Ideaforge Technology Ltd Management Discussions

ECONOMIC OVERVIEW

Global Economy

The global economy exhibited remarkable resilience in 2023. The International Monetary Fund (IMF) has revised its projection for global economic growth in 2023 from 3.0% in its October 2023 outlook to 3.1%. Ongoing geopolitical challenges, volatility in energy and food markets, aggressive monetary tightening, and higher-for-longer interest rates have contributed to the moderation in global economic growth.

Global inflation continues to recede faster than expected. It declined from 8.7% in 2022 to 6.8% in 2023. While headline inflation has sustained a decline from its unprecedented peaks, core inflation has proven to be sticky. Global headline inflation is expected to decrease to 5.8% in 2024 and to 4.4% in 2025.

Economic growth in several emerging markets and developing economies (EMDEs) has exceeded expectations in 2023. The US economy has experienced the strongest recovery among major economies. Its GDP is estimated to grow from 1.9% in 2022 to 2.5% in 2023. The European Union (EU) has demonstrated resilience in navigating through unprecedented shocks from the prolonged Russia-Ukraine war and higher interest rates. Although its GDP growth contracted from 3.6% in 2022 to 0.6% in 2023, the EU managed to avoid the recession in 2023.

The economic outlook for 2024 will be impacted by higher interest rates, carrying the risk of a resurgence in inflation due to persistent core inflation and shifts in the anticipated monetary stance. Furthermore, the ongoing Russia-Ukraine conflict has the potential to dampen the overall economic outlook of the EU. The escalation of geopolitical conflict in the Middle East and the Red Sea route could elevate logistics costs, energy, and commodity prices, raise the risks of supply disruptions, and pose downside risks to the global economy. However, with faster disinflation and steady growth, the possibility of a severe economic downturn has diminished. The global economy is expected to sustain its resilience in 2024. The IMF forecasts a global growth of 3.1% in 2024, with a slight uptick to 3.2% in 2025. The Asia-Pacific (APAC) region is expected to be the fastest-growing region in the world economy in 2024, driven by robust domestic demand in East Asia and India.

While geopolitical developments have created uncertainties in many domains, the defence sector has seen an increased focus from customers and governments in general. Due to supply chain reliability issues, increasing number of nations are pushing towards indigenization/localization of the defence supply. Also, the technologies in deep tech areas of defence are evolving at a rapid pace, and countries and their forces are emphasizing the modernization of their defence and law enforcement forces and equipment. The initiatives and programs around indigenization and modernization are more concrete, result-oriented, and time-bound than ever before.

Indian Economy

Amid the volatile global economic environment, India continues to shine as a beacon of hope. It is the fifth-largest economy in the world and is expected to retain its position as the fastest-growing major economy in the world. Its GDP growth remained strong at 7.3% in FY 2023-24 as against 7.2% in FY 2022-23, supported by buoyant domestic demand, moderate inflation, a stable interest rate environment, and strong foreign exchange reserves.

As per the First Advance Estimates of National Income, 2023-24, all the economic sectors have performed well by recording more than 6% growth, except for the Agriculture and Allied sectors, for which the estimated growth is 1.8%. The construction sector has been estimated to have double-digit growth of 10.7%. Furthermore, the Index of Industrial Production (IIP) shows that the output of Indias industry grew by 6.1% in the first three quarters of FY 2023-24 compared to 5.5% in the corresponding period of last year.

CPI inflation is on a downward trajectory and eased to 4.83% in March, from 5.10% in January, and 5.09% in February 2024. Headline inflation is expected to gradually decline to the target although it remains volatile due to repetitive food price shocks. The RBI keeps the policy repo rate unchanged at 6.50%.

Downside risks to Indias economic growth arise from inflationary pressures in advanced countries and supply chain disruptions re-emerging from persistent geopolitical stress. Global supply disruptions could cause recurrent commodity price volatility. Despite the challenges posed by a volatile global macro environment, Indias economic outlook remains optimistic, backed by stronger consumer demand and private investment, physical and digital infrastructure enhancements, augmented capital expenditure, and the governments proactive policy measures. Specially for the defence and deep tech sectors, the outlook remains positive as the country is pushing for indigenization and modernization initiatives in these domains. Ongoing geopolitical and supply chain situations not only validate the need for such initiatives but also, advocate accelerating these initiatives to achieve desired outcomes earlier than previous envisions. According to the IMF, the Indian economy is expected to advance steadily at 6.5% in 2024. The Interim Budget 2024-25 reflects the governments continued focus on infrastructure development, economic stability, sector-specific developments, environmental sustainability, and strategic global positioning. It sets the foundation for the vision of a Viksit Bharat (Developed India) by 2047.

INDUSTRY OVERVIEW

Global UAV (Drone) Industry

The global UAV (drone) industry has witnessed significant growth at a CAGR of 19% over CY 2018-22 and it is expected to grow even faster at a CAGR of 20% to be ~US$ 51.4 Billion in CY 2027 and further leap to ~US$ 91.3 Billion by CY 2030.

