CFF Fluid Control Ltd Management Discussions

Annexure IV to the Directors Report

Forward looking statement

Statements in this Management Discussion and Analysis of Financial Condition and Results of Operations of the Company describing the Companys objectives, expectations or predictions may be forward looking within the meaning of applicable securities laws and regulations. Forward looking statements are based on certain assumptions and expectations of future events.

The Company cannot guarantee that these assumptions and expectations are accurate or will be realized. The Company assumes no responsibility to publicly amend, modify or revise forward looking statements, on the basis of any subsequent developments, information or events. Actual results may differ materially from those expressed in the statement. Important factors that could influence the Companys operations include changes in government regulations, tax laws, economic developments within the country and such other factors globally.

The financial statements are prepared as per the IND AS guidelines and comply with the Accounting Standards notified under Section 211(3C) of the Act read with the Companies (Accounting Standards) Rules, 2015. The management of CFF Fluid Control Limited has used estimates and judgments relating to the financial statements on a prudent and reasonable basis, in order that the financial statements reflect in a true and fair manner, the state of affairs and profit for the year.

The following discussions on our financial condition and result of operations should be read together with our audited financial statements and the notes to these statements included in the annual report. Unless otherwise specified or the context otherwise requires, all references herein to "we", "us", "our", "the Company", "CFF" are to CFF Fluid Control Ltd.

The information in this section includes extracts from publicly available information, data and statistics and has been derived from various government publications, publicly available documents and industry sources. Neither we nor any other person connected with the Issue have verified this information. The data may have been re-classified by us for the purposes of presentation. Industry sources and publications generally state that the information contained therein has been obtained from sources generally believed to be reliable, but that their accuracy, completeness and underlying assumptions are not guaranteed and their reliability cannot be assured and, accordingly, investment decisions should not be based on such information.

Industry and Overview

Indian Naval Business Outlook

India is one of the strongest military forces in the world and holds a place of strategic importance for the Indian government. The top three largest market segments of the Indian defence sector are military fixed wing, naval vessels and surface combatants, and missiles and missile defence systems. Military rotorcraft, submarines, artillery, tactical communications, electronic warfare, and military land vehicles are some of the other well-known segments. Some of the major defence manufacturing companies in India are Bharat Earth Movers Ltd. (BEML), Bharat Electronics Ltd. (BEL), and Hindustan Aeronautics Ltd. (HAL).

The Indian defence manufacturing industry is a significant sector of the economy. The industry is likely to accelerate with rising concerns about national security. Demand for defence equipment in India has been growing due to the ongoing territorial disputes with Pakistan and China over the ownership of the Northern State of Kashmir and the North-Eastern State of Arunachal Pradesh, respectively. Over the last five years, India has been ranked among the top importers of defence equipment to gain technological advantages over rival countries such as China and Pakistan. To modernise its armed forces and reduce dependency on external dependence for defence procurement, several initiatives have been taken by the government to encourage ‘Make in India activities via policy support initiatives.

Indias defence budget of US$ 78.7 billion ranked fourth highest globally in 2024. India has the worlds Fifth largest defence expenditure, as of 2025, and has set a target of US$ 6.02 billion (Rs. 50,000 crore) worth of annual defence exports by 2028-29.

In the Interim Budget 2025-26, US$ 3.1 billion (Rs. 26,816 crore) was allocated to DRDO, while a corpus of US$ 12.0 billion (Rs. 1 lakh crore) was earmarked for Deep Tech, offering long-term loans to tech-savvy companies to foster innovation in defence technologies within India.

As per the Union Budget 2022-23, 25% of the defence R&D budget has been earmarked for private industry and start-ups which will pave the way for the innovation of new defence technologies in India.

Till March 25, a total of 700 industrial licences were issued to 436 companies operating in the defence sector. Defence exports rose 240% over five years in FY23, to US$ 1.9 billion (Rs. 15,918.16 crore). India now exports to over 85 countries due to collaborative efforts.

Defence exports US$ 2.63 billion in FY23-24 up by 32.5% from last year. Till October 2022, a total of 700 Industrial Licences have been issued to 436 companies operating in Defence Sector. Defence exports grew by 334% in the last five years; India now exports to over 85 countries due to collaborative efforts.

Notable trends in the defence manufacturing sector

Focusing on Defence Startups

• According to government data, India has around 194 defence start-ups building innovative tech solutions. The government has set a target of Rs. 1.75 lakh crore (US$ 21.3 billion) of defence production by 2025, which includes exports of Rs. 35,000 crore (US$ 4.3 billion).

