This little-known defence stock multiplied 3x in a year. More gains ahead?

 India has set a target of generating military exports worth  ₹500 billion annually. (Photo: Hindustan Times)
India has set a target of generating military exports worth 500 billion annually. (Photo: Hindustan Times)

Summary

  • In just a year of its listing, this defence company has surged more than 300%. Do you own it?

India is witnessing a significant transformation under the Modi 3.0 administration, with a pronounced emphasis on boosting economic growth across various sectors. The government's proactive policies and initiatives are creating a ripple effect, positively impacting industries from infrastructure to technology.

Among the most notable sectors experiencing robust growth is defence, spurred by announcements aimed at fortifying India's military capabilities.

A pivotal moment came when defence minister Rajnath Singh unveiled a target to generate military exports worth 500 billion annually. The ministry is actively focused on enhancing the country's defence infrastructure and manufacturing capabilities. This announcement has set the stage for substantial growth within the defence sector, promising lucrative opportunities for companies involved in this space.

One such company poised to benefit immensely from these developments is CFF Fluid Control. This defence stock has already shown remarkable performance, tripling its value over the past year. With the government’s continued focus on self-reliance and modernization of the armed forces, the company stands to gain more, potentially driving further substantial gains for investors.

CFF Fluid Control: From Ship designing to ship construction

CFF Fluid Control emerged as a key player in providing cutting-edge technology and engineering solutions for the Indian defence industry. Established specifically for this purpose, the company quickly made its mark. Upon its inception, it entered into a technology transfer agreement with Coyard SAS France. This collaboration facilitated the introduction of advanced fluid control and mechanical equipment for the Indian Navy's submarine programme.

Building on this initial success, it established a framework agreement with the submarine collaborator, designer, and various international partners. This framework allows the company to offer a wide range of technological solutions – from mechanical and electronic systems to power and communication – all manufactured locally under the ‘Make in India’ initiative. It plays a vital role throughout the entire lifecycle of a defence platform, from in-house design and manufacturing to overhauling, repairing, and providing lifecycle support.

It wouldn’t be far-fetched to say that CFF Fluid Control is at the forefront of the ‘Make in India’ movement. It was the first to indigenize equipment for Indian submarines and has gone on to design and construct equipment for the country's stealthiest ships.

Key strengths of CFF Fluid Control

  • Equipped with the latest software and a deep understanding of stringent defence technical standards.
  • Extensive facilities for precision manufacturing and fabrication of mission-critical equipment, ranging from stealth and propulsion systems to highly precise finished components.
  • Expertise in working with exotic materials like titanium, Inconel, and new-age composites.
  • Comprehensive testing facility for pneumatic, hydraulic, electrical, and electronic systems, with all calibrations and certifications handled by external agencies.
  • Highly trained and experienced personnel coupled with documented procedures ensure consistent quality and on-time delivery.

The company’s capabilities extend beyond defence. It also plays a role in the energy sector, ensuring combat readiness for ships and submarines, facilitating the storage and transport of spent fuel, and optimizing clean energy solutions.

Consistent order inflow

The surging demand in the defence sector has translated into a significant increase in orders for CFF Fluid Control. This positive trend, coupled with the company's impressive track record, has positioned it as a prime contractor for various defence projects. In 2024, it secured numerous contracts with substantial order values. In February, it was awarded a contract for the procurement of spare parts for Project P75, valued at approximately 48.1 million. In the same month, it secured an additional contract for routine and repair contracts (RRC) of hull valves and doublers on-board P-75 class submarines worth 41.4 million.

March brought another major win, with Mazagon Dock Shipbuilders awarding the company a biennial rate contract for engineering work on Project MRLC-2 INS Shankush, valued at 464.6 million. Its momentum continued in March with an RRC for the hiring of services and engineering expertise for design integration/design review (DI/DR) of the MCA 62.5 system installed on submarines, valued at 34.7 million. The most recent order came in May 2024, securing a repair rate agreement for structural renewal on-board ships, valued at 55.8 million.

This string of successful bids demonstrates the company's strong position in the Indian defence sector and its ability to capitalize on the growing market demands.

A look at CFF Fluid Control’s financials

Rising order inflow boosted the company’s revenues. In FY24, the company’s total sales stood at 1,068.6 million, up 51.1% compared to 706.7 million reported in FY23. During the period under review, its net profit increased 68.5% to 170.9 million. In FY24, the company also declared a dividend of 0.5 per share for a share with a face value of 10.

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What next?

The Indian defence sector is experiencing a significant boom, driven by several key factors. India is actively modernizing its armed forces to address evolving security threats and maintain regional influence. This translates into increased investment in advanced weaponry, equipment, and infrastructure. India is consistently ranked among the top military spenders globally. This increased spending translates into a larger pool of resources for defence procurement contracts. The government's ‘Make in India’ initiative prioritizes domestic production of defence equipment.

CFF Fluid Control is well-positioned to benefit from this booming defence sector due to several strengths. Its established reputation for providing high-quality fluid control and mechanical equipment for critical defence applications makes the company a trusted partner for various contracts. By leveraging its strengths, aligning with government policies, and adopting strategic growth initiatives, CFF Fluid Control may become a major player in the booming Indian defense sector. Its contribution can play a vital role in achieving self-reliance in defence equipment production and bolstering India's national security.

Stock performance

In the past five days, CFF Fluid Control share price has rallied 31.6%. In the last month, it is up 44.3%. In 2024 so far, its share price has surged 70%, and it is up 309.9% in the last year. The stock touched its 52-week high of 755 on 19 June 2024 and a 52-week low of 173 on 30 June 2023.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such.

This article is syndicated from Equitymaster.com

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