The unmanned aerial vehicle (UAV) market is undergoing rapid growth and transformation, driven by the expanding applications of drones in military and defence, aerospace, agriculture, construction, mining, and various other sectors. The growth is further fueled by regulatory shifts, technological advancements, and increased demand in the global market. Major factors driving the expansion of the global drone market include the increasing use of UAVs in civil and commercial applications, the rising deployment of UAVs in military operations, and the regulatory exemptions granted globally for drone usage. Moreover, growing consumer interest in using drones for recreational activities, such as drone racing and photography is fostering a robust market.

The defence segment holds the largest share of the global drone market. In the rapidly evolving military technology landscape, UAVs have been playing a critical role in both surveillance and retaliatory actions. Advanced military drones have revolutionized modern battlefield operations, influencing even the most active conflicts of recent years, such as the Russia-Ukraine war and the Israel-Gaza conflict.

Drone regulations vary from country to country, and as of now, there is no universally applicable international drone legislation. Several aviation authorities have relaxed their guidelines to allow commercial and recreational use of drones. The key players in drone operations include Australia, China, and the UK, which boast advanced regulatory frameworks that have evolved progressively. While the US and China leads in drone industry innovation, they still adhere to stringent regulations, which have gradually become more lenient over time. Furthermore, Beyond Visual Line of Sight (BVLOS) operations are prohibited in certain countries like the USA, France, and New Zealand unless a waiver is requested. Countries like the UK, Canada, Singapore, and Kenya have permitted BVLOS operations for various purposes and use cases. On the regulatory front, India has made significant progress. The introduction of the Drone Rules 2021 has proved to be an inflection point for the drone industry in India. The rules not only liberalized drone manufacturing and operations in the country but also brought transparency of execution.

The Drone-as-a-Service model is gaining momentum across industries due to higher operational efficiency and reduced cost. While countries like Australia, the UK, and New Zealand have already initiated drone delivery operations, other countries are still in the trial and testing phase. Currently, regulations are stringent for drone use in the logistics sector; however, the situation is expected to improve with relaxed norms for drone deliveries and other logistical use cases. The logistics drone market is anticipated to hold the largest share of the overall drone market by 2030, followed by enterprise and defence.

Indian UAV (Drone) Industry

The drone industry is at a nascent stage in India. Despite a relative late start in drone adoption compared to other nations, a strong nationwide drive is underway to promote drone adoption in various sectors. The Indian drone industry has experienced substantial growth in the last decade, gaining momentum, particularly in the post-pandemic period. Several startups and companies in India are involved in developing and identifying new applications and use cases for drones.

The Indian drone market is projected to grow from US$ 43 Million by Fiscal 2022 to US$ 812 Million by Fiscal 2027, exhibiting a growth CAGR of 80%. The growth of the Indian drone industry is driven by the governments industry-friendly policies and incentives, growing drone use cases and their prospective applications, a rise in domestic demand, and an upsurge in startups and investments.

The drone industry holds immense potential to revolutionize defence, agriculture, infrastructure, disaster management, transportation, geo-spatial mapping, law enforcement, and various other sectors. Drones play a critical role in strengthening border surveillance and supporting national security initiatives in the defence sector.

The government aims to promote domestic drone research, development, manufacturing, and export by fostering the creation of drone infrastructure and ecosystems. It is trying to facilitate the production and operation of drones with the recent liberalization of drone guidelines to make the market more accessible to drone start-ups and international investors. There are no restrictions for foreign-owned/controlled Indian companies to operate drones in India. Consequently, the recent regulations aim to attract global investment in the sector. Over the next three years, the government has targeted an investment of ~US$ 600 Million in the drone manufacturing industry. As a step towards transforming India into a global drone hub by 2030, the government launched the Production Linked Incentive (PLI) scheme for drones and drone components in September 2021 to boost domestic production and export of drones. The total incentive is INR 120 Crores spread over three financial years. The Ministry of Civil Aviation has disbursed an amount of ~INR 30 Crores to the beneficiaries during FY 2022-23 under the PLI Scheme. The scheme allocation is targeted towards increasing Indias manufacturing capacity, creating more employment opportunities, lessening the nations dependency on imports, and increasing exports. Through meticulous public and private investments, the Indian drone industry is set to establish itself as a global competitor in both civil and military drones. The infusion of advanced technology and investment in Indian drone companies is set to unleash tremendous potential for indigenous drone companies in India.

OPPORTUNITIES

• Enhanced focus on indigenous manufacturing:

Recognizing the transformative capabilities of drone technology across various sectors, such as infrastructure, defence, and agriculture, the government is encouraging the indigenous production of drones through various initiatives such as the PLI scheme, Make in India and Atmanirbhar Bharat and Bharat Drone Shakti 2023. Furthermore, the government imposed a ban on the import of UAVs (except for Product Development and defence) due to security reasons and to provide an impetus to domestic manufacturing of drones, aiming to position India as a global drone hub by 2030.

