As you know, the use of drones has grown exponentially over the past few years. Known as unmanned aerial vehicles (UAVs), these types of aerial vehicles are used in many different applications, from industrial monitoring to delivering packages.
The technology has also caught the attention of Indian companies. After the Indian government liberalized the drone policy in July 2021, many companies have set foot in the field of drones.
By policy, the use of drones is now not limited to the defense sector. It can be used in other industries such as agriculture, healthcare, travel and media.
Then in September 2021, the government announced the PLI (Production Linked Incentive) scheme for drones. This also encourages companies to invest in the industry.
Earlier this year, we wrote to you about the top Indian drone companies to watch in 2022. While this list still applies, we’ve revised it to include companies that could be worth watching in 2023.
Here are the companies you should be keeping an eye on.
#1 Bharat Forge
First on our list is Bharat Forge, India’s largest forging company.
The company manufactures forged and mechanical components for the automotive, aerospace, mining, oil and gas, marine and power industries.
It is the second largest forging company in the world in terms of volume and revenue.
To reduce its exposure to the cyclical auto industry, it acquired several businesses to diversify into the defense, locomotive, electric and aerospace industries.
One of the companies it fully acquired was Kalyani Strategic Systems (KSSL). KSSL is engaged in the development and deployment of defense electronics and in the field of system integration of defense products and components.
KSSL recently unveiled its drone, the Bharat 150, a multi-payload, variable-mission drone developed by the group itself.
The water and dust resistant Bharat 150 can be used in temperatures ranging from -30°C to 65°C and can reach an average speed of 50km/h. It can operate at a height of 1000 meters above the ground.
The X-8 configuration UAV has been tested by the Indian Army at high altitudes in Ladakh. The management of the company is optimistic about its performance and hopes to start working as soon as possible.
Other than that, Bharat Forge is in good financial shape. The company’s debt-to-equity ratio is 1x. Returns have also been solid, with return on equity (RoE) at 15.4% and return on capital invested at 11.5%.
Next up on our list is L&T.
The company is a multinational conglomerate that provides engineering, procurement and construction (EPC) solutions in key sectors such as infrastructure, power, information technology and defence.
Larsen and Toubro (L&T) has entered into an agreement with drone manufacturer ideaForge to supply drones and related systems for defense use.
The two companies will combine their respective strengths to provide high-tech, integrated drone solutions for enhanced security and surveillance. They will also provide counter-drone solutions to counter the threat of malicious or inadvertent use of drones.
Apart from this, the company has also signed a memorandum of understanding with NewSpace Research & Technologies (NRT) to develop a new series of submarine-launched drones to meet the requirements of the Indian Navy.
Submarine-launched unmanned aerial vehicles (UAVs) are a relatively new concept, and few countries in the world have the capability to operate such systems. They’re also a complex design and development project because drones need to navigate water before they can take to the air.
L&T brings to the project its significant capabilities in subsea systems and has performed extensive work on Indian submarines.
L&T has guided for order inflow growth of 12-15% over the next decade. With a good conversion rate of government tenders, the company is expected to achieve substantial growth in the next decade.
The company’s financials also remain healthy. Despite operating in a capex-heavy industry, the company has a debt-to-equity ratio of 1.6 times. Its returns are also solid, with a RoE of 10.2% and a RoCE of 11%.
#3 Bharat Electronics
Third on our list is Bharat Electronics.
The company is an Indian state-owned aerospace and defense company that caters to the specialized electronics equipment requirements of the Indian Defense Forces.
Bharat Electronics is also eyeing the drone space. In November 2021, the company signed an agreement with Dronedek, an American drone delivery company, to manufacture smart drones for the latter to deliver mailboxes.
The company recently announced that it is developing a tethered drone for applications requiring high endurance.
It prevents attacks like the one that took place at the Pathankot Air Force Base in 2016. Unmanned aerial systems can also be used for aerial reconnaissance and intelligence gathering.
It is also developing a frontline drone called the Hexacopter-20. The Hexacopter-20 is a 20kg drone with a two-stroke internal combustion engine. It can fly for 3.5 hours with a payload of 2 kg.
Bharat Electronics has grown steadily without taking on any debt. The company’s rate of return is above 20%.
#4 Paratrooper Defense
In fourth place is Paras Defense.
The company is primarily engaged in the design and development of defense and aerospace engineering products and solutions.
Paras Defense, through its subsidiary Paras Aerospace, has relationships with several unmanned aerial vehicle (UAV) manufacturers in Israel, Latvia and Italy. This is expected to help companies obtain state-of-the-art solutions.
The company is currently offering a large number of drones of different varieties for the next fiscal year.
In addition to drones, the defense and aerospace engineering company also offers drone cameras. Most recently, the company secured an order for 65 drone parachutes from Bengaluru-based company New Space.
Paras Defense is a beneficiary of the PLI program and has been shortlisted by MoCA in the Drone Component Manufacturer category.
The company’s debt-to-equity ratio is as low as 0.07 times. While RoE and RoCE are 9.2% and 12.4%, respectively, the company’s operating margin is over 25%.
#5 Zen Technology
Last on our list is Zen Technologies.
The company designs, develops and manufactures combat training solutions for the training of defense and security forces.
The group is India’s sole manufacturer of simulated training equipment and counter-drone systems.
The company has secured a supply order of Rs 1.6 crore from the Indian Air Force (IAF) for the supply of Counter Unmanned Air Force System (CUAS).
This is the company’s first major order in the anti-drone field. The company’s management remains confident in securing more orders in the future.
Together with other orders, total order book remains strong at around Rs 450 crore as of now.
While the company has had several years of ups and downs in profitability and sales, its debt has been reduced to almost zero.
According to a report by EY-FICCI, the drone industry is expected to significantly boost India’s manufacturing potential to around $23 billion (Rs 1.87 trillion) by 2030.
Although in its infancy, the industry is broad in scope and looks promising. Imagine use cases for drones in transportation, agriculture, law enforcement, surveillance, and defense.
However, before you venture into the world of drone investing, make sure you know what you’re investing in.
All investing comes with its own set of risks and rewards, so keep an eye on the market, read the fine print, and know exactly what you’re investing in before you pull the trigger.
(Disclaimer:This article is for informational purposes only.This is not a stock recommendation and should not be considered a stock recommendation.)
This article is from Equitymaster.com
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