• Indian and American startups will now be able to co-develop and co-produce advanced technologies, including in areas of space artificial intelligence, under the India-United States Defence Acceleration Ecosystem (INDUS-X).

Presence of Private Sector in Defence Manufacturing

• The Indian private sector has grown since opening of the defence sector and evolved from producing components and sub-systems, to developing complete equipment and systems, system of systems and platform level solutions.

• This is clearly visible from the quantum (more than 90%) of defence exports by private defence companies.

Developing AI-based Capabilities

• The Radio Trunk System (RTS), Radio Local System, Artillery Combat Command and Control System (ACCCS) also called as ‘SHAKTI, wireless message transfer unit (WMTU), Advanced Tactical Communication Systems for the Army such as Army Radio Engineered Network (AREN), Army Static Switched Communication Network (ASCON), Troposcatter Communication Systems, SATCOM, Battlefield Management System (BMS) etc. are some of the CAIRs products which have significantly improved military communication in the border areas.

Leveraging IT for Efficient Defence Production Operations

• SRIJAN portal launched to promote indigenization. More than 34,000 items are available for public view and 10,000 items have been indigenized till January 2024.

• Development of an indigenization portal for all defence PSUs and ordnance factories can ensure seamless search experience for stakeholders for processes such as online registration of vendors expressing interest for indigenising a product.

Local designing and development of products

• Indigenous production of defence equipments is at the core of ‘Make in India programme.

• Key defence manufacturing companies are currently focusing on designing and developing various indigenous weapons and essential products to boost domestic manufacturing capabilities and align with Honble Prime Ministers vision of Aatmnirbhar Bharat.

Strategies adopted

Digital Technologies

• Defence minister Mr. Rajnath Singh launched Acing Development of Innovative Technologies with iDEX(ADITI) scheme to promote innovations in critical and strategic defence technologies.

• SRIJAN portal launched to promote indigenization. More than 34,000 items are available for public view and 10,000 items have been indigenized till January 2024

Innovation in Defence Manufacturing

• The Interim budget 2024-25 earmarked Rs. 60 crore (US$ 7.2 million) for the Technology Development Fund (TDF) scheme, specifically designed to support new startups, MSMEs, and academia engaged in defence-related innovation aiming to attract young talent interested in niche technology development, fostering collaboration with DRDO.

• Additionally, a corpus of Rs. 1 lakh crore (US$ 12 billion) for Deep Tech, offering long-term loans to tech-savvy individuals and companies was announced in the Interim Budget 2024-25. This initiative is expected to accelerate innovation in the defence sector, promoting the development of cutting-edge technologies. Rs. As of December 4, 2023, 433 startups/MSMEs/individual innovators have been engaged and 302 contracts have been signed

Leveraging Strategic Partnerships to Build Capabilities

• The Bandhan ceremony of 14th Aero India in Bengaluru on Feb-ruary 15, 2023, witnessed the forging of 266 partnerships including 201 MoUs, 53 major announcements, nine product launches and three Transfers of Technology, worth around Rs. 80,000 crore (US$ 10 billion).

• The 12th and largest-ever defence exhibition - DefExpo 2022 - marked the emergence of Indias defence industry as a sunrise sector for investment on the global scale, in line with the theme ‘Path to Pride. Organized exclusively for Indian companies, the five-day event witnessed unparalleled participation of over 1,340 exhibitors, businesses, investors, start-ups, MSMEs, Armed Forces and delegates from several countries, with engagements spread over four venues

Procurement Of Military Hardware & Software

• The Ministry of Defence signed a contract with Advanced Weapon Equipment India Ltd. for the production and supply of 463 indigenous 12.7 mm Stabilized Remote Control Guns (SRCG) to the Indian Navy and Indian Coast Guard. The contract, valued at Rs. 1752.13 crore (US$ 210 million), boasts an Indigenous Content (IC) exceeding 85%.

• The Indian government is procuring military hardware and software to improve firepower in the Indian Navy and enhance capabilities to perform against fast maneuvering targets such as missiles and ‘Fast Attack Crafts.

• BrahMos: A contract was signed for procurement of 35 combat and three Practice BrahMos missiles for two P-15B ships from M/s BrahMos Aerospace Pvt. Ltd., India for an amount of Rs. 1,723 crore (US$ 209 million).

