Best Drone Stocks in India

Best Drone Stocks in India 2024 as per Analyst Ratings

The following table represents the best drone stocks in India in 2024, as per analyst ratings. These analysts perform a comprehensive analysis of the stock market and the stocks under consideration before assigning them a rating.

Best Drone Shares in India in 2024 (as per Market Capitalisation)

Here, we have listed some of the top drone stocks as per market capitalisation.

*Our stock selection criteria for top stocks based on Market Capitalisation are mentioned at the bottom of this blog.

Drone companies are new entrants in the market. So, they do not have a long history based on which investors can take a view to buy their shares. Due to their short history in the markets, they also have little to no analyst following or ratings.

Being in a niche area of operations, one of the parameters that can be used to estimate the strength of a drone company is the order book position. This provides visibility into the company’s future topline, bottomline, and cash flow. 

Overview of Best Drone Stocks in India as per Analyst Ratings and Market Capitalisation

Here is a brief overview of the best drone sector stocks as per analyst ratings and market capitalisation mentioned above -

• ideaForge Technology

ideaForge is a manufacturer of unmanned aerial vehicles (UAVs). It designs and develops these UAVs at its in-house product development centre. The company’s UAVs are used in both the civilian and defence sectors.

The company’s drones are used mainly for activities including land surveys, mining area planning and mapping, volumetric estimation, and oil & gas infrastructure-related activities, including the detection and diagnosis of flare stacks, pipelines, and leaks. Other services include disaster management mitigation, emergency first responders, wildlife management, and perimeter security, among others.

IdeaForge floated its IPO in June 2023. Being a part of a sunrise sector, it received heavy oversubscription. However, very soon focus moved to its falling order book. 

The order book of the drone manufacturer declined to Rs 192.27 crore in FY23 from Rs 310.87 crore in FY22. As of December 2023, the order book stood at Rs 175.8 crore and in March it was Rs 125 crore. The company, on its part, said that may have been due to certain huge orders being completed even as they waited for some new orders to be fully taken into the books. Also, these orders were a mix of defence and civil orders. It is expecting some orders from international markets.

During the year, the company added about Rs 51 crore to the overall expenditure of R&D and about Rs 25 crore was capitalised.

Despite revenue growth, the contribution margin has fallen to 49% from 74% earlier. This is because of investment in sales, marketing, processes, and systems for future growth. Another reason is that some contracts were bid for their very advanced technology. In such cases, the bidding was done at aggressive prices. That has eaten into the margins.           

A total of six patents were granted to ideaForge in Q4. This brings the total number of patents granted to 38. Along with patents pending grant, the number is 72.

• 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.

Zen Technologies is 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.

As of February, this Hyderabad-based defence training company had a total order book position of Rs 1,500 crore. The new orders acquired in the third quarter stood at Rs 129 crore. Of the total orders on hand, Rs 997 crore were domestic orders, and Rs 437 crore were export orders.

The company’s orders are typically executed in 12 to 18 months, with little visibility of longer-term orders, such as for three years. The company is comfortable with this mode of execution and is confident it will not face any shortage of orders.

It enjoys strong margins in the business segments in which it is present. For the simulator business, it enjoys 56-57% margin, while for the anti-drone systems business, it gets 43% margins. It is the largest anti-drone supplier to the Ministry of Defence.

The company had guided for a topline of Rs 450 crore but fell slightly short of that mark. According to the management, that’s because of the floods in Chennai, which impacted some of its supply chain. However, that has been resolved, and the company is confident of achieving a better year (FY25) in terms of topline.

Going forward, the company has given a CAGR of 50% from next year to arrive at Rs 2,000 crore in FY27. Contribution from exports will be 35%.

Operating profit margin has risen to 33.3% from 20-26% earlier. This is due to three reasons. One is the product mix. As that changes, the margins also change. Combined with this, when the scale of operations changes, raw material costs change accordingly. Third, the AMC business is not growing in the same proportion as the equipment costs.

• Paras Defence and Space Technologies

Paras Defence and Space Technologies is a defence equipment and space technology company with a history spanning 40 years. Its business can be segmented into two verticals – Optics & Optronic Systems, and Defence Engineering.

