When IdeaForge
went public in July last year, the drone startup had just recovered from a loss. it posted a profit of INR 18.9 Cr in the June quarter (Q1) of the financial year 2023-24 (FY24) against a loss of INR 5.4 Cr in Q4 FY23, all while cloaking a revenue of around INR 100 Cr in Q1 FY24.
However, if we analyze the trends, ideaForge has never had a steady growth in the past. A year after its public listing, the same uncertainties loom large.
After a steady decline in its profitability in three consecutive quarters since the December quarter of last fiscal (Q3 FY24), ideaForge has once again slipped into the red in Q2 FY25. It posted a bigger loss of INR 13.7 Cr compared to what it incurred in Q4 FY23.
The startup has earlier emphasized multiple times that the drone industry in the country is in its infancy, making the comparison of its quarter-on-quarter financial performance redundant.
While we take that into consideration, the key question is — how long will it take for the company to be on a steady growth trajectory? Also, is it the lack of market traction, increasing competition, or delay in converting orders that is exposing the company to such uncertainties?
To understand this, we spoke with ideaForge CEO, Ankit Mehta, who said the company has to align expectations with the government’s contract allocation processes that could be tedious and time-straining at times.
He added that the trend of uncertainties on the financial front is expected to continue, as the business is heavily dependent on large government tenders, even as smaller revenue streams from civil and defense sales do add to its top line.
Meanwhile, not all is gloomy and the CEO seems to be betting big on the company’s order book and the traction it is witnessing in the domestic and international markets.
Overall, the CEO isn’t ignorant of the pain points of the sector, given it is in its nascent stages, and is parallel betting on drone-as-a-service (DaaS), which, he said, is getting much traction in the enterprise use cases.
Here are the edited excerpts…
Inc42: Let’s address the elephant in the room. In the past few quarters, ideaForge has witnessed a decline in its bottom line. It also slipped into a loss in Q2 and revenue declined QoQ. What challenges are you facing?
Ankit Mehta: Defense is an opportunity-driven business model. Profitability usually depends on the nature and timing of opportunities we bank on. Large opportunities often take a fair amount of time to close. Once they do, if they are bid competitively, we get about a year to deliver them.
Today, ideaForge is a large contract business. While we have a run rate business, which comes from people buying on the civil side and defense players making regular purchases in smaller quantities, our major business comes from large deals.
Now, when we deliver large deals, margins may vary based on the type of the deal. However, if you look at the overall opportunity space that we operate in, we have deals in each bucket.
Things could look plus or minus sometimes, but we don’t expect the situation to be worse than the average you saw last year as an annual number.
Inc42: So, you are saying your opportunities have not diminished. In the earnings call, you mentioned you have a strong deal pipeline. How long will it take for ideaForge to close these deals? Any challenges you foresee?
Ankit Mehta: If you look at emergency procurement, the government takes at least six to nine months to place orders, and then we take about a year to deliver.
Whenever we bagged an opportunity under this regime, we were able to get it in our favor and deliver on time.
Now, the other mode of large opportunities in the government is conventional capital procurement. These opportunities take anywhere between three to five years to fructify. In some cases, it can take even longer for the opportunity to be released as a request for proposal or RFP, which is a tendering process.
Simply put: The government invites RFP or bids from multiple companies and then evaluates them on the basis of the demonstration of their tech. Once someone meets all requirements, financial discussions open. Finally, the lowest bidder among the ones that qualified gets the contract. This conventional process is very lengthy.
In light of the recent clash in Galwan, the government has come up with a new mechanism to expedite the process. We have already gone through a few cycles of this but still need visibility on it from the government side, which has created a slowdown in order conversion.
We have been through these kind of phases earlier as well. That is why it is more important for us to build a good business that makes superior products so that we can capitalize on the opportunities as and when they come. For example, when Galwan happened, we were the only company that could operate our drones effectively at such high altitudes.
Inc42: What about the non-defense use cases for drones?
Ankit Mehta: There has been strong traction in civil use cases, but the base is still small, so it is taking time for the demand to be reflected in numbers. Also, regulations were much tighter earlier, and it is only recently that companies have started to experiment with drone technology.
Till the time our revenue base remains small and large deals impact us significantly, things are unlikely to alter much. As of now, we are taking multiple steps to change the current scheme of things.
Inc42: What steps is ideaForge taking to address this?
Ankit Mehta: We are trying to get into more platforms. The government has certain programs for tactical class UAVs, and we plan to participate.
Then, there is a need to build something that can carry very heavy payloads, both on the defense and civil fronts. To address this, we are building a logistics platform that can carry 100+ kg of payload to 100+ kms, even at high altitudes. So, building more platforms and diversifying the number of systems we offer will allow us to participate in more opportunities.
We are also taking our technology abroad. Across all categories, we have the best-performing products in the world. Since we are taking our premium offerings abroad, they would take time to be absorbed in the market. Despite this, we’ve had some phenomenal success in demonstrating the capabilities in real-world scenarios.
One of our customers was part of an early adopters program in the US, and with our tech, they were able to catch murder suspects by hovering around a house.
Previously, the drones they deployed could stay in the air only for 5-10 minutes because of battery constraints. However, our technology allows them to stay in the air for 30-45 minutes.
All this is built without any critical subsystems coming from any country of concern. This has become a big thing in India as well.
In addition, we have been experimenting with drone-as-a-service (DaaS) and witnessing a lot of traction in the enterprise use cases for our DaaS, which will see further expansion next year. We have also started getting into software-as-a-service as a use case.
Inc42: Aren’t you already facing stiff competition in the US? Also, what about domestic competition, given there are so many drone startups that have come up with more advanced tech?
Ankit Mehta: Interestingly, in the global tech arena, it is not always the conventional players who lead the race. For example, ideaForge was the first company globally to capitalize on defense use for surveillance with our portable capabilities.
However, this has not been without challenges. For example, when you go to a new market, you realize that their consumption pattern is different from the technology you have built. Then it takes time to build new hardware to meet their needs.
We recently launched a new product, Q6 V3, in the US because when we went there, we got some very specific feedback, which we had to incorporate into the existing product.
While that is one thing, entering other countries allows you to deploy products worldwide because these countries cater to a lot of demand from the rest of the world.
Coming to the domestic competition, I think ideaForge has been able to maintain the kind of cutting-edge technology that we deliver to our customers.
For instance, nobody makes a 90-minute quadcopter anywhere. While many people claim a lot, we have tested some of these products and found that the performance they claim is not the same in the real world. Besides, building it all on Indian tech is an exception.
Inc42: When will ideaForge see a turnaround in its financials?
Ankit Mehta: We stay away from giving projections because, as I mentioned, it becomes a little tricky, given that our performance is often dependent on external events. The moment we have visibility, we will talk about it. At this point, making projections will be a bit counterproductive.
Edited By Shishir Parasher