• Widespread adoption of drone technology:

The drone industry in India has experienced swift growth in recent years, expanding its reach across diverse sectors. The increasing array of drone applications is not only accelerating the market growth but also propelling the entire drone ecosystem, including after-sales services, drone platform services, as well as drone training and education.

• Increasing demand in Indias Defence Sector: The

Indian Army will mark 2024 as the "Year of Technology Absorption" as it is transforming into a modernized force. This initiative involves the integration of drones and counter-drone systems across infantry, artillery, and armored battalions. The Indian army, as part of its Make II program, has significant requirements for drones and has also issued requirements for the purchase of integrated surveillance and loitering munition systems.

• Increasing demand in non-defence sectors: The

Indian enterprise drone market finds key applications in agriculture, utilities, and public safety. Drones are pivotal in bridging manpower gaps in precision farming, while law enforcement employs them for traffic monitoring and crime prevention. Policy changes are unlocking further opportunities. High-definition cameras enable visual inspections, enhancing efficiency in construction monitoring and land governance under the SVAMITVA scheme.

In e-commerce, mid-mile delivery drones will streamline logistics, reducing transportation times. Indian companies, buoyed by government support, are poised to lead in drone technology, transforming middle-mile logistics and contributing to the countrys burgeoning logistics sector.

• Budgetary support: The introduction of the Production Linked Incentive (PLI) Scheme with the quantum of INR 120 Crores has provided a necessary boost towards the indigenization of drone technology. Additionally, budgetary allocation for the Defence sector is INR 1.72 Lakh Crores for FY 2024-25 which is 20.33% higher than the actual expenditure of FY 2022-23. Also, a corpus of INR 1 Lakh Crores is to be established, offering a 50-year interest-free loan facility. This corpus aims to provide long-term financing or refinancing with extended tenures and minimal interest rates. Such measures will incentivize the private sector to substantially boost research and innovation in emerging fields. The increased budget allocation will bolster defence capabilities and aid in providing the Armed Forces with cutting-edge, niche technology, including surveillance and armed drone swarms.

• Global de-risking of the supply chain: Globally, nations and corporations are revisiting and redefining their supply chain strategy due to cybersecurity concerns arising from the usage of drones originating from certain geographies of concern. The United States through NDAA, has banned the use of intelligent subsystems (which deal with data storage, processing, and transmission) originating from geographies of concern. Other countries are following suit. This creates an opportunity for the Indian drone industry to take Indian products globally.

• Liberalization and relaxation of UAV regulations in India: To promote the growth of the industry, the liberalized Drone Rules 2021 has provided the Indian drone industry with much-needed tailwinds. The Drone Rules 2021 brought in many welcoming regulations like abolishment of the need for registration and several approvals for operating non-commercial drones and increased the number of free to fly green zones.

• Export opportunities: The disruption in the global supply chain has created favorable conditions for large-scale manufacturing in India, driven by key policy initiatives like production-linked incentive (PLI) schemes and reduced corporate tax rates. This shift has also benefited the countrys UAV ecosystem. With major global brands looking for alternative manufacturing destinations, India has a prime opportunity to become the preferred global choice for customers. With meticulous public and private investments facilitated by the government, the Indian UAV sector is poised to establish itself as a global export leader in both civil and military domains.

(Source: 11 attice report, https://economictimes.indiatimes.com/news/economy/policy/policy-push- to-help-india-grab-manufacturing-opportunity/ articleshow/88653130.cms?from=mdr)

• Development of a full-fledged drone ecosystem:

Indias drone industry is evolving rapidly, propelled by the increasing number of manufacturers and service providers entering the market, alongside supportive regulations. The Indian government is committed to fostering domestic drone research, development, and manufacturing through the establishment of drone infrastructure and a conducive ecosystem. Continuous innovation through product and market research is essential for sustained growth in the UAV sector. Additionally, as drone applications expand and startups thrive, coupled with increased investments, the future of the drone industry in India looks promising.

(Source: 1lattice report)

• India as a global drone hub:

The drone and its sub-systems industry presents a compelling opportunity for India, with the potential to bolster its manufacturing capacity to approximately US$ 23 Billion by 2030, as outlined in the recent EY - FICCI report titled, "Making India the drone hub of the world". Becoming a powerhouse in drone manufacturing would not only align with Indias goal of achieving a US$ 5 Trillion economy but also foster prosperity across various sectors nationwide. In the same context, India has the opportunity to unlock approximately INR 1.8 Lakh Crores of domestic manufacturing potential by prioritizing drone indigenization projects, with an anticipated 80% compound annual growth rate (CAGR) from 2020 to 2025, followed by a 35% CAGR from 2025 to 2030. Initiatives like "Drone Shakti" not only nurture indigenous talent but also elevate Indias standing as a fertile ground for pioneering drone technology.

