Drone Destination IPO: 5 Things to Know About the SME IPO

Necessity is the mother of invention, and every invention is the mother of new business opportunities.

The invention of drones and their innovative uses led to the development of a full-fledged drone industry. The Indian drone industry is progressing rapidly. Little wonder it has received a lot of investor traction.

One by one top Indian drone companies are lining up to take the benefit of this growing opportunity. Last year, Droneacharya Aerial Innovations went public. Last month, the IdeaForge IPO went live and tomorrow another drone company will go live with its SME IPO offer.

Drone Destination's IPO will open for subscription on 07 July 2023.

Please note, this is an SME IPO. Here, the minimum investment required is not as low as the mainboard IPOs need and the segment is comprised of small and medium enterprises which are in their early phase of growth.

The risk involved is higher here.

Here are the key details of the drone company's IPO.

Issue period:7 July 2023 to 11 July 2023

Type of issue:Fresh issue of 6.8 million (m)

Price band:Rs 62 to Rs 65 per share

Face value:Rs 10 per equity share

Lot size:2,000 shares

Application limit:Maximum one lot for retail investors

The company has reserved not less than 50% shares of the offer for qualified institutional buyers (QIB). It has reserved not less than 15% for non-institutional buyers (HNI). Hence not more than 35% of shares are available for retail individual investors.

Tentative IPO allotment date:14 July 2023

Tentative listing date: 19 July 2023

#1 About the company

Incorporated in 2019, Drone Destination is India's leading drone-as-a-service and training company. The entity is a DGCA-authorized remote pilot training organisation (RPTO) offering certified training programs at multiple locations PAN-India.

The company became the first drone training partner of the national skill development corporation (NSDC) in October 2022. They have the largest training network in India in their segment. Drone Destination offers a variety of services including:

• Drone-as-a-service (DAAS) training
• Education and recreation

#2 A look at the financials

Drone Destination's revenues grew exponentially in the last three years. On a compounded annual growth rate (CAGR) basis, in the last three years, its revenues grew by a whopping 214% due to the growing popularity of the drone training business.

In the financial year 2023, its sales grew by 370% to Rs 120.8 m on a YoY basis.

The company's net profit also grew at a stellar pace. In FY23 its net profit surged 1,078% on YoY basis on the back of reducing expenses and volume growth of revenues.

Drone Destination Financial Snapshot (2021-23)

Particulars	31-Mar-23	31-Mar-22	31-Mar-21
Revenues (Rs in m)	120.8	25.7	3.9
Revenue Growth (%)	370	559
Expenditure Before Tax	87.8	22.9	4.5
% of Total Income	72.6	89.3	116.6
Net Profit	24.4	2.1	-0.5
Net Profit Margin (%)	20.2	8.1	-11.7
Net Worth	175.7	2.3	0.2
Return on Net Worth (%)	13.9	89.6	-188.5
Basic Earnings per share (Rs)	25.8	18.9	-4.1

Data Source: Company's Red Herring Prospectus (RHP)

#3 Peer comparison

As per the company's red herring prospectus, Droneacharya Aerial Innovations is its listed peer.

Peer Comparison

Company	Total Income (2023) (Rs m)	Net Profit	EPS (Basic) (Rs)	Return on Net Worth (%)
Drone Destination	120.8	24.4	25.8	16
Droneacharya Aerial Innovations	186	34.2	1.8	5.2

Data Source: Company's Red Herring Prospectus (RHP)

#4 Arguments in favour of the business

• The company has a widespread presence around the country. There are a total of 53 RPTO bases in India out of which 11 belong to the company and its training partners - Indira Gandhi Rashtriya Uran Akademi (IGRUA) and Sanskardham.
• It has the highest (over 30%) market share in terms of certified drone pilots in the country.
• It has entered into several key memoranda of understanding with large government entities and private players to develop an integrated drone training, education and service eco-system.
• The company owns all its important assets like drones, pilots and training bases. Resultantly, it has the maximum level of control over its supply chain. It has achieved one of the fastest turn-around times in the market for drone service and training operations.
• The company's founder and promoter have a vast prior experience in the aviation industry. They have in-depth insights and knowledge about the drone ecosystem in the country.

#5 Risk Factors

• DGCA certificate is crucial for a company's business operations. If the company fails to comply with the applicable regulations, and rules prescribed by the government of India as well as the condition on which the DGCA license was issued, its business and financial condition may be adversely impacted.
• The problem with operating in an emerging industry is that one cannot be sure of growth. Presently the drone industry is in a nascent stage. If the industry does not experience significant growth, then the company will not be able to achieve its anticipated level of growth.
• The company own important assets but it does not manufacture drones. It is dependent on a group company i.e., Hubblefly Technologies. If the group lags in manufacturing drones or delivering the same, it will materially impact the company's business.
• The company is heavily dependent on technology. Hence, it has a large exposure to cyber security risks.

To conclude

Drone Destination's financial performance is quite impressive. Unlike most new-age IT companies, it quickly turned profitable which works out well for the company.

The company is well positioned to gain a starter's advantage in the industry as it has only one listed peer.

The Indian drone industry is developing quickly. The industry is not yet at a mature stage. No one can predict whether the industry will flourish at the anticipated growth rate.

After the sudden market crash of 2022 investors should be well aware that not all hopes and expectations translate into actual numbers.

Also, as we mentioned above, this is an SME IPO so the risk involved is higher here. Per lot gains could be huge but so will be the losses if things take a turn for the worse. Be very cautious when it comes to SME IPOs.

Stay tuned to get further updates on this IPO and all upcoming IPOs in the market.

Happy Investing!

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