From the Iran war to rising geopolitical tensions across the globe, conflicts are driving demand for advanced defence technologies, from thermal imaging and missile guidance to systems that can counter drone swarms. Against this backdrop, Tonbo Imaging’s ₹852.18 Cr IPO offers investors a chance to bet on India’s growing defence tech sector.
Bengaluru-based defence tech company’s IPO remained in strong demand on the second day of bidding, garnering 6.29x subscription by 1:30 PM on October 16, according to BSE data, while its grey market premium (GMP) surged to as high as 71%.
The Bengaluru-based company has fixed its price band at ₹665-700 per share, valuing it at around ₹4,010 Cr at the upper end. The IPO closes on October 19.
The offer-for-sale-only issue comprises 1.22 Cr equity shares by existing shareholders. Investors can bid for a minimum of 21 shares, translating into an investment of ₹14,700 at the upper end of the price band. The company is expected to list on the BSE and NSE on October 23.
Founded in 2003, Tonbo enters the market with a specialised portfolio of imaging and sensing systems used by defence forces and security agencies. Its products range from thermal imaging systems and weapon sights to missile seekers and high-power microwave systems designed to counter drone swarms. It claims to have deployed more than 28,000 systems across 24 countries, building a presence in both domestic and international defence markets.
However, its recent financial performance has been unimpressive. Revenue from operations fell 22.7% year-on-year (YoY) to ₹362.65 Cr in FY26, while net profit declined around 30% to ₹50.88 Cr. The company also reported a net loss of ₹17.74 Cr in Q1 FY27.
CEO Arvind Kondangi Lakshmikumar attributes the FY26 decline to delays in executing international programmes rather than a fundamental change in the business. He argued that defence technology companies need to be assessed over longer periods, given the nature of procurement and delivery cycles.
So, can Tonbo turn its tech advantage and order pipeline into sustained growth, while meeting the expectations built into its IPO valuation? But first…
A Sneak Peek Into Tonbo’s Tech
Tonbo designs and develops electro-optical and infrared (EO/IR) systems, embedded electronics and imaging technologies. Its products help users detect, observe, identify and track objects in difficult visibility conditions. The portfolio spans thermal imaging cores, handheld thermal binoculars, weapon sights, targeting systems, fire-control systems, missile seekers and missile-guidance systems.
Tonbo’s technology focuses on reducing the size, weight and power consumption of thermal imaging systems, potentially allowing them to be deployed across a wider range of military applications.
“Thermal imaging has been around for 30-40 years. But it has always been heavy, expensive and consumed a lot of power, which limited the applications in which it could be used. What we have been able to do is build components that allow us to reduce the size, weight and power usage of thermal imagers,” Lakshmikumar said.
This, he added, creates opportunities to deploy the technology across smaller weapons, helmets and other military equipment. The CEO also sees considerable headroom in India’s thermal sights market as the armed forces expand their procurement of such systems.
“India has around 30,000 thermal sights, of which Tonbo has supplied approximately 20,000,” Lakshmikumar said. The company’s RHP, citing a Frost & Sullivan report commissioned by Tonbo, estimates that it accounted for 51% of thermal imaging units supplied to the Indian government between April 2024 and March 2026.
Beyond thermal imaging, Lakshmikumar identified missile seekers and high-power microwave technology as two other potential growth drivers.
Tonbo is working on a missile seeker programme with Bharat Dynamics Limited (BDL). According to the CEO, India has a significant requirement for missiles and Tonbo is the sole-source supplier to BDL for an uncooled missile seeker.
The third area is high-power microwave technology designed to counter drone swarms. Lakshmikumar said Tonbo is among a small number of companies globally with the capability to take down drone swarms at ranges exceeding three kilometres.
He cited early customer interest, including a letter of intent from Europe and requirements from the Indian Navy, while indicating that deliveries from these opportunities are expected only in FY29-FY30.
These programmes offer Tonbo multiple potential avenues for growth, but they are at different stages of development and procurement. Their contribution to revenue will depend on how quickly customer interest translates into firm orders and deliveries.
Tonbo’s business model also distinguishes it from a conventional defence manufacturer. The company retains control over product design, engineering and intellectual property while outsourcing large-scale manufacturing to external vendors. According to its red herring prospectus (RHP), it works with manufacturing partners including Kaynes and Avalon.
Its international footprint provides another avenue for growth. The company serves customers across more than 24 countries, with deployments spanning markets such as Armenia, Morocco, the UAE, Australia, Europe, the US and Israel.