(Source: https://www.ey.com/en in/government-public- sector/how-india-can-become-the-drone-hub-of- the-world-by-2030)

• Integration of Artificial Intelligence (AI):

The integration of AI into drone technology presents a remarkable opportunity to enhance both defence and civilian applications. The expansion of AI and robotics within drones has fueled their growing adoption in the defence sector, augmenting existing platforms with advanced capabilities and empowering humans to utilize robotic systems for enhanced safety and decision-making. In the civilian realm, applications such as inspection, surveillance, mapping, and public safety monitoring stand to benefit greatly from Al-powered drones equipped with high-definition cameras and other payloads. AI integration enables drones to rapidly process vast amounts of data in realtime, optimizing responses as situations evolve.

(Source: llattice report)

COMPANY OVERVIEW

Incorporated in 2007, ideaForge Technology Limited ("ideaForge" or "the Company") is the pioneer and market leader in the Indian Unmanned Aircraft Systems (UAS) market, holding a 50% market share in FY 2021-22. A dual-use UAV technology player, ideaForge is ranked 5th globally in the drone industry rating. Driven by an innovators DNA, ideaForge has filed 72 patents globally and has solidified its dominance in the Indian drone market. It has been a pioneer in developing Vertical Take-off and Landing (VTOL) UAVs domestically and has been at the forefront of Indian UAV space by pushing technology to its boundaries and delivering state-of-the-art solutions to customers. ideaForge has one of the largest operational deployment of UAVs across India delivering mission-critical outcomes in some of the most challenging environmental and operational conditions in the world.

Over these 17 years of journey, ideaForge has developed a robust product portfolio of UAVs, designed for multiple use cases across diverse applications. ideaForges innovation DNA is based on three elements - Performance, Reliability, and Autonomy.

Performance

Deliver the best-in-class endurance and output for every gram we put in the air and result-oriented data that lead to valuable insights and enable decision-making.

Reliability

Designing and delivering systems that work in the harshest of environments without failure and provide the best TCO (total cost of ownership) to the customers.

Autonomy

Imparting intelligence into systems and making them capable of taking care of themselves in dynamic real-world situations and enabling users to focus on the mission instead of flying the UAV

The UAVs designed with the philosophy based on these three pillars are among the best platforms globally. To achieve Performance, Reliability, and Autonomy, these systems are designed with extensive analysis and simulations of real-world situations and undergo rigorous testing. Essentially, each ideaForge UAV is built like a bird and tested like a tank.

And these world-class UAVs carry out crucial missions in mapping, surveying, security, and surveillance applications. Crafted to navigate diverse terrains and withstand extreme temperatures and environmental conditions, these UAVs highlight ideaForges technological prowess. The adaptability of ideaForges UAVs positions them as reliable and versatile solutions suitable for a broad spectrum of applications.

The Companys diversified product portfolio consists of:

• Hardware which includes Unmanned Aerial Vehicles (UAVs) like V4PRO, Q4i, Q6, NETRA V4+, SWITCH, payloads like daylight cameras, thermal cameras, photogrammetry payloads, megaphones, battery systems, communication systems, ground control stations, packaging systems, etc.

• Software and embedded sub-systems include BlueFire Touch (Ground Control Software) for controlling and managing UAVs and autopilot sub-systems, BlueFire Live (Live streaming and payload control software), Autopilot, etc.

• Solutions: BlueFire MapAssist, Surveillance Pro, GIS Pro

• Support After sales services for product support, extended warranties, repairs, and fleet upkeep to ensure the customers always have mission-ready systems available.

• Drone as a Service (DaaS) ensures the availability of drones on demand for various use cases eliminating the upfront investment and continuous upkeep of the drone fleet at the customers end

ideaForge is one of the few players globally that provide a full stack dual-use (civil and defence) UAV solution along with Ground Control Software (BlueFireTouch), and comprehensive solutions as well as robust after-sales support. With over 150+ distributors and channel partners globally, it has one of the best distribution and support networks in India for UAVs. Its flagship support package iFCare 360 is the first-of- its-kind subscription-based support package in the Indian UAV industry. It is renowned for offering replacement options for the comprehensive UAV system, in the event of any hardware or software issues, making it a unique offering in the Indian drone industry.

The Company caters to a diverse clientele both domestically and internationally across the defence and civil sectors. Defence is the largest contributor to ideaForges revenues, followed by civil contracts. The Companys valued clients encompass the Indian Armed Forces, Central Armed Forces, Disaster Management Forces, Forest Department, and State Police departments, among others. By having served clients from diverse backgrounds, ideaForge have amassed unique insights on the customer preferences and pain points related to UAV operations. The fact that customers have completed 4,50,000+ missions on the field using ideaForge drones underscores customers trust in ideaForge and its UAVs.

Design and Manufacturing Operations

ideaForge is a leading technology player in the dual-use UAV space and is among the very few players globally to own an end-to-end technology stack. With expertise amassed over 17 years, ideaForge is at the forefront of technological breakthroughs in the drone sector developing innovative solutions.

