Drone maker ideaForge, which debuted on stock exchanges in July, has seen its share prices plummet. This is significant because its IPO in June saw a record oversubscription—106.05 times. Now, we could say we saw it coming (Read: Is the ideaForge IPO oversubscription justified?), but let’s understand why this is happening.

Before we delve deeper, let us look at why ideaForge is important. The company designs and manufactures unmanned aircraft systems, commonly referred to as drones, which have a wide range of applications in the agricultural and mining sectors as well as for defence surveillance and recreational purposes. It’s a key player in the industry with the highest revenue among Indian pure-play drone manufacturers and the highest EBITDA margin of 33.7%, globally, according to a 1Lattice report. Its market share in India is over 50%, the report said.

Enthusiasm around ideaForge was riding primarily on future prospects of the drone industry and the company’s promising portfolio. The Indian drone market is estimated to have a “potential” of around $2.7 billion by 2023, with defence being the single largest contributor, according to a Mint report. Apart from that, the “Drone Shakti” initiative also underlined the government’s interest in the sector and its push for manufacturing drones in India.

Sixteen-year-old ideaForge became the highlight of this “sunrise” sector. Why? Apart from being one of the six drone manufacturers to receive production-linked incentives from the Centre, it is also the largest pure-play drone makers and profitable at that. Its order book largely comprises government contracts.

Coming back to the stock, ideaForge shares listed at Rs 1,300 on the NSE, against the IPO price of Rs 672, a solid 93.45% premium. However, it has been on a constant decline since. From an intraday high of Rs 1,344 on its debut, the stock has fallen 27% as of Thursday. Concerns around its slowing orders, poor cash flows, high valuations and low investment in R&D seem to have caught up and dulled the enthusiasm around its listing.

The fact is that soon after its shares were listed, concerns over its oversubscription despite declining orders had been pointed out: “Ideaforge IPO has very strong interest and is already oversubscribed on first day. But anyone knows why orderbook for our own drone maker, a supposedly sunrise industry, shrunk from 310.87 cr in FY22 to 192.27 cr in FY23?”, a user had posted on Twitter.

Analysts too had hinted at its business-related risks while its stock was flying high: “...we would recommend that investors should book profits and exit their positions. This is because, after listing, the stock is already trading at a significant premium to its issue price. Additionally, there are some business-related risks associated with the company. So, it is better to lock in these gains now rather than take the risk of carrying them forward,” an equity research analyst at Swastika Investmart told Business Standard.

Adding to the concerns is the company’s lacklustre performance in its April-June quarterly results, which resulted in stock prices falling to an intraday low of Rs 996 on Wednesday. Stock prices fell to an all-time low of Rs 982 on Thursday.

For the quarter ended 30 June, ideaForge’s total income was flat at Rs 100.3 crore, from Rs 100.6 crore during the same period last year, and net profit was down 54% from the year-ago period at Rs 18.9 crore. Its expenses rose nearly 60% year-on-year, with inventory-related and finance expenses contributing a huge chunk.

However, its CEO Ankit Mehta attributed the performance to the industry being in nascent stages and said that a quarterly comparison was not not the best marker of its performance: “Given the nature and nascent stage of the drone industry in our country, our business performance is not immediately comparable on a quarterly basis. Aligning with the sectoral opportunities, we are actively pursuing new product development and business models. We remain committed to being the flag bearers of performance, reliability, and autonomy in this sunshine sector.”

Even an announcement that the company had clinched a new Rs 88 crore order from the defence ministry for surveillance quadcopters with accessories on Wednesday failed to cheer investors. ideaForge shares closed at Rs 985, down 2.57%, on the NSE on Thursday. Its stock has fallen 15% so far this month.