Will Indian Drone Companies Deliver? An Update...

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Will Indian Drone Companies Deliver? An Update...

Nov 22, 2021

Will Indian Drone Companies Deliver? An Update

Last month, we wrote to you about India's New Drone Scheme and which stocks to watch out for.

In the article, we elaborated on the companies in the drone space and discussed how the new drone policy and PLI scheme is making things easier for startups and MSMEs.

Here's an excerpt from the article -

  • The new drone policy and PLI scheme is a huge confidence booster for startups and MSMEs (micro, small, and medium enterprises).

    India has more than 190 defence tech startups building innovative tech solutions and many of them are involved in the drone technology.

    To urge startups and MSMEs, the government has kept the eligibility norm of annual sales turnover at a low level of Rs 20 m for drones and Rs 0.5 m for drone components.

    For others, the annual sales turnover cap has been set at Rs 40 m for drones and Rs 10 m for drone components.

    The eligibility norm for startups and MSMEs is quite low, which in turn could attract companies in the drone ecosystem.

    Now that the foundation is set, thanks to the new drone rules and PLI scheme, the drone revolution can happen at a quicker and even larger scale now.

Since the last update, a lot has happened in the drone industry. Companies have stepped up offerings and hiring. They are getting increased orders.

International drone makers are targeting Indian market.

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Let's take a look at each of these points in brief.

Increased hiring and product offerings

As the PLI scheme has brought down drone prices, there's increased demand. To meet this demand, drone makers and service providers are ramping up their product offerings and hiring.

Unlisted drone companies are getting more orders. These companies include Aarav Unmanned Systems, ideaForge, Grene Robotics, Skylark Drones, and Skye Air Mobility.

These companies have said their sales have grown 3-5 times in the last year.

For example, Aarav Unmanned Systems, which supplies drones to Tata Steel among others, will add 500-600 people in the next year.

Big orders

The Army, Navy and Air Force have placed orders worth more than Rs 5 bn with Indian drone companies.

This is a big order and surely a tipping point for the nascent drone industry in India.

ALERT: Top Investment Recommendation for 2022

International drone makers targeting Indian market

As the latest drone rules have eased the entry of foreign manufacturers into the market, India will soon become a "drone hub".

Besides reducing the number of forms that need to be filled to operate them from 25 to 5 and decreasing the types of fees charged from the operator from 72 to 4, the new rules have abolished the requirement of various approvals.

This, in turn, has forced foreign entities to peek into the Indian drone market.

For example, last month, European commercial drone and software developer FIXAR announced its entry in the unmanned aerial vehicle market in collaboration with Paras Aerospace, a subsidiary of Paras Defence.

The initial agreement targets delivery of 150 drones to the operators in India in the next 6-8 months with the first expected to arrive this month.

Meanwhile, DJI, the world's largest manufacturer of commercial drones, is planning to enter the Indian drone market.

An update on what Indian drone companies are doing...

The era of drones has just begun in India and it will provide massive opportunities in this exciting market to those who can spot the right trends at the right time.

Up until a couple of years ago, there were fewer companies which were involved in the drone market. Now, more and more companies are looking to tap into the market.

From big corporates like Adani and Reliance to other small companies, everyone is cashing in on the mad drone rush.

We saw how Info Edge invested in a drone startup, how RattanIndia Enterprises forayed into this space, how Zen Technologies' shares doubled on getting a drone order and many more examples.

There was DCM Shriram Industries which announced an arrangement with Zyrone Dynamics, a Turkish UAV and drone manufacturer.

This month, Solar industries announced that it has successfully demonstrated its prototypes of Weaponised Drones (Hexacopter) and Loitering Munitions and become the first Indian firm to do so.

Solar Industries is a world leader in packaged explosives and accessories.

It is developing an array of drones for ammunition delivery to bring a new capability to Indian armed forces.

It has one of the largest production facilities for HMX & its compositions in the world. So far India was dependent on imports of these products but thanks to Solar industries, these items are now being exported to many countries including the USA, Europe & Israel.

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Meanwhile, logistics company TCI Express is looking to begin deliveries using drones by the end of the ongoing fiscal.

How much the company has invested towards this is not confirmed yet but it has conducted trails which were successful. With this, TCI becomes first express logistics company in India to conduct drone delivery trials.

In other development, steel giant Tata Steel is working with Aarav Unmanned Systems on various business verticals for enterprise based solutions.

Aarav Unmanned Systems will carry out monthly drone surveys of the mining leases of Tata Steel and deliver advanced Mine Analysis. Tata Steel has also signed a contract with the company to procure three survey-grade drones for serving internal survey requirements and R&D applications.

Will Indian drone companies deliver?

Currently, most of the demand for drones is driven by sectors such as entertainment, defence, and surveillance.

But it won't be long before we see drones making a stellar contribution across different industries.

The Indian drone market, at a nascent stage, is currently a tiny fraction of the global drone market.

The Chinese drone market alone is 14 times that of India's.

Imagine the kind of investments that could come into this space now that the foundation is set with PLI scheme and new drone rules.

This sector holds immense promise.

While there are not many drone manufacturers that are listed on the bourses, there's a good possibility of a few IPOing in the near future.

Co-head of Research at Equitymaster, Tanushree Banerjee keeps a close watch on stocks from this space.

Infact, as per Tanushree, India's drone revolution is a 4x profit opportunity. She has identified a little known drone company with immense potential.

Back in July 2021, she also recorded a video about India's best drone stocks.

Here are Links to Some Very Insightful Equitymaster Articles on Drones

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...

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