The Company has two product development centers in-house in India. Equipped with the latest equipment and software solutions, these product development centers serve as epicenters for technological innovation happening at ideaForge. These dedicated centers help in rapid designing, prototyping, and refining new products to ensure the products developed at ideaForge offer the best that technology allows.

The Company has a state-of-the-art manufacturing facility in India equipped with innovative equipment, advanced technology, and semi-automated systems, enabling the manufacturing of a diverse range of products and providing essential adaptability to meet the dynamic demands of the market. The manufacturing facility is accredited with a quality management system and adheres to ISO 9001:2015 and AS9100D standards for the design and manufacturing of unmanned aerial vehicles.

In line with its commitment to serving the customers and ensuring equipment availability, ideaForge has also successfully established four service centers strategically located in key regions around customers major areas of operations. These centers help ideaForge to streamline its Customer Success & Support (CSS) operations and provide localized support to its customers. Taking this a step further, ideaForge has also started Service-on-Wheels - mobile service centers to cater to the fleet deployed in most remote areas in the country.

OPERATIONAL OVERVIEW

The Companys journey has been remarkable, marked by dedication and resilience toward creating world-class products through technology and innovation. It has established a solid foundation by leveraging its extensive expertise, industry-leading design, technology capabilities, vertically integrated operations, and unique offerings. This enabled ideaForge to adapt swiftly to market dynamics and secure numerous contracts for defence and homeland applications.

ideaForge has a large presence in the Indian UAV market, which it pioneered. The Company has established a fully owned subsidiary in the USA with an aim to expand into the USA and Canada, both of which are growing and mature UAV markets with an appetite for new technology. ideaForge aims to tailor its products to the specific needs and preferences of customers through user research and design thinking that drive product and business innovation.

In addition, ideaForge is also evaluating expansion opportunities in other regions such as Australia, EU, GCC, Africa and South East Asia.

The Company continues to innovate its offerings through substantial investments and efforts in product innovation, engineering, and design. With product innovation forming the essence of its growth strategy, ideaForge is committed to improving its products, including its technology stack, to maintain a competitive edge in the market. It constantly strives to expand its product portfolio by developing new innovative products and providing differentiated offerings to the customers. It intends to introduce newer and upgraded versions of its quadcopter and Hybrid VTOL UAV platforms with an emphasis on improving performance, reliability, and autonomy.

Operational Highlights FY 2023-24

Technology and Product Development

• 12 new patents filed and 17 granted

• Enabled platform architecture to integrate specialized payloads from third parties such as LiDAR and multispectral imaging

• Conceptualized and is building Indias First Drone Innovation Platform to provided end-to-end solutions to the customers

• Initiated solutions approach through the right partnerships. Collaborated with ESRI to enable smart forest solutions using drones and initiated joint development of fog penetration radar and foliage penetration radar with GalaxEye

• Kick-started development of Tactical (MTOW - 50 Kg, Range - 50+ Kms) and Middle-mile logistics (MTOW - 500 Kg, Range - 100+ Kms) platforms

• Initiated prototyping work for the next generation of the quadcopter (NETRA, Q6) and hybrid (SWITCH) UAV platforms with cutting-edge features like GPS-denied navigation, use of AI to improve onboard intelligence capabilities, 4G/5G enabled communication, etc.

• Obtained Type Certification approval from the DGCA for two platforms Netra V3+ and Q6 UAV

• Accomplished high-altitude mapping in the Himalayas through Netra V4

Operational and Financial

• Launched 100,000+ flights in the field in FY24

• Delivered major defence contracts on/ahead of schedule

• Initiated Connect eXchange program for MHA and MOD to increase product adoption

• Started service center on wheels in the hilly and remote regions to provide services at doorstep to ensure continuous system availability for operations

• Increase in indigenous subsystem development along with reduction in dependency on land border connecting nations

Business Expansion

• Obtained SCOMET license to stock & sell systems in the US through the US subsidiary and shipped SWITCH and NETRA V4 Pro to the US

• Initiated product demonstrations and training for customers and value-added resellers (VARs) in the US

• Successfully completed pilot PoCs and started early billings for Drone as a Service (DaaS) business with anchor customers

Awards and Achievements

• Moved to 5th position in the global ranking in the dual-use category from 7th position in 2022

• Obtained Great Place to Work Certification

Received prestigious awards like National Technology Award 2023 (MSME category), SIDM Champion Award (Technology and Product Innovation), Dun & Bradstreet Business Excellence Award 2023, India Business Leaders Award by CNBC-18 (The Disruptors category)

FINANCIAL OVERVIEW

The financial numbers and metrics are crucial to assess any business, these indicators provide a part picture of any multi-dimensional business where other factors are at play and contribute to deciding the business sustainability and growth potential. This is especially true for a business like ideaForge which is built around innovation and creation of intellectual property instead of depending on technology acquisition from outside and carrying out built-to-print manufacturing.

