Godavari Biorefineries IPO is set to open for subscription from 23 to 25 October 2024. In our Godavari Biorefineries IPO Analysis, we present an in-depth understanding of positive and negative aspects of the company’s business for investors. One of the pioneers in the ethanol production sector, Godavari Biorefineries is well-positioned to benefit from the rising demand for sustainable fuel alternatives as India aims to achieve its ethanol blending targets.
As global and national policies increasingly favour renewable energy, this IPO could attract significant interest from both institutional and retail investors. This article outlines key points to consider before participating in this IPO, including financial performance, market positioning, and subscription details. Understanding these factors will help investors make informed decisions regarding their participation in this offering.
Table of Contents
Godavari Biorefineries IPO Analysis: IPO Details
- Price Band: INR 334 to INR 352 per share.
- Lot Size: The minimum bid is for 42 shares, which amounts to approximately INR 14,784 at the upper price band.
- Total Issue Size: INR 554.75 crores, including a fresh issue of INR 325 crores and an offer for sale of up to 0.65 crore shares worth approximately INR 229.75 crores.
- Face Value: INR 10 per share.
- Listing: Shares will be listed on both BSE and NSE on 30 October 2024.
Godavari Biorefineries IPO Analysis: Financial Performance
- Revenue Decline: Godavari Biorefineries reported a decrease in revenue from INR 2,014.69 crore in FY2023 to INR 1,686.67 crore in FY2024.
- Profit After Tax (PAT): Decreased from INR 19.64 crore in FY2023 to INR 12.30 crore in FY2024.
- Equity Growth: Equity has strengthened from INR 489.44 crore in FY2023 to INR 500.68 crore in FY2024.
- Net Asset Value (NAV): Increased from INR 59.37 to INR 62.05 per share.
Quarterly Performance
For the quarter ending June 2024:
- Revenue was reported at INR 522.53 crore with a loss of INR 26.1 crore.
Godavari Biorefineries IPO Analysis: Global Market & Spotlight on Indian Market
Global Market: Riding Upward Trajectory
The global ethanol market is on a robust growth trajectory, valued at USD 116.90 billion in 2023 and projected to reach USD 172.70 billion by 2028. This represents a compound annual growth rate (CAGR) of 8.1% over the forecast period. Ethanol production is also set to expand from 10,530 crore litres in 2023 to 14,090 crore litres by 2028, reflecting a CAGR of 6.0%. The primary driver for this growth is the increasing demand for ethanol as a renewable biofuel, supported by government initiatives in both developed and emerging economies.
Spotlight on India: A Rapidly Expanding Ethanol Market
In the ethanol supply year 2023, India produced approximately 828 crore litres of ethanol. The Indian ethanol market is anticipated to grow at an impressive CAGR of 18.0%, reaching 1,915.70 crore litres by 2028. The market value is projected to increase from USD 7 Billion in 2023 to USD 17.50 billion by 2028, driven by rising applications in fuel additives, disinfectants, and beverages.
In August 2024, the Indian government approved the BioE3 Policy, aimed at enhancing high-performance biomanufacturing. This policy seeks to promote advanced biotechnological processes for sustainable biofuel production and aims to position India as a leader in the global bioeconomy. The BioE3 initiative will facilitate increased ethanol production through innovative technologies and local enzyme manufacturing, potentially reducing costs significantly.
Godavari Biorefineries IPO Analysis: Business Operations
Godavari Biorefineries is a leading manufacturer of ethanol-based chemicals in India. As of June 2024, the company boasts an impressive installed capacity of 570 KLPD for ethanol production. According to a report by Frost & Sullivan, Godavari Biorefineries is recognized as the largest producer of ethanol in India by volume as of 31 March 2024. Additionally, as of the same date, the company holds the title of the largest manufacturer of MPO (3 Methyl-3 Penten-2-One) globally in terms of installed capacity. MPO is used in the production of fragrances and speciality chemicals.
Godavari Biorefineries is one of only two manufacturers worldwide of natural 1,3 butylene glycol and the sole producer in India of bio ethyl acetate. The company’s diverse product portfolio includes bio-based chemicals, sugar, various grades of ethanol, and power. These products are utilized across a wide range of industries, including food and beverages, pharmaceuticals, flavours and fragrances, power generation, fuel, personal care, and cosmetics.
The fuel and fuel additives segment dominates the market, holding over 43% of the share in 2023. As countries like India shift towards cleaner energy sources, the demand for ethanol is expected to rise significantly. Ethanol’s role in manufacturing gasoline additives enhances fuel efficiency and aligns with regulatory efforts to reduce air pollution.
