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CFF Fluid BSE SME IPO review (Avoid)

Review By Dilip Davda on May 26, 2023

•    CFCL is in the business of providing defence sector equipment/services to the Indian Navy. 
•    It suffered a severe setback for FY21 on account of the pandemic. 
•    The sudden jump in bottom lines for FY22 and 9M of FY23 raises eyebrows.
•    It has an order book worth Rs. 90 cr. as of December 31, 2022.
•    The issue is aggressively priced to encase the boom for defence segment counters. 
•    There is no harm in skipping this pricey IPO. 

CFF Fluid Control Ltd. (CFCL) is primarily in the business of manufacturing and servicing shipboard machinery, critical component systems and test facilities for submarines & surface ships for The Indian Navy. Further, it also designs, manufactures and services Mechanical Equipment and systems for industries like Nuclear and Clean Energy.

The company was incorporated with the purpose of having a dedicated new entity focused on meeting the growing requirements of the Indian Navy, Mazagaon Dockyard and Shipbuilders Limited (MDL) for manufacturing and supplying mechanical equipment for the "Scorpion" Submarine Program of India. Soon after inception, a TOT (Transfer of Technology) was signed between CFF and Coyard SAS France for the design, manufacture and supply of Mechanical Components for the Scorpion submarine program. The TOT was approved by relevant authorities and after factory inspection; CFCL was awarded a license for the production of mechanical components for the Scorpion Submarine Program.

As of December 31, 2022, it has an order book worth Rs. 90.04 cr. As of December 31, 2022, it had 33 employees on its payroll. 

The company is coming out with a maiden IPO of 5200000 equity shares of Rs. 10 each at a fixed price of Rs.165 per share to mobilize Rs. 85.80 cr. The issue opens for subscription on May 30, 2023, and will close on June 02, 2023. The minimum application to be made is for 800 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 26.70% of the post-IPO paid-up capital of the company. CFCL is spending Rs. 1.31 cr. for this IPO process and from the net proceeds, it will utilize Rs. 29.42 cr. for working capital, Rs. 21.00 cr. for repayment of loans, Rs. 8.86 cr. for the purchase of machinery and equipment, Rs. 8.50 cr. for acquiring technology for Towed Wire Antenna, and Rs. 16.71 cr. for general corporate purposes. 

Aryaman Financial Services Ltd. is the sole lead manager and Cameo Corporate Services Ltd. is the registrar of the issue. Aryaman Group's Aryaman Capital Markets Ltd. is the market maker for the company. 

Having issued initial equity shares at par, CFCL issued further equity shares at Rs. 50 per share between April 2013 - November 2015. It has also issued bonus shares in the ratio of 19 for 1 in July 2022. The average cost of the acquisition of shares by the promoters is Rs. 5.50 per share. 

Post-IPO, CFCL's current paid-up equity capital of Rs. 14.27 cr. will stand enhanced to Rs. 19.47cr. Based on the IPO pricing, the company is looking for a market cap of Rs. 321.32 cr. 

On the financial performance front, for the last three fiscals, CFCL has posted a turnover/net profit of Rs. 31.96 cr. / Rs. 1.33 cr. (FY20), Rs. 14.81 cr. / Rs. 0.25 cr. (FY21), Rs. 47.12 cr. / Rs. 7.80 cr. (FY22). For the 9M of FY23 ended on December 31, 2022, it earned a net profit of Rs. 7.18 cr. on a turnover of Rs. 50.85 cr. Thus except for the Pandemic year, it reported growth in its top and bottom lines. However, a sudden jump in bottom lines for FY22 and 9MFY23 raises eyebrows. Its revenue includes around 90% from the Defence segment and the rest from the non-Defence segment. 

For the last three fiscals, CFCL has reported an average EPS of Rs. 2.94 and an average RoNW of 30.71%. The issue is priced at a P/BV of 10.70 based on its NAV of Rs. 15.42 as of December 31, 2022, and at a P/BV of 2.98 based on its post-IPO NAV of Rs. 55.35 per share. Its RoAE and RoCE have witnessed wild fluctuations for the reported periods. 

