ideaForge Technology shares drop over 9% in two days. JM Financial downgrades rating

Shares of drone manufacturer ideaForge Technology experienced a significant drop, falling 9.5% over two consecutive days, reaching Rs 809.10 on the BSE market. The company had recently reported a 49% decline in its Q1 profit margin despite achieving positive earnings for the June quarter. JM Financial, a domestic brokerage firm, responded to the company's performance by downgrading its rating from Buy to Add, with a revised target price of Rs 905.

This adjustment was attributed to the stock's substantial increase over the past six months, reaching a 100% rise in that period.

The Indian Ministry of Defence has set a target of Rs 20,000 crore for a drone procurement program, primarily aimed at tactical and surveillance UAVs. Delivered via a fast-track route, these drones are expected to have a delivery timeline ranging from 18 to 24 months. However, other procurement opportunities within the program are currently at various stages of approval, potentially delaying project awards until FY28 or FY29.

According to JM Financial, ideaForge Technology's Q1 results showcased strong execution but weak order inflows and profitability. As of the end of the quarter, the company's order book stood at Rs 257 crore, which translated to an order inflow of Rs 11.2 crore for the quarter. This figure, both year-on-year and quarter-on-quarter, is markedly lower.

Although order prospects remain robust with a strong policy push for tactical drone procurement, most tenders are still in the approval phases, which may delay the conversion of these opportunities into inflows for FY28 and FY29. JM Financial anticipates a decline in order inflows year-over-year in FY27, with the growth expected to pick up in FY28 and FY29, aggregating to an estimated Rs 1,500 crore over the next two years.

Despite the challenges, JM Financial remains optimistic about ideaForge Technology's execution momentum. The company has guided for gross margins to maintain a range of 50-55% in FY27, aided by the execution of high-margin orders. Revenue is projected to grow at a compound annual growth rate (CAGR) of approximately 47% over FY26-FY29E, as order inflows increase substantially in FY28 and FY29.

JM Financial projects operating leverage to drive EBITDA margins upward from 2% in FY26 to around 30% in FY29, with profit after tax expected to rise to Rs 27.6 crore in FY28 and Rs 170 crore in FY29.