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Godavari Biorefineries IPO Analysis: Use of IPO Proceeds
The company is planning to raise INR 325 crore from the fresh issue and INR 229.75 crore from the Offer for Sale. The proceeds from the fresh issue will primarily be allocated towards:
- Repayment/pre-payment, in full or in part, of certain outstanding borrowings availed by the company – INR 240 crore
- General corporate purposes
Godavari Biorefineries IPO Review: Management Team & Shareholding Pattern
Under the dynamic leadership of its promoters, the company is pursuing substantial growth. Samir Shantilal Somaiya serves as the Chairman and Managing Director, bringing over 28 years of experience in the chemicals industry. Before his current role, he held the position of Managing Director at Somaiya Organo-Chemicals.
Lakshmi Kantam Mannepalli is an Independent Director of the company. She holds a Ph.D. in Chemistry and possesses extensive experience in chemical sciences and technology. Before joining the company, she was affiliated with the Indian Institute of Technology. Sangeeta Arunkumar Srivastava, an Executive Director, boasts over 29 years of expertise in research and development within the chemicals sector.
The shareholding pattern of promoters is as follows:
| Promoters | Shareholding (%) |
|---|---|
| Somaiya Agencies Private Limited | 22.30 |
| Samir Shantilal Somaiya | 14.36 |
| Sakarwadi Trading Company Private Limited | 14.34 |
| Lakshmiwadi Mines and Minerals Private Limited | 13.64 |
Mandala Capital AG is the largest seller in the offer-for-sale segment, exiting with its entire 11.75% stake of 49,26,983 shares.
Godavari Biorefineries IPO Review: Investor Segmentation
The allocation of shares in the IPO is structured as follows:
- Qualified Institutional Buyers (QIB): 50%
- Non-Institutional Investors (NII): 15%
- Retail Individual Investors (RII): 35%
This structure adheres to SEBI regulations aimed at ensuring fair distribution among different investor categories.
Godavari Biorefineries IPO Review: Risks and Considerations
- In Fiscal 2024, the company derived a significant portion of its revenue from sugar (42.21%), Bio base chemicals (27.94%), and distillery (26.11%). The company’s results of operations may be adversely affected if demand for such products declines.
- The Securities and Exchange Board of India (SEBI) has previously directed Godavari Biorefineries to refund amounts received under certain allotments to the Sameerwadi Sugarcane Farmers’ Welfare Trust or to pro-rata distribute equity shares to its beneficiaries. This regulatory scrutiny may lead to potential financial liabilities.
- The company has unsecured non-current borrowings, INR 4.85 crore from the Council for Scientific and Industrial Research, INR 2.59 crore from related parties, and INR 41.80 crore from other related entities. Additionally, there is an accrued interest of INR 3.11 crore on these borrowings that is not yet due. These loans can be recalled by lenders at any time, which can introduces a significant liquidity risk for the company.
- Godavari Biorefineries holds a credit rating of BBB Stable. However, any downgrade in this rating could significantly affect its borrowing capacity, thereby impacting its ability to maintain sustainable operations.
Godavari Biorefineries IPO Review: Collaboration & Future Prospects
Godavari Biorefineries has signed a Memorandum of Understanding (MoU) with the K.J. Somaiya Institute for Applied Agriculture Research (KIAAR) to foster collaboration in agricultural research and development. Key aspects of the MoU include:
- Services Provided by KIAAR: KIAAR will conduct soil testing, produce tissue culture settlings, supply single eye bud (SEB) settlings, and bio-fertilizers, and offer technology transfer to farmers. Additionally, they will provide training for Godavari’s employees on emerging agricultural technologies and deliver seminars and workshops focused on sugarcane research.
- Research and Development Support: Godavari Biorefineries will allow KIAAR to utilize some of its agricultural land for research purposes and will provide financial assistance for R&D activities. The financial support over recent years includes INR 0.01 crore for the current quarter ending 30 June 2024, and amounts of INR 1.75 crore, INR 1.58 crore, and INR 1.19 crore for the financial years 2024, 2023, and 2022 respectively.
- Duration: The MoU is set for ten years, indicating a long-term commitment to advancing agricultural practices and technologies in sugarcane cultivation.
This collaboration aims to enhance agricultural productivity and sustainability while positioning both organizations as leaders in agricultural research and innovation. Godavari Biorefineries plans to expand its distillery capacity from 600 KLPD to 1,000 KLPD, aligning with government initiatives aimed at increasing ethanol blending in fuel supplies.
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Conclusion
Investors considering the IPO of Godavari Biorefineries should consider both positive and negative aspects of this growing industry which offers unique opportunities. Given its established position in the ethanol and bio-chemicals market, the company has certain advantages to its credit. Nevertheless, there are worthy and deep-pocketed competitors in this space. Meanwhile, a strong show by anchor investors works in the favor of the public issue.
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