If we annualize FY23 earnings and attribute them to post-IPO paid-up equity capital, then the asking price is at a P/E of 33.54%. Thus the issue is aggressively priced. It appears the company is taking advantage of the current fancy for the defence segment and trying to milk the cow. 

The company has not declared any dividends for the reported periods of the offer document. It will adopt a prudent dividend policy post-listing, based on its financial performance and future prospects. 

As per the offer document, the company has shown Data Patterns, MTAR Tech, Paras Defence and Bharat Electronics as their listed peers. They are currently trading at a P/E of 72.38, 55.47, 54.53, and 26.89 (as of May 26, 2023). However, they are not truly comparable on an apple-to-apple basis. Peers comparison appears to be just an eyewash.

This is the 18th mandate from Aryaman Financial in the last four fiscals (including the ongoing one). Out of the last 10 listings, 1 opened at discount, 2 at par and the rest listed at premiums ranging from 0.02% to 27.18% on the listing date. 

Conclusion / Investment Strategy

The company is catering to the Defence sector and has posted an average financial performance so far. Its peers’ comparison appears to be an eyewash. Based on its annualized FY23 earnings, the issue is aggressively priced. It also mulls encasing the current fancy for the Defence segment and has priced its IPO greedily. There is no harm in skipping this pricey bet.

Reviewer recommends Avoid to the issue.

Review By Dilip Davda on May 26, 2023

Review Author

DISCLAIMER: No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. My reviews do not cover GMP market and operators game plans. Readers must consult a qualified financial advisor before making any actual investment decisions, based the on information published here. With entry barriers, SEBI wants only well-informed investors to participate in such offers. With crazy listings in the recent past, SME IPOs drew the attention of investors across the board and lead to seer madness. However, as SME issues have entry barriers and continued low preference from the broking community, any reader taking decisions based on any information published here does so entirely at their own risk. The above information is based on information available as of date coupled with market perceptions. The Author has no plans to invest in this offer.

About Dilip Davda

Dilip Davda

Dilip Davda is veteran journalist associated with stock market since 1978. He is contributing to print and electronic media on stock markets/insurance/finance since 1985.

Dilip Davda is a leading reviewer of public issues and NCDs in the primary stock market in India. The knowledge he gained over 3 decades while working in the stock market and a strong relationship with popular lead managers makes his reviews unique. His detail fundamental and financial analysis of companies coming up with IPO helps investors in the primary stock market. Dilip Davda has a special interest in analyzing the SME companies and writing reviews about their public issues. His reviews are regularly published online and in news papers.

(Dilip Davda -SEBI registered Research Analyst-Mumbai,

Registration no. INH000003127 (Perpetual)

Email id: ).

CFF Fluid Control IPO FAQs

  1. 1. Why CFF Fluid Control IPO?

    The initial public offer (IPO) of CFF Fluid Control Limited offers an early investment opportunity in CFF Fluid Control Limited. A stock market investor can buy CFF Fluid Control IPO shares by applying in IPO before CFF Fluid Control Limited shares get listed at the stock exchanges. An investor could invest in CFF Fluid Control IPO for short term listing gain or a long term.

  2. 2. How is CFF Fluid Control IPO?

    Read the CFF Fluid Control IPO recommendations by the leading analyst and leading stock brokers.

  3. 3. CFF Fluid Control IPO what should investors do?

    CFF Fluid Control IPO offers an opportunity to buy IPO shares before they get listed at the stock exchanges. Read the CFF Fluid Control IPO Notes, Analysis and Recommendations by leading stock brokerage firms and experts in the above answer.

  4. 4. Is CFF Fluid Control IPO good?

    Our recommendation for CFF Fluid Control IPO is to avoid.

  5. 5. Is CFF Fluid Control IPO worth Investing?

    As per the analysis by our lead analyst Mr. Dilip Davda, we suggest you to avoid the CFF Fluid Control IPO.

  6. 6. When will CFF Fluid Control IPO allotment status?

    The CFF Fluid Control IPO allotment status will be available on or around June 7, 2023. The allotted shares will be credited in demat account by June 9, 2023. Visit CFF Fluid Control IPO allotment status to check.

  7. 7. When will CFF Fluid Control IPO list?

    The CFF Fluid Control IPO will list on Monday, June 12, 2023, at BSE SME.