When looked at alongside the product development pipeline, technology roadmap, IP creation, business model innovations, and overall business strategy, these numbers paint a far more nuanced and comprehensive picture of the Companys past performance and future potential.

Financial Performance FY 2023-24

Consolidated

(INR Mn)

Particulars	FY 2023-24	FY 2022-23 (CFS)
Total Revenue	3,444	1,964
EBITDA	859	575
EBITDA Margin (%)	27%	31%
Profit Before Tax (PBT)	611	408
Tax	158	88
Profit After Tax (PAT)	453	320
PAT Margin (%)	14%	17%
Total Comprehensive Income	450	320

Standalone

(INR Mn)

Particulars	FY 2023-24	FY 2022-23 (SFS)
Total Revenue	3,474	1,964
EBITDA	893	575
EBITDA Margin (%)	28%	31%
Profit Before Tax (PBT)	645	408
Tax	167	88
Profit After Tax (PAT)	478	320
PAT Margin (%)	15%	17%
Total Comprehensive Income	476	320

Key Financial Ratios

Particulars	FY 2023-24	FY 2022-23	% Change	Explanation
Operating Profit Margin (%)	50%	68%	-26%	Due to product mix, overall margin reduced
Net Profit Margin (%)	15%	17%	-12%	Due to product mix, overall margin reduced
Debtors Turnover Ratio	6.03	4.76	27%	Improvement in the payment terms of large contract of customer & efforts in improvement of collection cycle by the company has resulted in increase in the ratio over last year
Current Ratio	8.69	2.57	238%	Company has leverage positions as compared last year
Inventory Turnover Ratio	1.57	0.77	104%	Improvement in the payment terms of large contract of customer & efforts in improvement of collection cycle by the company has resulted in increase in the ratio over last year
Interest Coverage Ratio	9.00	6.67	35%	The Company is debt free
Debt Equity Ratio	-	0.27	-	The Company is debt free

BUSINESS STRATEGY

The Companys strategic focus stems from its innovation DNA. Innovation has been and will remain at the core of ideaForges business strategy. The criteria for innovation would be to build the worlds first or worlds best, whether it is technology, products, features, or business models.

Centered around innovation, the business strategy for ideaForge is multi-pronged.

• Strengthening the existing business base - Continue catering to the existing market (geography - India, sector- defence and civil, applications - Intelligence, Surveillance, Reconnaissance (ISR), survey and mapping) and strengthen the position with continuous product upgrades and improvements on the existing platforms (NETRA, Q6, SWITCH).

• Unlock new use cases through partnerships - Joining hands with experts in the specific domains for joint product development and creation of drone-enabled solutions and joint go-to-market leveraging each others distribution networks to capture yet untapped use cases and expand the addressable markets (e.g., forest solutions, border management, fog penetration, foliage penetration, etc.).

• Expand product portfolio - Develop new platforms to create new use cases and replace traditional ways of accomplishing tasks. With the development of Tactical and Middle-Mile UAV platforms, ideaForge will have a presence across all categories of dual-use drones. These platforms will also pave the way towards urban air mobility (UAM).

• New business models - To diversify the revenue streams, ideaForge is continuously innovating business models. The introduction of a first-of-its-kind business model like Drone as a Service (DaaS) or improving the share of software, and AMC subscription revenue are steps in this direction. As the industry evolves and matures, multiple business models will sustain the growth of the Company.

• Geography expansion - While the Indian domestic market has huge growth potential, having products that can compete and win globally provides an advantage to the Company to expand the business in geographies outside India. While there have been few export orders fulfilled in the past to multiple countries, ideaForge is focusing on the US and Canada as the next frontier for business expansion. This geography already has an established and matured market for drones. In addition to that, the appetite for using relatively new technology and experimenting is huge, providing a promising opportunity for expansion.

• Inorganic growth - While the Company has invested significant resources in strengthening its in-house technology development engine, for a rapidly evolving sector like drones, it is imperative to constantly look out for the development happening around the globe. And to accelerate its development efforts and remain ahead of the curve, inorganic growth (investments, and M&A) becomes crucial. With the motto of building the worlds first or the worlds best, the Company will consider relevant avenues for inorganic growth.

• Indigenization - Considering the critical nature of the technology and dynamic geopolitical situations, it is important to develop a domestic supply ecosystem. ideaForge has been and is continuously working towards developing this domestic ecosystem which helps to reduce import dependency, safeguard the business from the uncertainties of the global supply chain, and help in eliminating cybersecurity risks arising out of using critical sub-systems/ components from geographies of concern.

• Strategic exclusions - In a nascent and high-growth industry like drones, often it is to get swayed by the options available to the business. However, ideaForge has consciously stayed away from sectors/use cases where creating disproportionate and meaningful value for the business through innovation is difficult. Two such major sectors/use cases are consumer drones (used for hobby flying, entertainment, photography, and videography) and Agri-spraying drones. While many industry players have found a niche for themselves in these domains, ideaForge will continue focusing its efforts on the domains and initiatives mentioned earlier.