It also has a major presence in drones, including anti-drone systems, through one of its subsidiaries, Paras Anti-Drone Solutions. This subsidiary is a developer of radio frequency (RF) and microwave systems & sub-systems focusing on counter unmanned aerial vehicle (UAV) solutions.

The other subsidiary of Paras Defence & Space Technologies is Paras Aerospace, which offers drone services and related technologies. 

Paras Defence and Space Technologies has an order book of over Rs 630 crore as of March 2024. Most of its business is domestic-oriented. Exports make up about 10-20% of the total business.

Paras Defence received an industrial license from the Ministry of Commerce and Industry, which is valid for 15 years. The license permits the company to set up an industrial unit to manufacture holographic sights and infrared and uncooled thermal vision devices. These are high-end cameras used for a variety of defence applications.

• Hindustan Aeronautics Ltd

Hindustan Aeronautics is India’s largest defence equipment manufacturer and supplier and the seventh-largest public sector undertaking (PSU). It has a massive market cap of over Rs 2 lakh crore.

The company is engaged in the design, development, manufacture, repair, overhaul, upgrade, and servicing of a wide range of products, including aircraft, helicopters, aero-engines, avionics, accessories, and aerospace structures. 

Hindustan Aeronautics Ltd (HAL) was founded in 1963. It is India’s leading aerospace company, engaged in the design, development, manufacture, and maintenance of a vast range of products such as aircraft, helicopters, aero-engines, drones, etc.

Drone start-up Garuda Aerospace and Naini Aerospace Engineering Limited (NAeL), a wholly owned subsidiary of HAL under the administrative control of the Ministry of Defence, has signed a joint development partnership to manufacture Advanced Precision Drones.

HAL currently has an order book of about $10 billion (approx. Rs 83,000 crore). Analysts see its order book rising to Rs 2,40,000 crore by FY26. Garuda Aerospace, the drone subsidiary of HAL, has pre-booked over 7,000 drones at Rs 4.5 lakh each.

According to the management, the defence equipment maker registered an increase of about 13% in revenue from the previous year, faster than its double-digit growth guidance given for FY25.

It was able to achieve this in FY24 due to the commencement of the delivery of light combat aircraft (LCA). On the strength of the new orders likely to materialise in the next two to three years, it expects double-digit growth till 2032.

The rise in gross margins is due to the change in price fixation of certain contracts, which brought in Rs 1,500 crore of additional revenue during the quarter. This increased the margins for the full year too. Also, there was a change of Rs 400 crore in depreciation and amortisation this year compared to the previous year.

Last year, there was also an impairment of Rs 500 crore for Sukhoi, which was not there this year. These two added up to Rs 900 crore, which also helped push up the margins.

The rise in margins and gross and net profit has been made possible due to a variety of reasons. The company focused on cost optimisation. Manpower cost, at around 23% of revenue in FY19, has been brought down to almost 17% in FY24. Also, as a percentage of revenue, overhead expenditure has been brought down from around 8% in FY19 to 4.66%. An inventory of almost 360 days in FY18, was brought down to around 159 days. A fourth area is debtors’ turnover. From almost 227 days in FY19, it has been brought down to 55 days.

HAL’s order book has climbed in the past year. For the year ending March 31, 2024, it stood at around Rs 94,000 crore, up almost 15% from the previous year. This is after liquidation of almost Rs 30,000 crore. The increase is due to the conclusion of various contracts worth almost Rs 19,000 crore in the last financial years.

EBITDA margin for the year suffered because of a one-off item for LCA. Else, it would have been 28-29%. In FY23, it was 27% and in FY22, it was 23%.

• Bharat Electronics Ltd (BEL)

Bharat Electronics Ltd (BEL), established in 1954, to meet the specialised electronics needs of the country’s defence forces, has grown into a multi-product company.

It provides state-of-the-art products and systems in the areas of radars & fire control systems, missile systems, communication & C4I systems, electronic warfare & avionics, naval systems & antisubmarine warfare systems, electro-optics, tank electronics & gun upgrades, and strategic components to the Indian defence sector.

This Navratna company has moved with the times. Thus, it now has a presence in the new and growing area of drones. To counter the threats posed by drone attacks, the Defence Research and Development Organisation (DRDO) developed a counter-drone system, which was then productised and operationalised by BEL. This system is capable of performing real-time search, detection, tracking, and neutralisation of enemy drones.

