Best Drone Stock: Ideaforge vs Zen Technologies

The Indian drone industry has experienced significant growth in recent years thanks to government initiatives to make India a global drone hub by 2030.

The industry is expected to witness a compound annual growth rate (CAGR) of 17% in the next five years to reach USD 1,437 million by 2029.

To add to this, the growing application of drones beyond defence especially in agriculture, surveillance, e-commerce, and disaster management is pushing the growth of the industry.

Although the industry is facing few challenges with respect to the regulations, lack of infrastructure, and high competition, it is set to grow exponentially in the next decade.

In this high-growth industry, two of the most prominent players are Ideaforge and Zen Technologies.

Let's compare them based on various parameters to see which one has a better chance to rise to the top.

Business Overview

#Ideaforge

Ideaforge is engaged in the manufacturing of unmanned aircraft systems (UAS) for mapping security and surveillance.

The company's product portfolio includes hardware such as payloads, and communication systems, software controlling their hardware, and solutions that enhance the value of their UAS.

Ideaforge's products are used in defence, construction and real estate industries and have a strong domestic and international presence.

The company is the market leader in UAS, with over a market share of 50% in the Indian UAS market.

It is also ranked 5th globally in the dual-use category of drone manufacturers.

#Zen Technologies

Zen Technologies designs, develops and manufactures combat training solutions and anti-drone solutions for defence and security forces.

It also offers annual maintenance services for anti-drone solutions.

The company is a market leader in manufacturing defence training solutions, with a 95% market share in tank simulators.

It serves the Ministry of Defence, the government of India, and armed and security forces.

The company has both a strong domestic and international presence, making Zen Technologies a global player.

Particulars	Ideaforge Technology	Zen Technologies
Market Cap (in Rs billion)*	30.2	153

Source: Equitymaster|* as of 25th September 2024

Between the two companies, Zen Technologies has a higher market cap of Rs 153 billion (bn) than Ideaforge, which has Rs 30.2 bn.

Zen Technologies also has state-of-the-art research and development (R&D) facilities, which helped the company secure over 15 patents in the financial year 2024. Moreover, the company also follows an asset-light model and outsources its manufacturing.

Ideaforge, on the other hand, manufactures its products in-house at its manufacturing facility in Mumbai.

Ever since its inception, the company has been granted 38 patents, and another 34 are pending, indicating that the company is at the forefront of innovation.

In terms of their stock market performance, Zen Technologies is leading with a 114% return in the last year, as against the negative 23% return of Ideaforge.

#Revenue

Revenue is the primary source of income for any business. A company with consistent revenue growth indicates it is getting new clients and new business from existing clients.

In the last five years, the revenue of Ideaforge and Zen Technologies has grown at a strong compound annual growth rate (CAGR) of 86.3% and 24.1% respectively.

The primary reason behind Ideaforge's revenue growth is the company's efforts to scale its business at a rapid pace.

Having first mover advantage in manufacturing vertical take-off and landing unmanned aerial vehicles (UAV), it has managed to acquire several defence and civil application orders.

Moreover, it has focused on developing indigenous design and technological prowess, which have also contributed to its remarkable growth.

Zen Technologies' extensive product portfolio has helped the company secure high orders.

Apart from focusing on training simulation equipment, it has entered the high-growth anti-drone solutions, which have also contributed to revenue growth.

Revenue

Net Sales (in Rs m)	Mar-20	Mar-21	Mar-22	Mar-23	Mar-24	5-Year CAGR
Ideaforge Technology	140	347	1,594	1,860	3,140	86.30%
Zen Technologies	1,493	546	698	2,188	4,399	24.10%

Data Source: Equitymaster

#Profitability

To assess the profitability of a company, we must look at its earnings before interest, tax, depreciation, and amortisation (EBITDA), as well as net profit growth.

A year-on-year growth in profits indicates that the company is able to generate higher profits from incremental revenue.

In the last five years, Ideaforge has managed to turnaround its losses into profits. The EBITDA and net profit at the end of March 2024 stand at Rs 869 million (m) and Rs 453 m respectively as against a loss of Rs 101 m, and Rs 134 m respectively.

The profit margins also consistently grew with EBITDA margin at 27.7% and net profit at 14.4% at the end of March 2024.

The primary reason for strong growth in profits is company's growing order book and its efforts to build new products which is helping the company get new clients.

Zen Technologies' EBITDA and net profit, on the other hand, have grown at a CAGR of 24.8% and 17.2%, respectively.

The margins also expanded over the years and the five year average stood at 31.7% and 18.6% respectively.

The growth in profits for Zen Technologies is on account of the strong influx of orders and the company's focus on being asset-light with a focus on intellectual property creation rather than capital-intensive manufacturing.

Between the two, Zen Technologies has higher EBITDA and net profit than Ideaforge. However, Ideaforge is not far behind and is consistently growing its profits at a strong rate.

Profitability

EBITDA (in Rs m)	Mar-20	Mar-21	Mar-22	Mar-23	Mar-24	5-Year CAGR
Ideaforge Technology	-101	-90	766	585	869	NM
Zen Technologies	647	104	99	799	1,957	24.80%
PAT (in Rs m)	Mar-20	Mar-21	Mar-22	Mar-23	Mar-24	5-Year CAGR
Ideaforge Technology	-134	-146	440	320	453	NM
Zen Technologies	586	28	26	500	1,295	17.20%
Gross Profit Margin	Mar-20	Mar-21	Mar-22	Mar-23	Mar-24
Ideaforge Technology	-72.10%	-25.90%	48.10%	31.50%	27.70%
Zen Technologies	43.30%	19.00%	14.20%	36.50%	44.50%
Net Profit Margin	Mar-20	Mar-21	Mar-22	Mar-23	Mar-24
Ideaforge Technology	-95.70%	-42.10%	27.60%	17.20%	14.40%
Zen Technologies	39.20%	5.10%	3.70%	22.90%	29.40%

Data Source: Equitymaster

#Debt Management

Both Ideaforge and Zen Technologies are debt-free companies.

