Rating Rationale

Rating Rationale

February 06, 2025 | Mumbai

Ideaforge Technology Limited

Rating outlook revised to 'Negative'; Rating Reaffirmed

Rating Action

Corporate Credit Rating

Crisil BBB+/Negative (Outlook revised from 'Stable'; Rating Reaffirmed)

Note: None of the Directors on Crisil Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings.

1 crore = 10 million

Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

Crisil Ratings has revised its outlook on the corporate credit rating of Ideaforge Technology Limited (IFTL; part of Ideaforge Group) to ‘Negative’ from ‘Stable’ while reaffirming the rating at ‘Crisil BBB+’.

The revision in outlook reflects the moderation in the business risk profile over the last 9 months and an expectation that it will weaken over the medium term. During 9M FY 25, operating performance of the company has been impacted due to delay in conversion of L1 orders resulting in lower execution. Lower than expected and delayed spending by end users on Unmanned Aerial Vehicles has impacted L1 conversion. Currently, the group significantly relies on defense orders from the government. While group is diversifying into the export market with opportunities in sight, the conversion of the same into revenue remains to be seen. The group continues to incur operating expenses and investment in product development (research and development) to support its growing product portfolio and increasing patents. The group has reported an operating loss of 21.9% in 9M FY 25 against operating profit of 19% during 9 M FY 24. Though the group is expected to get long-term benefits from spend on R&D, operating profitability will remain key monitorable over medium term.

However, the group’s financial risk profile continues to remain healthy supporting the credit profile. The group has healthy cash and cash equivalents including current investments of Rs.285.38 Crores and nil debt as on 30th Sept 2024.

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

Analytical Approach

Crisil Ratings has consolidated the business and financial risk profiles of IFTL with its subsidiary Ideaforge Technology INC together referred to as Ideaforge Group. This is because Ideaforge Technology INC is a 100% subsidiary of the company and is expected to be in the same line of business.

Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description

Strengths:

Robust financial risk profile: Limited reliance on debt has led to a robust financial risk profile of the group. The financial risk profile of the group is marked by healthy networth of Rs 576.92 Cr and low gearing at nil times 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. As on September 30, 2024, networth of the company was at Rs.564.36 Crores with ‘Nil’ gearing.

Established market position: Group benefits from the promoters’ experience of more than a decade and their strong understanding of market dynamics, which should continue to support the business risk profile. Over the decades, the group has developed strong engineering and design capabilities which have helped it in meeting the changing demands from its customers. Further, the group has maintained a strong focus on R&D, which has helped them develop a wide range of products and solutions in the drone industry resulting in established market position and healthy market share.

Weaknesses:

Higher dependence on government orders: As on 9MFY25 the group has generated 65% of revenue from defense segment. Defense procurement cycles are long and unpredictable, which can lead to revenue volatility. Any changes in government policies or sluggish tender flow can lead to loss of revenue over the medium term. While the group is diversifying into the export market, its benefits remain to be seen.

Working capital intensive operations:Operations continue to remain working capital intensive as reflected by gross current assets of 236 days as on March 31, 2024, which is majorly driven by inventory of 139 to 280 days and debtors of 57 to 125 days. Since the group’s customers include government bodies and longer schedules for deliveries, debtors and inventory levels are expected to remain high.

Susceptibility of scale of operations and operating profitability to tender based business: Despite a group having well-diversified products providing different profitability, its business performance is majorly dependent on the nature of the tender received from its customers, owing to which both scale and profitability are expected to remain volatile.

Liquidity: Adequate

Bank limit utilization is Nil for the past twelve months ended Dec 2024. The current ratio is healthy at 8.76 times on March 31, 2024. High cash and cash equivalents including current investments of Rs.285.38 Crores, will support the liquidity .

Outlook: Negative

Scale of operations and profitability may remain constrained in case on non-conversion of existing pipeline to the revenue which may impact business risk profile over the medium term.

Rating sensitivity factors

Upward factors:

Sustained scale of operations with operating margin remaining above 20% resulting in higher-than-expected net cash accruals
Sustenance of healthy financial risk profile with comfortable capital structure

Downward factors:

Higher than expected decline in scale of operations and continued operating losses leading to net cash accruals below Rs 25 crores
Stretch in working capital cycle weakening liquidity prospects

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 incorporated a subsidiary in USA in Sept 2022 to expand into US market and other newer geographies.

Key Financial Indicators

As on/for the period ended March 31	Units	2024	2023
Operating income	Rs.Crore	313.99	186.63
Reported profit after tax	Rs.Crore	45.00	31.99
PAT margins	%	14.33	17.14
Adjusted Debt/Adjusted Networth	Times	0.00	0.36
Interest coverage	Times	15.26	17.49

Any other information: Not Applicable

Note on complexity levels of the rated instrument:
Crisil Ratings` complexity levels are assigned to various types of financial instruments and are included (where applicable) in the 'Annexure - Details of Instrument' in this Rating Rationale.

Crisil Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available.

For more details on the Crisil Ratings` complexity levels please visit www.crisilratings.com. Users may also call the Customer Service Helpdesk with queries on specific instruments.

Annexure - Details of Instruments

ISIN	Name of the instrument	Date of Allotment	Coupon Rate (%)	Maturity Date	Issue size (Rs.Crore)	Complexity Level	Rating assigned with outlook
NA	NA	NA	NA	NA	NA	NA	NA

Annexure – List of Entities Consolidated

Names of Entities Consolidated	Extent of Consolidation	Rationale for Consolidation
Ideaforge Technology Limited	Fully Consolidated	Parent Company
Ideaforge Technology INC	Fully Consolidated	100% Subsidiary

Annexure - Rating History for last 3 Years

	Current			2025 (History)		2024		2023		2022		Start of 2022
Instrument	Type	Outstanding Amount	Rating	Date	Rating	Date	Rating	Date	Rating	Date	Rating	Rating
Corporate Credit Rating	LT	0.0	Crisil BBB+/Negative		--	29-08-24	Crisil BBB+/Stable	30-08-23	Crisil BBB/Stable		--	--
			--		--		--	03-01-23	Crisil BBB/Stable		--	--

All amounts are in Rs.Cr.

Criteria Details

Links to related criteria

CRISILs Approach to Financial Ratios

CRISILs Bank Loan Ratings - process, scale and default recognition

CRISILs Criteria for Consolidation

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