CFF Fluid - BSE SME FPO review (May apply)

•    It floated its maiden IPO in June 2023, and now coming with FPO to raise further funds.
•    The company is engaged in the manufacturing and servicing of submarine machinery, critical components and related servicing for defence PSU shipyards.
•    The company marked steady growth in its top and bottom lines for the reported periods.
•    Based on its recent financial data, the issue appears aggressively priced.
•    Well-informed investors may park funds in this issue for long term.

PREFACE:
The company came with its maiden IPO of Rs. 85.80 cr. at a price of Rs. 165 per share in June 2023. Since listing, it has posted high/low of Rs. 949 / 165, and for last 52 weeks. it marked high/low of Rs. 932.95 /Rs. 392.00, while its last trade was at Rs. 658.40. For IPO as well as for this FPO, it has given mandate to Aryaman Financial. Its current promoters’ holding is at 73.30, which will get reduced further based on the FPO dilution.

ABOUT COMPANY:
CFF Fluid Control Ltd. (CFCL) was incorporated with a vision to serve the requirements of emerging defence sector of the country. It is engaged in the manufacturing and servicing of Submarine machinery, critical component systems and test facilities for Indian Defence PSU Shipyard. On June 12, 2023, the Company vide an Initial Public Offer listed its equity shares on BSE SME Platform embarking its journey of being a public listed company. As on May 31, 2025 it had a robust order book of Rs. 513.97 cr. of which over 90 % pertains to orders from Indian Defence PSU Shipyard (including its OEMs).

Currently, CFCL operates through manufacturing facilities located at Khopoli, Raigarh which is entirely dedicated to cater the requirements of Indian Defence PSU Shipyard for manufacturing and supplying mechanical equipment for the ―Scorpene Submarine Program of India. Its manufacturing facilities located at Khopoli is spread over 6,000 sq. mtrs. and is well equipped with all the relevant state of the art machinery and testing facilities. It has in-house capabilities and proficiency in design, manufacturing and providing service for fluid control systems, distributor and air panels, Weapons and Control Systems, Steering gear, Propulsion Systems, High Pressure Air Systems, Hydraulics Systems, Breathing and Diving Air Systems and Integrated Platform Management Systems for submarines and surface ships for the Indian Defence PSU Shipyard and its OEMs.

The partnership between CFF and Atlas Elektronik signifies a strategic move towards achieving self-sufficiency in the production of critical defense equipment. CFCLs expertise in engineering will be combined with Atlas Elektronik ‘s proven sonar technology, resulting in a powerful indigenous ASW solution. This collaboration not only strengthens India ‘s defense capabilities but also fosters technological advancements within the domestic defense sector. The production of LFVDS is a pivotal move in supporting the Indian Defence self-reliance objectives, fostering domestic skill development, and strengthening the national defense ecosystem. As of March 31, 2025, it had 245 employees on its payroll.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its FPO of 1500000 equity shares of Rs. 10 each at a fixed price of Rs. 585 per share to mobilize Rs. 87.75 cr. The issue opens for subscription on July 09, 2025, and will close on July 11, 2025. The minimum number of shares to be applied is for 400 shares and in multiples of 200 shares, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 7.15% of the post-IPO paid-up capital of the company. The company is spending Rs. 6.81 cr. for this FPO process, and from the net proceeds of the fresh equity issue, the company will utilize Rs. 72.60 cr. for working capital and Rs. 8.34 cr. for general corporate purposes. 

The FPO is solely lead managed by Aryaman Financial Services Ltd., and Cameo Corporate Services Ltd., is the registrar to the issue. ARYAMAN group’s Aryaman Capital Markets Ltd. is the market maker.

The company has issued initial equity shares at par value, and has issued further equity shares in the price range of Rs. 50 – Rs. 165 between August 2013, and June 2023. It has also issued bonus shares in the ratio of 6 for 1 in July 2022. The average cost of acquisition of shares by the promoters is Rs. 5.50, and Rs. 5.57 per share. 

Post-IPO, company’s current paid-up equity capital of Rs. 19.47 cr. will stand enhanced to Rs. 20.97 cr. Based on the upper price band of the IPO, the company is looking for a market cap of Rs. 1226.99 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit of Rs. 71.10 cr. / Rs. 10.14 cr. (FY23), Rs. 106.98 cr. / Rs. 17.09 cr. (FY24), Rs. 146.10 cr. / Rs. 23.85 cr. (FY25). The company posted growth in its top and bottom lines for the reported periods. But sustainability of boosted profits raises eyebrows and remains a major concern. 

For the last three fiscals, the company has reported average EPS of Rs. 10.38 and an average RoNW of 19.35%. The issue is priced at a P/BV of 7.71 based on its NAV of Rs. 75.92 as of March 31, 2025, and at a P/BV of 5.21 based on its post-IPO NAV of Rs. 112.32 per share.

If we attribute FY25 super earnings on post-IPO fully diluted equity capital, then the asking price is at a P/E of 51.45. Based on FY24 earnings, the P/E stands at 71.78. The issue relatively appears aggressively priced. 

For the reported periods, the company has posted PAT margins of 14.34% (FY23), 15.99% (FY24), 16.39% (FY25), and RoCE margins of 24.18%, 17.50%, 21.84%, respectively for the referred periods.

DIVIDEND POLICY:
The company has paid a dividend of 5% as of November 15, 20233, September 20, 2024, November 18, 2024, and June 05, 2025. It will adopt a prudent dividend policy, based on its financial performance and future prospects. 

COMPARISION WITH LISTED PEERS:
As per the offer document, the company has shown Data Patterns, MTAR Techno, Bharat Electronics, and Paras Defence, as their listed peers. They are trading at a P/E of 75.2, 90.1, 58.7, and 122(as of July 04, 2025). However, they are not truly comparable on an apple-to-apple basis.

MERCHANT BANKER’S TRACK RECORD:
This is the 14th mandate from Aryaman Financial in the last three fiscals including the ongoing one.  From the last 10 listings, all listed with a premium ranging from 0.80% to 31.15%, on the listing date.