Ideaforge is focussing on building India's first drone innovation platform where it is promoting a collaborative drone ecosystem with Ideaforge drones.

Given that it already has the hardware, software, and payload support, it is currently working on an automated workflow discovery platform and drone-as-a-service business model.

The company is also continuously working on new product development for the augmentation of several new use cases for drones as a service.

Zen Technologies, on the other hand, is working on building its product portfolio with a focus on anti-drone systems.

It is also looking for any inorganic acquisition that can help the company grow its business scale.

Given that both the companies have enough liquidity, there is no immediate need for any debt-funded capex. This ensures the companies remain debt-free in the medium term.

Debt Management

Debt to Equity Ratio (x)	Mar-20	Mar-21	Mar-22	Mar-23	Mar-24
Ideaforge Technology	0	0.7	0	0	0
Zen Technologies	0	0	0	0	0

Data Source: Equitymaster

#Financial Efficiency

The financial efficiency of a company can be measured through two ratios, namely, return on capital employed (RoCE) and return on equity (RoE).

A high and consistently growing ratio indicates the company is generating higher returns on the capital and shareholders' funds.

The RoE and RoCE for Ideaforge averaged 15.8% and 24.2%, respectively, whereas for Zen Technologies, the three-year average RoE and RoCE are 15.3% and 22.7%, respectively.

Ideaforge has outpaced Zen Technologies in terms of financial efficiency by a slight margin. However, Zen Technologies isn't far behind.

Financial Efficiency

ROCE	Mar-20	Mar-21	Mar-22	Mar-23	Mar-24
Ideaforge Technology	-19.70%	-14.10%	46.60%	15.80%	10.10%
Zen Technologies	31.90%	27.00%	1.70%	24.20%	42.30%
ROE	Mar-20	Mar-21	Mar-22	Mar-23	Mar-24
Ideaforge Technology	-20.60%	-28.60%	29.60%	10.90%	7.00%
Zen Technologies	31.40%	1.40%	0.90%	16.00%	29.10%

Data Source: Equitymaster

#Dividend

Dividend is paid from a company's profits. A consistently profit-making company will pay stable dividends compared to a company that is not making consistent profits.

We can assess the dividend of a company through dividend per share, dividend yield, and dividend payout ratio.

The high dividend yield and dividend ratio indicate that the company is paying high dividends.

Ideaforge hasn't paid any dividends to its shareholders in the last five years.

Zen Technologies, on the other hand, has paid very little dividends to its shareholders. Its dividend per share in the financial year 2024 was Rs 0.9 per share.

The dividend yield and dividend payout ratio averaged 0.4% and 14.8%, respectively, in the last five years.

Dividend

Dividend Per Share (Rs)	Mar-20	Mar-21	Mar-22	Mar-23	Mar-24
Ideaforge Technology	0	0	0	0	0
Zen Technologies	0.3	0.1	0.1	0.2	0.9
Dividend Yield	Mar-20	Mar-21	Mar-22	Mar-23	Mar-24
Ideaforge Technology	0.00%	0.00%	0.00%	0.00%	0.00%
Zen Technologies	1.80%	0.10%	0.10%	0.10%	0.10%
Dividend Payout Ratio	Mar-20	Mar-21	Mar-22	Mar-23	Mar-24
Ideaforge Technology	0.00%	0.00%	0.00%	0.00%	0.00%
Zen Technologies	5.30%	28.70%	30.50%	3.20%	6.50%

Data Source: Equitymaster

#Valuation

To determine a company's value, we analyse its valuation ratios.

The two key ratios commonly utilised are price to earnings (P/E) and price to book value (P/B).

These ratios allow us to assess the true value of a company and help in deciding if it is undervalued or overvalued.

If a company is undervalued, its valuation ratios will be lower compared to its peers. Conversely, if it is overvalued, its ratios will be higher than those of its peers.

The P/E ratio of Ideaforge is 110.9x, and its P/B ratio is 4.6x. For Zen Technologies, the P/E is 95.3x, and P/B is 10x.

In terms of P/E, Ideaforge is overvalued, and Zen Technologies is overvalued in terms of P/B. If we compare the two companies to the industry averages, then both are overvalued.

Valuations	Ideaforge Technology	Zen Technologies
PE (x)	110.9	95.3
PB (x)	4.6	10.1

Source: Equitymaster

Which Drone Stock is Better: Ideaforge or Zen Technologies?

In terms of revenue growth, profit margins, and financial efficiency, Ideaforge is leading.

However, in terms of profit growth, dividend, and valuation, Zen Technologies is at the top.

Zen Technologies is currently focusing on expanding its product portfolio, especially its anti-drone systems.

It is also planning to expand its high-margin asset maintenance business and undertake cost optimisation measures to improve profitability.

Apart from this, it is on a lookout for opportunities to expand inorganically. The company is also investing heavily in R&D to develop new products.

Ideaforge, on the other hand, is focussing on new product development. It also focuses on indigenisation through the domestic supplier ecosystem.

Apart from this, the company is focussing on geographical expansion in the USA, moving from a company-owned and operated to a franchise-owned and operated business model to expand its business.

It also wants to commercialise its drone as a service business to grow its revenue and profits.

Overall, both companies have huge growth plans in this emerging industry.

With the government pushing drone manufacturing and increasing the application of drones in various industries, these two companies are set to experience strong growth in the medium term.

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.