Top 4 Stocks Poised to Gain from a Potential PLI Scheme for Drone Ecosystem

The Indian drone industry has taken flight over the past few years. Once limited to niche uses, drones are now crucial in sectors like defence, construction, and even healthcare.

The sector has been evolving in recent years with the establishment of drone manufacturing companies, contributing to advancements in drone manufacturing, research, and development of component infrastructure.

The Indian government is actively supporting the industry through Production Linked Incentive (PLI) schemes, regulatory frameworks, and policies boosting local manufacturing.

The government plans to extend Rs 30 bn in the upcoming PLI scheme, which marks a substantial increase from the previous allocation of Rs 1.6 bn.

The proposed PLI scheme will support three main verticals: drone research & development (R&D), component infrastructure and testing, and drone manufacturing.

Additionally, the scheme will cover design-linked incentives (DLIs) to foster innovations in various classes of drones, including those for defence, agriculture, and commercial uses.

Taking this into consideration, the drone industry in India is poised to grow.

Let's explore some Indian drone manufacturing companies that are well positioned to benefit from the government's incentivised PLI scheme.

#1 DroneAcharya Aerial Innovations

First in the list is DroneAcharya Aerial Innovations.

Incorporated in 2017, DroneAcharya Aerial Innovations Limited provides a high-end ecosystem of drone solutions for multi-sensor drone surveys, data processing of drone data using robust high-configuration workstations, drone pilot training, and specialised GIS training.

The company offers services in four broad categories:

1. Training (DGCA Certified Drone Pilot, Drone Building, Aerial Cinematography, Aerial Mapping, and Drone Data Processing).

2. Services (Consultancy services for Government and private organizations, reality capture data processing software, anti-drone solutions for rogue UAVs, and UTM air traffic management solutions).

3. Surveillance (land surveying and underwater services).

4. Others (Partnering with SPH Engineering from Latvia, DroneAcharya also provides integrated drone solutions for Bathymetry, drone shows, Hydrography, industrial and archaeological surveys, along with Environmental Monitoring).

Its advancements in creating AI algorithms for crop health and yield assessments, alongside developing a web and mobile platform for agricultural advisories, showcase its commitment to innovation.

Furthermore, the company's defence sector ambitions are promising, particularly with the launch of FPV drones, loitering munitions, and anti-drone solutions.

Another major growth opportunity lies in the geographical promotion of its drone solutions across Latin America and Africa, expanding DroneAcharya's global presence.

The company's efforts to develop space tech solutions, including CubeSats and nanosatellites, are also noteworthy as they target the rapidly growing global CubeSat market.

DroneAcharya has ambitious targets, aiming for a 200% increase in revenue, operating income, and PAT. This focus on scaling up operations, expanding into new markets, and strengthening its technological capabilities has driven its share price higher.

For more details about the company, you can have a look at DroneAcharya Aerial Innovations' factsheet and DroneAcharya Aerial Innovations' quarterly results on our website.

#2 IdeaForge Technology

Second in our list is IdeaForge Technology.

Founded in 2007 by IIT Bombay alumni Ankit Mehta, Rahul Singh, Ashish Bhat, and Vipul Joshi, IdeaForge Technology is engaged in the security operations segment as the first India-based organisation to develop and manufacture vertical take-off and landing (VTOL) UAVs.

In addition to the US, IdeaForge has also expanded beyond India to Oman, Nigeria, and Bhutan.

The Mumbai-based company makes drones for India's armed forces, police and homeland security as well as industrial applications. IdeaForge has a license from the Ministry of Defence to manufacture unmanned aerial vehicles (UAVs).

IdeaForge Financial Snapshot (2020-24)

	FY20	FY21	FY22	FY23	FY24
Revenue Growth (%)	NA	148%	359%	17%	69%
Gross Profit Margin (%)	47%	45%	74%	68%	48%
Operating Profit Margin (%)	NM	NM	47%	26%	18%
Net Profit Margin (%)	NM	NM	28%	17%	14%
Return on Capital Employed (%)	NA	NM	48%	15%	11%

Data Source: Ace Equity

Coming to its financials, In Q1 FY25, the company experienced a significant decline in financial performance.

Net profit dropped 90% to just Rs 20 m, compared to Rs 190 m in Q1 FY24. This decrease was in part due to lower revenue, which fell by 11% YoY to Rs 860 m.

The company's order book also showed a downturn. At the end of the June quarter, it stood at Rs 542 m, a substantial decrease from Rs 1.2 bn reported at the end of the March 2024 quarter, marking the lowest level in four quarters.

Looking ahead, the company is focusing on several key strategies to regain momentum. It has been granted five new patents, demonstrating its commitment to innovation.

The company is making strategic investments to enhance its capabilities in surveillance, expand its Drone-as-a-Service (DaaS) offerings, and develop middle-mile logistics solutions. These efforts aim to drive technology adoption and generate demand.

The company also launched the beta version of FlightCloud, an automated workflow platform for civil drone applications. This platform aims to simplify drone data management and provide a unified solution for customers.

The company's long-term goals include leveraging technology and strategic partnerships to expand its service offerings and explore new market opportunities.

