Godavari Biorefineries IPO To Open For Subscription Soon; All You Need To Know About Rs 555 Cr Issue

The initial public offering (IPO) of Godavari Biorefineries Limited is set to hit the market on October 23, with a price band ranging from Rs 334 to Rs 352 per equity share. As a leader in ethanol-based chemical manufacturing, Godavari Biorefineries' public issue is poised to attract considerable interest from both institutional and retail investors. The subscription window for this IPO will close on October 25, while the anchor investment period is slated to commence on October 22.

IPO Details: Fresh Issue and Offer for Sale

Godavari Biorefineries' IPO is a mix of fresh equity shares and an offer-for-sale (OFS) component. The company plans to raise Rs 554.75 crore in total. This includes a fresh issue of shares worth Rs 325 crore, while the OFS is valued at Rs 229.75 crore. The OFS is mainly contributed by Mandala Capital, which intends to sell its entire stake of 49.26 lakh equity shares. Notably, Mandala Capital acquired these shares at an average price of Rs 188.91 per share.

Other selling shareholders include the promoters, such as Somaiya Agencies Private Limited, Samir Shantilal Somaiya, Lakshmiwadi Mines and Minerals Private Limited, Filmedia Communication Systems Private Limited, and Somaiya Properties and Investments Private Limited.

The funds raised from the fresh issue will be primarily utilised to repay or pre-pay the company's existing borrowings, with any remaining proceeds allocated to general corporate purposes.

Allotment and Listing Timelines

Investors looking to participate in the Godavari Biorefineries IPO should note the following key dates. The allotment of shares is likely to take place on October 28, and the company is expected to make its stock market debut with a listing on October 30.

Business Overview

Godavari Biorefineries is one of India's largest producers of ethanol, with an integrated biorefinery boasting an installed capacity of 570 KLPD. The company's diverse portfolio includes bio-based chemicals, ethanol, sugar, and power, serving a wide array of industries such as food and beverages, pharmaceuticals, personal care, cosmetics, and power.

As of March 31, 2024, Godavari Biorefineries reported revenue of Rs 1,701.06 crore and a profit of Rs 12.30 crore. Though both figures represent a decline from the previous year, the company remains a key player in its industry and aims to leverage the IPO proceeds to enhance operational efficiencies and expand its production capacity.

The company has established long-standing relationships with renowned customers, including Hershey India, Hindustan Coca-Cola Beverages, Karnataka Chemical Industries, Techno Waxchem, and Escorts Chemical Industries. Additionally, Godavari Biorefineries supplies ethanol to major oil marketing companies.

Godavari Biorefineries operates two manufacturing facilities: the Sameerwadi Manufacturing Facility in Bagalkot, Karnataka, and the Sakarwadi Manufacturing Facility in Ahmednagar, Maharashtra. The Sameerwadi facility is an integrated unit dedicated to producing ethanol, sugar, and power, while the Sakarwadi facility focuses on manufacturing bio-based chemicals.

Industry Peers and Financial Comparisons

In terms of market positioning, Godavari Biorefineries competes with several other industry giants, including Alkyl Amines Chemicals, Jubilant Ingrevia, Laxmi Organic Industries, EID Parry, Triveni Engineering, and Balrampur Chini Mills. According to the Red Herring Prospectus (RHP), Alkyl Amines Chemicals has a price-to-earnings (P/E) ratio of 78.84, Jubilant Ingrevia has a P/E of 64.10, and Laxmi Organic Industries trades at a P/E of 65.11.

Other notable peers in the sugar and bio-based chemicals industry include EID Parry (P/E of 16.69), Triveni Engineering (P/E of 26.06), Balrampur Chini Mills (P/E of 24.72), Dalmia Bharat Sugar (P/E of 15.83), Dhampur Sugar Mills (P/E of 11.20), and Dwarikesh Sugar Industries (P/E of 17.30).

Risks and Challenges

While Godavari Biorefineries boasts a robust business model, the company faces certain risks. One notable challenge is its heavy reliance on a few key suppliers for raw materials, excluding sugarcane. The top three suppliers contribute to 77% of the company's total raw material costs as of June 30, 2024. Furthermore, the company's revenue is concentrated among its top 10 customers, who collectively account for nearly 47% of its overall income.

Borrowings and Debt Reduction Strategy

As of June 30, 2024, Godavari Biorefineries had total borrowings amounting to Rs 748.87 crore. The company's decision to allocate a significant portion of the IPO proceeds towards debt repayment demonstrates its focus reducing its financial liabilities and improving its balance sheet.