Lakshmikumar said Tonbo approaches international markets with two objectives: using deployments in developed markets to demonstrate technological performance, and entering emerging markets to establish that its products can be scaled at appropriate price points.
“We sell to customers such as the Mossad and the US Navy SEALs to show that the products can be technically superior,” he said.
Revenue Slows But Recovery On The Cards
Tonbo’s financial performance presents an important consideration for investors. Revenue from operations rose from ₹428.19 Cr in FY24 to ₹469.08 Cr in FY25, before falling to ₹362.65 Cr in FY26. PAT rose from ₹68.54 Cr in FY24 to ₹72.76 Cr in FY25 and then declined to ₹50.88 Cr in FY26.
The company’s EBITDA fell to ₹104.62 Cr in FY26 from ₹139.06 Cr in FY25. However, its EBITDA margin remained relatively resilient at around 28.9%, compared with 29.6% in FY25. The fall in earnings was therefore accompanied by a much smaller contraction in EBITDA margin, suggesting that the decline in revenue was a key factor behind the lower absolute profit.
Lakshmikumar said the revenue decline was primarily caused by international programmes that could not be completed within FY26 and have consequently moved into FY27.
“Defence businesses need to be looked at over a three-to-five-year window, and even more so for a defence technology products business,” he said.
The CEO cited a programme in Morocco that was expected to be delivered in March but was delayed because equipment required for the contract could not be shipped from the UAE amid the West Asia crisis.
Lakshmikumar also pointed to an ongoing programme in Armenia, where Tonbo has delivered systems worth $55 Mn over the past three years. He said the next phase had been delayed because guns supplied by an Indian public sector company were held up, with the shipment route affected by the regional situation.
Despite the lower export contribution in FY26, Tonbo delivered gross margins above 51%, compared with the roughly 40% gross margin it typically forecasts for its domestic business. The CEO attributed this to the delivery of a different mix of higher-margin platform systems during the year.
The company’s order book provides some visibility into future business. Tonbo had an order book of ₹314.24 Cr as of June 30, 2026, comprising ₹231.87 Cr in domestic orders and ₹82.37 Cr in overseas orders. It also received new orders worth ₹118.15 Cr between July and September, according to the RHP.
The June-end order book was equivalent to around 87% of FY26 revenue. While this does not guarantee near-term revenue, it gives investors a base against which to track execution in the coming quarters.
Cash generation and working capital are other moving parts of the financial picture. Tonbo reported negative operating cash flow of approximately ₹136 Cr in FY25 and ₹63 Cr in FY26, despite remaining profitable at the PAT level.
Inventory rose from ₹219.49 Cr at the end of March 2026 to ₹319.63 Cr at the end of June 2026, while short-term borrowings increased from ₹116.06 Cr to ₹129.72 Cr over the same period. These figures warrant attention, particularly as the company prepares to execute delayed and new programmes.
Lakshmikumar, however, argues that the reported working-capital days do not fully reflect the company’s underlying operating cycle because revenue is heavily concentrated in the second half of the financial year.
A ₹4,010 Cr Valuation Reflects The Promise Of Deep Tech Defence
Tonbo’s IPO offers investors exposure to a specialised defence technology business with proprietary products, international deployments and potential growth opportunities across thermal imaging, missile seekers and counter-drone systems.
The company’s position in select thermal imaging categories, along with its existing relationships with domestic and international customers, gives it a platform from which to pursue further programmes. The broader opportunity lies in the growing importance of indigenous defence technology and advanced sensing systems.
Lakshmikumar said investors should assess the company on the strength of its demonstrated technology and its ability to sell to demanding international customers.
Meanwhile, the company’s high valuation means investors expect it to keep growing quickly. At the upper end of the price band, Tonbo is valued at around ₹4,010 Cr, or nearly 79X of the FY26 PAT.
The grey market premium of around 71% points to strong investor enthusiasm, with the market appearing willing to look beyond the recent earnings decline and bet on the company’s longer-term opportunity.
For investors, the key indicators to watch will be the execution of delayed international programmes, the conversion of new orders into revenue, the contribution of higher-value products and the improvement in cash generation.
For now, Tonbo’s proposition combines a specialised technology base with a potentially expanding market. Its ability to turn that promise into consistent financial performance will determine whether the IPO marks the beginning of a new phase of growth.
[Edited by Shishir Parasher]
The post Tonbo Imaging IPO Gets A Strong Start, But Does Growth Justify Its Valuation? appeared first on Inc42 Media.