• Multi-Purpose Vessels: Contract for procurement of two multi-Purpose Vessels (MPVs) for Indian Navy from M/s Larsen &Toubro Limited, Mumbai for a total cost of Rs. 887 crore (US$ 107 million) under Buy (Indian) category was signed in March 2022

• Fast Patrol Vessels: A contract for construction of eight Fast Patrol vessels (FPVs) for Indian Coast Guard with M/s Goa Shipyard Limited (GSL), Goa at a total cost of Rs. 473.47 crore (US$ 57.6 million) under Buy (Indian) category was signed in March.

Market Overview

Segment–wise or product-wise performance/ Recent Trends and Strategies

In the Union Budget 2025-26:

• In 2025-26, the Ministry of Defence (MoD) was allocated a total Budget of Rs. 6.81 lakh crore (US$ 78.7 billion), which is 9.5% YoY increase from 2024-25 budget.

• Of this, Rs. 1.80 lakh crore (US$ 20.8 billion) was allocated towards capital expenditure, including the purchase of new weapons, aircraft,

• warships, and other military equipment

• An outlay of Rs. 7,146 crore (US$ 825.7 million) was announced towards the capital expenditures of the Border Roads Organization (BRO).

• Indian government endeavors to boost indigenous defence manufacturing.

• India ranks fourth among 12 Indo-Pacific nations in self-reliant arms production capabilities, according to a study released by the Stockholm International Peace Research Institute (SIPRI).

• Hindustan Aeronautics Ltd, Indian Ordnance Factories, Bharat Electronics, Mazagaon Docks and Cochin Shipyard are among the major Indian arms servicing companies. Ashok Leyland, one of the largest suppliers of trucks to the Indian Army, is the only company ranked in the top 50 in the Indo-Pacific.

• To support the domestic defence industry the government aims to ensure transparency, predictability, and ease of doing business by creating a robust eco-system and supportive government policies. Towards this end the government has taken steps to bring about de-licensing, deregulation, export promotion and foreign investment liberalization. Ministry of Defence has also notified five Positive Indigenization lists comprising of 509 defence equipment to be manufactured locally.

• Additionally, to promote export and liberalize foreign investments FDI in Defence Sector has been enhanced up to 74% through the Automatic Route and 100% by Government Route.

• The government has also announced two dedicated Defence Industrial Corridors in the States of Tamil Nadu and Uttar Pradesh to act as clusters of defence manufacturing that leverage existing infrastructure, and human capital.

• The Indian private sector has grown since opening of the defence sector and evolved from producing components and sub-systems, to developing complete equipment and systems, system of systems and platform level solutions.

• This is clearly visible from the quantum (more than 90%) of defence exports by private defence companies.

• Defence exports stood at Rs. 21,083 crores (US$ 2.54 billion) in 2023-24 which is 31% increase from previous year.

• India rank among top 25 nations in arms exports nations in 2024.

• The Central government aims to take Indias defence exports up to US$ 5 billion by 2024-25.

• To achieve a turnover of Rs. 1,75,000 crore (US$ 25 billion) including export of Rs. 35,000 crore (US$ 5 billion) in Aerospace and Defence goods and services by 2025.

• To develop a dynamic, robust and competitive Defence industry, including the Aerospace and Naval Shipbuilding industry to cater to the needs of Armed forces with quality products.

• To reduce dependence on imports and take forward "Make in India" initiatives through domestic design and development.

• To promote the export of defence products and become part of the global defence value chains.

• To create an environment that encourages R&D, rewards innovation, creates Indian IP ownership and promotes a robust and self-reliant defence industry.

Risk and Concern

The defense sector faces a range of risks, including:

• Cybersecurity threats: The defense sector relies heavily on technology and networks, making it a prime target for cyber-attacks.

• Supply chain vulnerabilities: Disruptions to supply chains can impact the availability of critical materials and equipment.

• Insider threats: Unauthorized access or malicious activity by insiders can compromise sensitive information.

• Physical security risks: Military bases, equipment, and personnel are potential targets for physical attacks.

• Geopolitical tensions: Global conflicts and political instability can impact defense operations and strategy.

• Technological obsolescence: Rapid advancements in technology can render existing systems outdated.

• Budget constraints: Fluctuations in defense spending can impact program funding and resource allocation.

• Regulatory compliance: Defense contractors must navigate complex regulatory environments.