It continues to emphasise innovation and market leadership, aiming to build on its technological advancements to drive value for stakeholders.

With an order pipeline of over Rs 3 bn and potential international expansion, the company is preparing for future growth despite current challenges.

For more details about the company, you can have a look at IdeaForge Technology Company fact sheet and IdeaForge Technology quarterly results on our website.

# 3 RattanIndia Enterprises

RattanIndia Enterprises, a leader in the Indian drone industry, spearheads the market through its 360° Drone-as-a-Product and Drone-as-a-Service portfolio offered by its wholly owned subsidiary, NeoSky India Ltd.

The company is building a strong presence across consumer, commercial, defence drones along with drone services and pilot training.

The drone-as-a-service concept presents a significant opportunity in the drone industry, as it offers a cost-effective solution for companies. This is expected to fuel industry growth and reduce enterprise costs.

Through its subsidiary NeoSky India, Rattan boasts the largest operational deployment of indigenous UAVs in India. It's diverse approach to the logistics, surveillance, agriculture, audit and inspection sectors gives it a competitive edge.

The company has a new opportunity to increase its revenue, thanks to its licence to train drone pilots. This is important as India will need about 100,000 drone pilots in the next few years.

The company has made substantial investments in research and development to improve its existing product technology and expand its range of offerings.

Its subsidiary, Throttle Aerospace Systems (TAS) made India's first DGCA approved drone. It has a licence to make drones for the Ministry of Defence (MoD). TAS has also qualified for the government's PLI scheme.

The company is implementing a multi-faceted sales strategy, including direct sales, partnerships, and online platforms, to increase market reach and product visibility.

This involves customer engagement activities, product demonstrations, social media campaigns, and a distributorship sales model to boost income.

RattanIndia Enterprises Financial Snapshot (2022-24)

	FY22	FY23	FY24
Gross Profit Margin (%)	374%	17%	17%
Operating Profit Margin (%)	NM	1%	1%
Net Profit Margin (%)	NM	5%	5%
Return on Capital Employed (%)	NM	3%	3%
Return on Equity (%)	80%	NM	50%

Data Source: Ace Equity

Coming to its financials, in Q1 FY25, RattanIndia Enterprises reported an increase in revenue of 70% from Rs 25 bn vs Rs 14.7 bn, in Q1FY24. The net profit for the quarter stood at 8.5 bn, showing a growth of more than 4 times.

For more details, see the RattanIndia Enterprises company fact sheet and quarterly results.

#4 Zen Technologies

Zen Technologies is a defence drone manufacturing company. Its anti-drone systems detect, track, and neutralise threats by jamming drone communication. The company also provides simulators for weapons and defence equipment.

It's a renowned company engaged in the design, development, and manufacture of defence training systems. The company offers a range of products that include driving simulators, live range equipment, anti-drone systems, and more.

Its anti-drone system works for drone detection, classification, and tracking through passive surveillance and neutralisation of threats by jamming the communication system of a drone.

Zen Technologies Financial Snapshot (2020-24)

	FY20	FY21	FY22	FY23	FY24
Revenue Growth (%)	62%	-63%	28%	214%	101%
Gross Profit Margin (%)	75%	84%	81%	73%	73%
Operating Profit Margin (%)	42%	14%	7%	33%	41%
Net Profit Margin (%)	40%	5%	4%	23%	30%
Return on Capital Employed (%)	33%	3%	2%	23%	46%

Data Source: Ace Equity

Coming to its financials, Zen Technologies reported results in line with expectations. The revenue for Q1 FY25, grew by 92% to Rs 2.5 bn versus the 1.3 bn, in Q1 FY24.

There has been significant growth in demand for counter-drone systems, with a shift from soft-kill to hard-kill solutions. Zen Technologies claims to be at the forefront of this market, owning IP for critical components such as detectors, radars, cameras, and command/control systems.

Management sees significant potential in the air force and navy simulator markets, which are currently dominated by imports, and they are collaborating with OEMs to develop simulators as part of new product offerings.

Furthermore, management is exploring acquisitions in electronic warfare and training/simulation sectors to enhance product offerings, emphasizing the importance of maintaining synergy with acquired companies for smooth integration.

Their focus on R&D aims to continuously innovate and adapt to emerging threats in the defence sector. The management has expressed confidence in achieving financial targets while maintaining a focus on innovation and customer satisfaction.

The target revenue set for FY25 is Rs 9 bn. The management expects an operating margin of around 35% and the net margin of 25%. Overall, management is optimistic about future growth, citing strong demand in core markets and a robust pipeline of orders.

For more details, see Zen Technologies' company fact sheet and quarterly results.

Conclusion

While the Indian drone industry is poised for significant growth, thanks to the government's enhanced PLI scheme and a broader range of applications, challenges remain. Regulatory hurdles, a shortage of skilled talent, and the risk of market saturation, could impede progress.

Although the PLI scheme offers substantial support for research, development, and manufacturing, not all companies may capitalize on these benefits effectively.

Investors should stay conscious of these dynamics and evaluate any investment judiciously. Ensure that you're informed about the risks and potential rewards in this rapidly evolving sector.

Happy investing.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...