OUTLOOK

While the drone industry is constantly evolving at a rapid pace, the transition of value creation will shift from hardware to software and from features to insights and solutions. With the aim to create this future of the drone industry by unlocking the full potential of drone technology, ideaForge has conceived Indias first drone innovation platform which will help create a world-class collaborative drone ecosystem in the country. At the heart of this ecosystem will be ideaForges drone platforms and control software which ensure performance and reliability while delivering safety and autonomy in the field. On top of these two, industry players will be able to integrate innovative payloads to address a larger number of use cases. They will also be able to leverage the application marketplace being developed by ideaForge to provide their software solutions and even cross-leverage solutions from other players and ideaForge to deliver automated outcomes to end-users. This innovation platform approach coupled with the service orientation of the drone technology will ultimately result in increased availability of drone solutions and will provide flexibility of consumption to the end customer thereby accelerating the growth of the industry and all the players involved.

The drone industry is experiencing strong favorable trends in India and globally. Factors such as growing demand for UAVs and emerging technologies in the market, rising export opportunities, and the governments push for domestic Product Development and manufacturing are anticipated to propel the growth of the drone industry across various sectors. Leveraging its strong IP and product portfolio and esteemed customer base, ideaForge is poised to seize emerging opportunities in domestic and international markets. Its growth trajectory is strong and the Company is confident of driving sustainable growth in the future.

Moving ahead, the Company envisages robust growth in the coming years and aims to enhance market penetration while capitalizing on the growing opportunity in the defence sector. ideaForges goal is to pioneer advancements in unmanned logistics and mobility for both defence and civil sectors. Collaborating with government and enterprise clients, it currently delivers ISR capabilities and envisions introducing innovative platforms and solutions in logistics and mobility in the near future. Furthermore, the Company intends to expand its business services revenue by extending its footprint into the drone as a service (DaaS) market. It is actively developing a DaaS model that enables the deployment of its drones in various locations, ready to execute missions with a simple click.

The Companys established presence in the market and new product launches are expected to drive profitability and bolster its growth. It is committed to enhancing its product portfolio to meet the evolving requirements of customers in Indian and global markets. It also aims to expand its geographical presence and boost its export business. It is particularly concentrated in the North American region and intends to enter other countries as well. The Company is focused on maximizing revenue potential through all channels, across geographies, and expansion of the consumer base.

RISK MANAGEMENT

The Company has a structured risk management framework for the timely and effective identification, assessment, and mitigation of key business and operational risks. The key risks and their corresponding mitigation measures are mentioned below:

Regulatory Risk

The Company operates in a highly regulated industry and operates under a license provided by the government as per the Industries (Development and Regulation) Act, 1951. Non-compliance to applicable regulations by the government or the relevant statutory/regulatory bodies or failure to meet the terms and conditions specified in the license could result in the cancelation of the Companys license, adversely impacting its business. Additionally, the Company is required to obtain export authorizations from the Directorate General of Foreign Trade (DGFT) to sell its products in foreign jurisdictions. Such restrictions may pose challenges to the successful penetration of the Companys products and services into the market. The continuously evolving regulations and frequent policy changes in the industry create uncertainty that may impact the Companys future plans.

Mitigation

The Company closely monitors the regulatory requirements and their implications for business operations. It strictly adheres to the regulations and rigorous quality control measures.

Technology Risk

The Companys operations rely on ongoing product development involving advanced technologies. Failure to identify and adapt to emerging industry trends, technological advancements, and customer preferences as well as develop new products addressing the evolving demands of the global market, could have adverse effects on the Company, potentially resulting in loss in business. Furthermore, the persistent technological changes in the market for its products may diminish the competitiveness or render the Companys products and services obsolete.

Mitigation

The Company proactively invests in emerging technologies, innovation, and Product Development. It strives to improve manufacturing processes, quality, and upgradation of its products, aligned with evolving industry trends. Its focus on technological advancements and the development of new products and solutions to meet the changing demands and preferences of customers have been instrumental in its growth. The Company works closely with its partners and suppliers to understand the evolution in the adjacent technologies/ component ecosystem.

Customer Concentration Risk

The Companys overreliance on a few customers, especially government agencies may impact its revenues and profitability. A decline in the government budget, reduction in orders, termination of existing contracts, delay of existing contracts, or any variation or unfavorable change in the governments policies and schemes to promote the drone industry may adversely impact the Companys financial condition, cash flows, and growth plans.

