With a surge of back-to-back IPOs in the market, traders and investors must focus on IPOs offering significant listing gains and long-term value. The latest IPO on the horizon is that of Godavari Biorefineries IPO To make an informed decision, it’s essential to analyze how this IPO might impact short-term and long-term investments, the company’s financials, and its valuation.
Introduction to Godavari Biorefineries IPO
Godavari Biorefineries Limited, established in 1956, is a key player in the production of ethanol-based chemicals. The company is primarily linked to the sugar sector, and ethanol chemicals have recently witnessed a significant uptick in demand, making this sector highly attractive for investors. The company operates as an integrated biorefinery with a production capacity of 570 KLPD (Kiloliters per day).
Godavari Biorefineries IPO Details
| Particulars | Details |
|---|---|
| IPO Date | October 23, 2024 to October 25, 2024 |
| Listing Date | October 30, 2024 |
| Face Value | ₹10 per share |
| Price Band | ₹334 to ₹352 per share |
| Lot Size | 42 Shares |
| Total Issue Size | 15,759,938 shares (aggregating up to ₹554.75 Cr) |
| Fresh Issue | 9,232,955 shares (aggregating up to ₹325.00 Cr) |
| Offer for Sale | 6,526,983 shares (aggregating up to ₹229.75 Cr) |
| Issue Type | Book Built Issue IPO |
| Listing At | BSE, NSE |
| Pre-Issue Shareholding | 41,943,023 |
| Post-Issue Shareholding | 51,175,978 |
Company’s Capabilities and Client Base
Godavari Biorefineries is one of the world’s largest producers of MPO and the only company in India manufacturing bio-ethyl acetate. The company’s products are used across industries such as food, beverages, pharmaceuticals, flavors, and fragrances. Some of its notable clients include Hershey’s Chocolates, Hindustan Coca-Cola, and multiple chemical companies. The company operates on a B2B (Business-to-Business) model, which ensures a stable order book, but the margins tend to be relatively thin.
Key IPO Dates and Pricing
The Godavari Biorefineries IPO will open for subscription on October 23rd and close on October 25th. The price band for the IPO has been set between ₹334 to ₹352 per share, with investors required to apply at a maximum price of ₹352 per share. Through this IPO, the company aims to raise ₹555 crore, out of which ₹325 crore will be raised through a fresh issue, while the remaining portion will come through an offer for sale (OFS).
Godavari Biorefineries IPO Timeline (Tentative Schedule)
| Event | Date |
|---|---|
| IPO Open Date | October 23, 2024 |
| IPO Close Date | October 25, 2024 |
| Basis of Allotment | October 28, 2024 |
| Initiation of Refunds | October 29, 2024 |
| Credit of Shares to Demat | October 29, 2024 |
| Listing Date | October 30, 2024 |
| UPI Mandate Confirmation Cut-Off | 5 PM on October 25, 2024 |
Financial Overview and Challenges
The company’s financial health poses certain concerns for potential investors. Over the past few years, asset growth has been slow, and in recent quarters, the company has reported losses. In the first quarter of 2023, Godavari Biorefineries reported a reduction of nearly ₹450 crore in assets, with a high debt load continuing to affect its balance sheet. The company’s Return on Equity (ROE) and Return on Capital Employed (ROCE) remain negative, raising questions about how efficiently the funds raised through the IPO will be utilized.
Godavari Biorefineries Financial Information (Restated Consolidated)
| Particulars (₹ Cr) | 30 Jun 2024 | 31 Mar 2024 | 31 Mar 2023 | 31 Mar 2022 |
|---|---|---|---|---|
| Assets | 1,554.62 | 1,991.66 | 1,743.52 | 1,733.54 |
| Revenue | 525.27 | 1,701.06 | 2,023.08 | 1,709.98 |
| Profit After Tax | -26.11 | 12.30 | 19.64 | 19.10 |
| Net Worth | 233.84 | 260.25 | 249.01 | 232.57 |
| Reserves and Surplus | 432.34 | 458.74 | 447.51 | 431.06 |
| Total Borrowing | 703.75 | 663.27 | 738.01 | 636.72 |
Key Performance Indicators (As of June 30, 2024)
| KPI | Values |
|---|---|
| ROE | -11.16% |
| ROCE | -2.35% |
| Debt/Equity | 3.01 |
| RoNW | -11.16% |
| P/BV | 6.31 |
| PAT Margin | -4.97% |
| Market Capitalization | ₹1,801.39 Cr |
Future Plans of Godavari Biorefineries
Looking ahead, Godavari Biorefineries IPO plans to expand its production capacity and explore new markets. The company’s primary focus is on ethanol-based products, with ethanol demand rising in India. The Indian government’s Ethanol Blending Program (EBP), aimed at increasing the ethanol content in petrol, is likely to provide a long-term boost to the company. Furthermore, the company intends to reduce its borrowings and strengthen its balance sheet to support future growth.
Godavari Biorefineries IPO Reservation
| Investor Category | Shares Offered |
|---|---|
| QIB | Not more than 50% of the Net Issue |
| Retail | Not less than 35% of the Net Issue |
| NII (HNI) | Not more than 15% of the Net Issue |
B2B Model: Advantages and Challenges
Operating under a B2B model, companies like Godavari Biorefineries benefit from stable orders from large clients, ensuring consistent revenue. However, there are certain downsides. Since the company works with large brands, it doesn’t have much pricing power and has to sell its products at lower margins. Large clients typically demand competitive pricing, which can affect profitability.
Considerations for Investing in the IPO
The Godavari Biorefineries IPO could offer potential short-term listing gains, but investors need to closely monitor the company’s financials for long-term growth. While the company’s B2B model and strong client base provide stability, its high debt levels and weaker profit margins pose risks. If you’re contemplating investing in this IPO, it’s essential to evaluate your financial goals and risk appetite carefully.
Godavari Biorefineries IPO Lot Size
| Investor Category | Lots | Shares | Amount (₹) |
|---|---|---|---|
| Retail (Min) | 1 | 42 | ₹14,784 |
| Retail (Max) | 13 | 546 | ₹192,192 |
| S-HNI (Min) | 14 | 588 | ₹206,976 |
| S-HNI (Max) | 67 | 2,814 | ₹990,528 |
| B-HNI (Min) | 68 | 2,856 | ₹1,005,312 |
Conclusion: Is Godavari Biorefineries IPO Worth Investing In?
Godavari Biorefineries IPO presents an interesting option for investors. The company’s steady income stream, driven by its ethanol-based products and B2B business model, makes it appealing. However, the company’s financial health and high borrowings may raise concerns for investors. The effective utilization of funds raised through this IPO will be critical for the company’s future growth.
From a long-term investment perspective, it will be important to see how successfully the company reduces its borrowings and improves its profit margins. For short-term investors, estimating the potential for listing gains will be key. Investors should carefully assess how much and for how long they want to invest in this IPO, based on their financial goals.
Every investment decision comes with risks, so it’s essential to seek expert advice and conduct independent research before investing in any IPO. While Godavari Biorefineries IPO may be attractive for short-term listing gains, long-term investors should consider it based on thorough research and analysis.
