L1 pipeline, which has grown to INR 400+ crores, and clarifies that a significant portion is now international, reducing immediate dependency on Indian MOD.

Asked by Hardik Rawat

Challenges in International Markets Direct
I think some of these opportunities are in Africa, where a bunch of government changes have also happened. So there has been that as an issue.

Provides specific reasons for delays in international order conversions, linking them to geopolitical and governmental changes.

Asked by Hardik Rawat

Entry into FPV Drone Segment Direct
Presently, we don't have. And we are, at this point in time, approaching it slightly differently. FPV drones, while are the mainstay of the way the wars are currently being fought from the point of view of what is happening in Ukraine and Russia, but there are several challenges and inefficiencies there.

Clarifies the company's current stance on the FPV drone market, indicating they are not directly competing in this segment but exploring more evolved solutions.

Asked by Hardik Rawat

Progress on New Drone Platforms (Tactical & Logistics) Direct
Both of these are significant project efforts, which we have started from scratch... We would be getting into the next revision of the prototype development, which will get closer to what the user final configuration is going to be... For the larger logistics platform... we are now entering the first prototype development phase, which should start flying and giving us data generation over the next quarter.

Provides detailed updates on the development timelines and progress of key strategic products, indicating future revenue streams and technological advancements.

Asked by Hardik Rawat

Near-term Indian Defense Order Challenges Partial
So, one of the things that we don't do is that we don't announce every small order or order win. So, that is probably the reason why it appears that other people are getting and we are not. But that's not the case actually. We don't have any evidence that within our categories, there is anything that has gone away.

Addresses analyst concerns about the lack of visible Indian defense orders and competitor wins, clarifying the company's disclosure policy and market position without providing specific order details.

Asked by Dipen Vakil

Drone Market Growth and Competition Partial
I don't think that there is any gap in what we believe our customers require and what we build... I don't think that is the challenge. We've been making drones for the last 20 years... I mean the whole world, if you know, technologically has moved on and is constantly evolving at a very rapid pace. So that control is going to be very important to drive the next generation of systems that the forces will really need to use.

Management defends its technology and market approach against concerns of slow market adoption and competition, emphasizing its long history and focus on evolving solutions for defense.

Asked by Ritesh Kochhar

Confidence in FY26/27 Outlook and Recovery Pace Direct
I think it will happen fast, definitely. I think when the conversions happen, it will happen very fast. We just have to wait for those conversions to happen before we make a projection fully. So that's the place we are at right now.

Management expresses strong confidence in a rapid recovery and conversion of opportunities once the current delays are resolved, providing a forward-looking perspective despite current challenges.

Asked by Mithun Aswath

3 min read 6 chapters

Detailed narrative

Q3 FY25 Financial Performance and Challenges

Ideaforge Technology reported a challenging Q3 FY25 with consolidated revenues of INR 17.6 crores, a significant 80.63% decline from INR 90.9 crores in Q3 FY24. The company recorded a gross profit of INR 8.1 crores, achieving a 46% gross profit margin. However, profitability was impacted, with EBITDA for the quarter at negative INR 12.6 crores and PAT at negative INR 24 crores. For the nine months ended December 31, 2024, revenues stood at INR 141 crores, down 33.5% from INR 212 crores in 9M FY24, with a PAT of negative INR 36.6 crores.

Market Headwinds and Order Conversion Delays

The company acknowledged that demand-to-order conversion in the first three quarters of FY25 was below industry expectations. This was primarily attributed to the national general elections and substantial delays in larger government procurement opportunities. Management indicated that while run-rate business continues as expected, the larger opportunities have been pushed out, leading to an implied downward revision of FY25 revenue guidance. The L1 pipeline, though grown to INR 400+ crores, faces conversion delays due to 'peripheral issues around governments' and 'government changes' in international markets.

International Expansion and Global Recognition

Ideaforge is actively pursuing international growth, tracking over 25 opportunities globally, including more than a dozen in North America and half a dozen in Africa, contributing to an L1 pipeline exceeding INR 400 crores. The company's global standing was reinforced by its ranking as 3rd among the world's top dual-use drone manufacturers in the Drone Industry Insights' Global Drone Review 2024. This recognition is seen as a testament to its innovation and indigenization efforts, elevating the Indian drone industry on a global stage.

Advanced Product Development and Certifications

Ideaforge's SWITCH MINI UAV obtained the 'Fit for Indian Military Use' certificate, making it the first UAV in its class to achieve this distinction. The company is set to unveil two next-generation products, NETRA 5 and SWITCH V2, at Aero India 2025, designed for high-end performance and resilience in electronic warfare environments. Significant progress is also being made on a ship-based landing capability for quadcopters and a 500 kg maximum take-off weight logistics aircraft, with the latter entering its first prototype development phase next quarter.

Drone-as-a-Service (DaaS) and New Use Cases

The company is advancing its Drone-as-a-Service (DaaS) business, deploying drones for enterprise safety and security, traffic management, law enforcement, and urban cleanliness. The FLYGHT Franchisee model was launched in Q2 FY25, and discussions are ongoing with potential partners. Ideaforge is also developing specialized solutions for power line infrastructure inspections, utilizing advanced imaging and LiDAR, and for the mining sector through its FlyghtCloud platform, offering end-to-end solutions and actionable insights.

Engagement in Policy and Ecosystem Development

Ideaforge is actively involved in shaping the drone ecosystem in India, participating as an official data provider for Operation DRONAGIRI under the National Geospatial Policy 2022. The CEO co-chairs the FICCI Committee on Drones, indicating direct involvement in policy initiatives. This engagement ensures the company's technology aligns with national strategic needs and positions it to benefit from the evolving regulatory and market landscape for drones.

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