In the financial year 2023-24, BEL bagged orders worth around Rs 35,000 crore. Combined with the order backlog, the order book stands at Rs 75,364 crore. The orders are for products from across all the segments where it has a presence. This includes electronic fuses, electronic warfare systems, communication systems for naval warships, fire control systems, Akash weapon systems, radars, sonars, software-defined radios, night vision devices, tactical communication systems, and other projects in the non-defence sector.

Analysts say the order inflow growth will taper for the next couple of years because of the current high base.

Strong margin performance was due to the composition of the product mix. BEL sells around 300 products. The composition of this huge number of products led to a gross margin of 45% this year Going forward, the company sees an EBITDA margin of 23% to 25%.

For BEL, the Quick Reaction Surface-to-Air Missile (QRSAM) is the biggest order. It is worth over Rs 30,000 crore for both Army and Air Force. In the normal course, it will take till FY25 or FY26 for the A1 stage, RFP, RFP quotations, P&C, and order processing to be completed, unless the government speeds it up.

Some of the other big projects are Himshakti for Rs 2,527 crore, Akash (Army) at Rs 3,500 crore, LRSAM Rs 5,600 crore, of which Rs 3,200 crore is the target for this year, MPR Arudhra Rs 2,400 crore and Air Defence Control & Reporting System (ADC&RS) Rs 1,967 crore.

For BEL, other expenses of close to about Rs 1,200 crore, are up 68% year-on-year (YoY). That’s because of the higher provisioning of around Rs 220 crore for the Integrated Air Command and Control System project, where the delivery date got extended. While BEL is confident of getting the extension, as per the rules, provisioning had to be made.

Overview of Best Drone Stocks in India as per Market Capitalisation

Below is a brief overview of the top drone stocks in India as per market capitalisation-

*will be updated after annual report is released

#will be updated after annual report is released

Factors to Consider Before Investing in Drone Stocks in India

While building a portfolio with drone sector stocks may seem a profitable idea, you should consider the following factors before investing-

• Regulatory Environment

The regulatory landscape for drones in India is formidable. This can potentially impact the growth and operations of drone companies.

Therefore, investors should keep themselves abreast of the DGCA's latest regulations and understand how they could likely impact the growth of the sector.

• Partnerships and M&As

You should also consider the strategic partnerships and mergers and acquisitions (M&As) that drone companies have formed with the government, leading industry players, research institutes, etc.

It is essential to have a run-through of this factor, as such collaborations can expand market access and help enhance product development.

To understand this factor, read our blog on How Mergers and Acquisitions Affect Stock Prices

• Demand and Market Potential

Before you invest in drone stocks, study their demand and growth potential. Though, at present, the drone industry is booming and catering to multiple sectors, you should assess its growth projections for the future to secure yourself against avoidable shocks.

• Technology and Innovation

Assess the technological capabilities and innovation pipeline of drone companies. You should check which companies are building cutting-edge drone technologies and software solutions that are addressing market needs.

• Valuations

You should also conduct a fundamental analysis to determine the valuation of drone stocks. Check the price-to-earnings ratio, price-to-sales ratio, and other relevant metrics to compare with peers and industry benchmarks.

Should You Invest in Drone Stocks?

The drone industry is witnessing fast growth across various sectors. As drones are increasingly becoming an integral part of numerous business operations and daily lives, there is considerable potential for companies operating in this space to seize market share and record substantial revenue growth.

Nevertheless, you should note that this sector may face setbacks due to stringent government regulations, technological hurdles, high competition, country-wide acceptance of the technology, etc. Therefore, you should take due precautions before investing any sum of money in listed drone company stocks.

Conclusion

As the drone industry continues to evolve, well-positioned companies with strong fundamentals and competitive advantages can generate sustainable growth and deliver shareholder value over the long term.

Drones have the potential to disrupt traditional industries and create new market dynamics. Companies that successfully leverage drone technology to innovate and disrupt established markets can become wealth creators for shareholders.

Yet, before investing in drone stocks, it is crucial to study the industry conditions, and the overall financial performance of the company. And then keep your investment profile and risk appetite in focus while investing.