• Environmental concerns: Military operations can have environmental impacts, such as pollution and habitat destruction.

• Reputation and public perception: The defense sector is often scrutinized, and negative publicity can impact public trust.

These risks highlight the need for robust risk management strategies in the defense sector to ensure national security and operational effectiveness.

Business Performance:

1. REVIEW OF OPERATIONS:

During the year under review, your companys operating revenue increased to Rs. 14,609.79 Lakhs over the previous years Rs. 10,697.57 Lakhs a significant growth of 73.22%. Your company earned a net profit of Rs. 2,385.03 lakhs for Financial Year 2024-25, compared to Rs. 1,708.77 lakhs for Financial Year 2023-24.

2. INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY:

The company has an Internal Control System commensurate with its requirement and size of business to ensure that the assets and interest of the company assets are safeguarded. The adequacy and effectiveness of the internal control across various activities, as well as compliance with laid down system and policies are comprehensively and frequently monitored by your companys management at all the levels of the organization. The company has established well defined policies and processes across the organization covering all major activities including authority for approvals. In all cases where monetary decisions are involved, various limits and authorities are in place.

The Companys internal controls are structured in a manner that ensure reasonable assurance with regard to recording and providing reliable financial and operational information, complying with applicable statutes, safeguarding assets from unauthorized use or losses, executing transactions with proper authorization and ensuring compliance of corporate policies, laws and accounting standards.

With a strong monitoring system in place, the Company has an Audit Committee, the details of which have been provided in the Boards Report. The Audit Committee of the Board of Directors review the existing audit procedures and internal systems of control on an ongoing basis keeping in mind the organizations requirements, growth prospects and ever evolving business environment. They also review the internal audit findings and recommendations and ensure that corrective measures are implemented. Suggestions for improvement are considered and the Audit Committee follows up on the implementation of corrective actions.

3. RISK MANGEMENT:

As a step of institutionalizing the risk management in the Company, an elaborate framework has been developed and the Companys top management has overall responsibility for the establishment and oversight of the Companys risk management framework. An important purpose of the framework is to have a structured and comprehensive risk management system across the company which ensures that the risks are being properly identified and effectively managed. The Company has a risk management policy to manage & mitigate these risks. The risk management process includes risk identification, risk assessment, risk evaluation, risk mitigation and regular review and monitoring of risks. The Companys risk management policy aims to reduce volatility in financial statements while maintaining balance between providing predictability in the Companys business plan along with reasonable participation in market movement.

4. KEY RATIOS

PARTICULARS	2024-25	2023-24	Change in ratios in %
Current ratio	3.49	4.24	-17.67%
Debt- Equity Ratio	0.14	0.19	-23.39%
Debt Service Coverage Ratio	9.25	4.40	110.16%
Inventory turnover Ratio	2.59	2.38	8.89%
Trade receivables turnover ratio	4.25	12.60	-66.27%
Return on Equity Ratio	17.42%	22.64%	-23.06%
Trade Payable Turnover Ratio	7.56	11.76	-35.68%
Net Capital Turnover Ratio	1.27	1.15	10.75%
Net Profit Ratio	16.39%	15.99%	2.47%
Return on Capital Employed	20.82%	17.68%	17.77%

 

RATIOS WITH VARIANCE MORE THAN 25%	REASONS FOR VARIANCE
Debt equity ratio:	Due to Reduction in borrowings and profits for the current year.
Debt service coverage ratio:	Due to Increase in profits and lower debt service during the current year.
Trade receivable turnover ratio:	Due to Significant increase in trade receivables
Trade payable turnover ratio:	Due to Significant increase in trade payables

Material developments in Human Resources / Industrial Relations front, including number of people employed.

CFF Fluid Control Limited is part of a dynamic and progressive group that actively fosters a challenging work environment and encourages Entrepreneurship. With trust being the critical part of our business belief, we lay a strong emphasis on integrity, teamwork, innovation, performance and partnership. Our professional staff with diverse backgrounds brings varied talent, knowledge and experience to the Group, helping our businesses to remain competitive, achieve greater success and newer milestones. Our management team and board of directors are resolved to do what, we believe, is best for our shareholders, clients and associates.

At CFF Fluid Control Limited, we recruit for skill, experience, right attitude, commitment and diversity. However, the one common trait that runs through the DNA of every employee is entrepreneurship. We encourage our employees to act as owners, partners and managers of their individual functions while providing a conducive environment for them to be creative and productive.