Mitigation

The Company maintains strong relationships with key customers, with a focus on diversification across industries. Its long-standing customer base and commitment to diversifying customers will reduce revenue concentration in the long run. In addition, we have the following measures:

• Csat programs for ensuring that the customer base is protected

• Instilling Customer Advocacy Programs within Sales and support so that all customer issues are addressed in a timely manner

• Expanding our customer bases, via entering new industries, new use cases and new geographies

• Incentivizing our sales and support teams to address customer issues

• Discussing new customer use cases with Product teams and Engineering teams

• Closely following up on new use cases and technology gaps in our portfolio and putting that info in CRM, for giving visibility on market trends to Product and Engineering teams

• Doing pilot projects and pilot deployments for use cases where we are not present and then co-creating solutions with the customer

• Entering new business models to widen customer bases e.g. Department of Fisheries, Maharashtra Government

• Widening our partner base to ensure wider reach

Operational Risk

The Companys business is dependent on its single manufacturing facility. Any slowdown or shutdown in manufacturing operations, supply disruptions, or external factors could adversely impact the operations, financial condition, and the business.

Mitigation

The Companys facility is equipped to handle unforeseen challenges. Regular maintenance and adherence to directives ensure operational stability.

• Instilling Customer Advocacy Programme within Sales and support so that all customer issues are addressed in a timely manner

Raw Material Risk

The Company is dependent on vendors & their supply chain for key components such as electronics, cameras, propellers, motors, and antennas required for manufacturing UAVs. If critical components or raw materials become scarce or unavailable, it may lead to delays in manufacturing, product delivery, and completion of development programs, potentially adversely impacting the Companys business. Moreover, the supply and cost of components may be subject to significant variation due to factors beyond the Companys control, potentially impacting profitability.

Mitigation

The Companys long-standing relationships with suppliers ensure a consistent and seamless supply of raw materials at competitive prices. It also maintains increased component inventory to ensure smooth operations and is continuously evaluating the potential of alternative vendors for the supply of components to minimize dependence on a single source.

Information Technology Risk

Technology failures, breakdown of the IT systems, cyber security breaches and threats, hacking of software and solutions, etc. could negatively impact the Companys operations. ideaForges website, internal software systems, third-party cloud, UAVs, and integrating applications are vulnerable to cyber-attacks. Cyber-attacks or security breaches could result in data theft, malicious intrusion, and leakage of sensitive and confidential data, and may cause equipment failures or disruption of systems and operations, which may damage the Companys reputation and business.

Mitigation

Ensuring the safety of its systems and products against cybersecurity risks is paramount for the Company. Robust IT policies and processes are in place to maintain secure IT systems and databases. The Company upgraded its firewalls to incorporate Advanced Threat Management, enabling high availability and secure remote connectivity. Additionally, it implemented the ISO 27001 framework for information security management and dark web monitoring services to safeguard sensitive data and address potential breaches.

Exchange Rate Risk

The Company is exposed to foreign exchange fluctuation as it imports some of the key components and exports final products. Volatility in exchange rates may result in lower realizations and impact the margins and profitability of the Company.

Mitigation

The Company actively monitors currency exchange rate movements and adjusts its order book accordingly. It may engage in hedging arrangements to mitigate adverse currency fluctuations. Negotiated inter-bank commission rates with banks to streamline foreign currency exchanges. As most import payments are advanced, current hedging options suffice. However, future volume increases or changes in payment terms may necessitate hedging to mitigate foreign currency risks. Additionally, an EEFC account is utilized for export remittance, allowing collections in USD to offset import payments, and reducing commission fees and exchange rate risks.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

The Company has a robust internal control mechanism in place commensurate with the size and nature of its business. The internal control systems comprising policies and procedures are designed to ensure that operations are efficiently managed and aligned with the strategic objectives of the Company and address various aspects of governance, compliance, audit, control, and reporting. The internal controls are responsible for complying with the regulatory requirements, preventing fraud and errors, safeguarding the Companys assets and finances, and preserving the accuracy and reliability of financial transactions and reporting.

The Companys internal audit committee periodically reviews the adequacy of the internal control systems. Key observations and recommendations are communicated to the management, who takes appropriate corrective measures as deemed fit to maintain the efficiency and effectiveness of the internal controls.

HUMAN RESOURCES

The Company considers its employees as the most important asset and integral to its growth and continued success. The Company has a well-designed HR policy that fosters a synergetic, harmonious, and transparent work environment, ensuring that employees goals align with the organizations growth vision.

The Company regularly conducts skill development and training programs to enhance the skills and capabilities of its workforce to achieve the Companys business goals. It continues to nurture a culture that values meritocracy and motivates employees by conducting various recreational activities and reward and recognition programs. The Company places significant emphasis on maintaining high levels of employee engagement, consistent performance, and an innovative mindset to minimize attrition. As on March 31, 2024, the total number of ideaForges employees was 413.

CAUTIONARY STATEMENT

The Management Discussion and Analysis may contain some statements describing the Companys objectives, plans, projections, estimates, and expectations which may be forward-looking statements within the meaning of applicable laws and regulations and are based on informed judgments and estimates. Actual results may differ materially from those expressed or implied. These forward-looking statements are subject to certain risks and uncertainties, including but not limited to, political, technological, and economic conditions affecting demand/supply and price conditions in the domestic and overseas markets, changes in government regulations and policies, tax laws, key component availability and prices, competitive pressures, Forex risks, and other incidental factors.