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Review By Dilip Davda on October 19, 2024
• GBL is one of the ethanol based chemical manufacturers in India and the sole mega producer of MPO worldwide.
• The company posted inconsistency in its top lines for the reported periods.
• It posted declining trends in its bottom lines and in particular marked loss for Q1 of FY25. This is attributed to the sudden ban imposed by Government of India on ethanol blending.
• Prima-facie, the issue is priced aggressively based on its FY24 numbers.
• The company is on the verge of encasing its expanded capacity for ethanol following liberalized blending norms by Government of India.
• Well-informed/cash surplus/risk seekers may park moderate funds for long term.
ABOUT COMPANY:
Godavari Biorefineries Ltd. (GBL) is one of the manufacturers of ethanol based chemicals in India and is an integrated bio-refinery in India with an installed capacity of 570 KLPD for manufacturing ethanol as at June 30, 2024. It is one of India's largest producers of ethanol in terms of volume as of March 31, 2024 (source: Frost & Sullivan Report). As on March 31, 2024, GBL was also the largest manufacturer of MPO worldwide in terms of installed capacity, one of only two manufacturers of natural 1,3 butylene glycol and the only company in India to manufacture bio ethyl acetate.
It has also set up India's first bio-based EVE manufacturing facility in India as on March 31, 2024. (source: Frost & Sullivan Report). GBL's diversified product portfolio comprises of bio-based chemicals, sugar, different grades of ethanol and power. These products find application in a range of industries such as food, beverages, pharmaceuticals, flavours & fragrances, power, fuel, personal care and cosmetics. According to the Frost & Sullivan Report, among the peers analysed in the Frost & Sullivan Report, GBL has the widest portfolio of bio-based products in India. It utilises sugarcane as a feedstock to manufacture a wide range of products, including sugar, ethanol, bio-based chemicals and power and were among the first few companies in India to utilise sugarcane juice and syrup for the production of ethanol (source: Frost & Sullivan Report). It continuously strives to improve the valorisation of sugarcane through development of down-stream products and increase the diversion of sugarcane towards value added products. It has been successful in manufacturing a wide range of bio-based chemicals such as ethyl acetate, bio-ethyl acetate, MPO, 1,3 butylene glycol, croton aldehyde, acetaldehyde, bio-acetic acid, butanol, EVE, and paraldehyde. The company is also in the process of exploring the utilisation of grains to manufacture grain-based ethanol.
The rectified spirits manufactured by it is as at June 30, 2024) to 1,000 KLPD and has obtained environmental clearance for such expansion. Further, the Company proposes to commence the manufacturing of 2nd generation Ethanol from bagasse, a by-product of sugar, to further improve the utilisation of available feedstock for distillery. It has entered into a memorandum of agreement with the Centre for High Technology, an administrative control of the Ministry of Petroleum & Natural Gas, Government of India in relation to grant of financial assistance to the Company for a maximum amount of Rs. 15 cr. for the proposed installation of a 2G ethanol plant at its Sameerwadi Manufacturing Facility.
The chemicals manufactured by GBL comprises of Ethanol-based chemicals such as ethyl acetate, bio-ethyl acetate, MPO, 1,3 butylene glycol, croton aldehyde, acetaldehyde, bio-acetic acid, butanol, EVE, and paraldehyde (collectively, the "Bio-based Chemicals"). The Bio-based Chemicals manufactured by it finds application in various industries, including the personal care and cosmetics, flavour and fragrance, food, fuel, paints and coatings and pharmaceutical industries, while the Ethanol manufactured by it is sold to oil marketing companies and also find application in the beverages, pharmaceutical and chemical industries. It has also received environmental clearance to expand existing capacities and to manufacture a wider range of speciality chemicals including cellulose and its derivatives.
GBL's customers include marquee players such as Hershey India Pvt Ltd, Hindustan Coca-Cola Beverages Private Limited, M/s Karnataka Chemical Industries, M/s Techno Waxchem Pvt Ltd, LANXESS India Private Limited, IFF Inc., Ankit Raj Organo Chemicals Limited, Escorts Chemical Industries, Khushbu Dye Chem Pvt Ltd, Privi Speciality Chemicals Limited, Shivam Industries, as well as major oil marketing companies. The company also markets multiple products including sugar, jaggery, salt and turmeric under brand name 'Jivana' which is distributed through retail stores as well as online retail channels.
The company is the largest manufacturer of MPO in the world with production capacity of 6,000 MTPA. GBL produces MPO with 99.7% purity which is used as a fragrance Intermediate. Moreover, GBL is the only company having its acetaldehyde production among MPO manufacturers and the company uses its acetaldehyde for MPO production. As of June 30, 2024, it had 1583 employees on its payroll and an additional force of 633 contract workers in various departments.
According to the management, the company that increased its ethanol capacities with modified process to make variety of specialized chemicals failed to use it post sudden ban on ethanol production by the Government of India. Now that it has lifted the ban and relaxed the ethanol blending ratio to 20% and expected to increase the ratio, the company is poised to ripe benefits of its expanded capacities. No doubt, based on the reported financial data, the issue appears a costly bet, but as the things have started taking shape and the prominent place enjoyed by the company, it is hoping for better performance which is mirrored in the pricing of the IPO.
ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden combo book building route IPO of 15759937 equity shares of Rs. 10 each worth Rs. 554.75 cr. (at the upper cap). The company has announced a price band of Rs. 334 - Rs. 352 per share. The issue constitutes 9232954 fresh equity shares (worth Rs. 325 cr. at the upper cap), and an offer for sale (OFS) of 6526983 shares (worth Rs. 229.75 cr. at the upper cap). The issue opens for subscription on October 23, 2024, and will close on October 25, 2024. The minimum application to be made is for 42 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. The IPO constitutes 30.80% of the post-IPO paid-up equity capital of the company. From the net proceeds of the fresh equity issue, the company will utilize Rs. 240 cr. for repayment/prepayment of certain borrowings, and the rest for general corporate purposes.
The joint Book Running Lead Managers (BRLMs) to this issue are Equirus Capital Pvt. Ltd., and SBI Capital Markets Ltd., while Link Intime India Pvt. Ltd. is the registrar to the issue. Syndicate members for this issue are Equirus Securities Pvt. Ltd., SBICAP Securities Ltd., and Investec Capital Services (India) Pvt. Ltd.
The company has issued/converted initial equity capital at par value, and has issued further equity shares in the price range of Rs. 180.00 - Rs. 225.00 between November 2009 and September 2019. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. 15.91, Rs. 18.09, Rs. 25.11, Rs. 45.78, Rs. 59.92, Rs. 125.92, and Rs. 188.91 per share.
Post IPO, company's current paid-up equity capital of Rs. 41.94 cr. will stand enhanced to Rs. 51.18 cr. Based on the upper cap of IPO pricing, the company is looking for a market cap of Rs. 1801.39 cr.
FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has (on a consolidated basis) posted a total revenue/net profit of Rs. 1709.98 cr. / Rs. 19.10 cr. (FY22), Rs. 2023.08 cr. / Rs. 19.64 cr. (FY23), and Rs. 1701.06 cr. / Rs. 12.30 cr. (FY24). For Q1 of FY25 ended on June 30, 2024, it posted a loss of Rs. - (26.11) cr. on a total income of Rs. 525.27 cr. Thus while it posted inconsistency in its top lines, it marked declining trends in bottom lines from FY23 onwards.
For the last three fiscals, the company has reported an average EPS of Rs. 3.78, and an average RoNW of 6.36%. The issue is priced at a P/BV of 6.31 based on its NAV of Rs. 55.75 as of June 30, 2024, and is at a P/BV of 6.92 based on its post-IPO NAV of Rs. 50.85 per share (At upper cap).
Considering losses posted by the company for Q1-FY25, the issue is negatively priced and has negative P/E. Based on FY24 earnings, the issue is at a P/E of 146.67. The issue relatively appears exorbitantly priced. According to the management, annualized numbers based on its Q1 of FY25 is giving unclear picture as their main cane crushing season starts from the last month of Q2 and the second half always marks better financial performance. Poor performance for FY24 is attributed to natural calamity that affected their business coupled with ban on ethanol production by the Government of India to arrest spiralling prices of sugar.
The company reported PAT margins of 1.12% (FY22), 0.97% (FY23), 0.72% (FY24), - (4.97) % (Q1-FY25), and RoCE margins of 10.64%, 10.59%, 9.53%, - (2.35) % for the referred periods, respectively.
DIVIDEND POLICY:
The company has not declared any dividends for the reported periods of the offer document. It adopted a dividend policy in May 2024, based on its financial performance and future prospects.
COMPARISION WITH LISTED PEERS:
As per the offer document, the company has shown Alkyl Amines, Jubilant Ingrevia, Laxmi Organic, EID Parry, Triveni Engineering, Balrampur Chini, Dalmia Bharat Sugar, Dhampur Sugar, and Dwarikesh Sugar, as their listed peers, they are trading at a P/E of 77.3, 69.0, 65.9, 16.2, 25.8, 24.2, 15.4, 15.0, and 38.9 (as of October 18, 2024). However, they are not truly comparable on an apple-to-apple basis.
MERCHANT BANKER'S TRACK RECORD:
The two BRLMs associated with the offer have handled 36 public issues in the past three fiscals, out of which 12 issues have closed below the offer price on listing date.
Review By Dilip Davda on October 19, 2024
DISCLAIMER: No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor before making any actual investment decisions, based on the information published here. My reviews do not cover GMP market and operators game plans. Any reader taking decisions based on any information published here does so entirely at their own risk. Investors should bear in mind that any investment in stock markets is subject to unpredictable market-related risks. The above information is based on RHP and other documents available as of date coupled with market perception. The author has no plans to invest in this offer.
About Dilip Davda
Dilip Davda is veteran journalist associated with stock market since 1978. He is contributing to print and electronic media on stock markets/insurance/finance since 1985.
Dilip Davda is a leading reviewer of public issues and NCDs in the primary stock market in India. The knowledge he gained over 3 decades while working in the stock market and a strong relationship with popular lead managers makes his reviews unique. His detail fundamental and financial analysis of companies coming up with IPO helps investors in the primary stock market. Dilip Davda has a special interest in analyzing the SME companies and writing reviews about their public issues. His reviews are regularly published online and in news papers.
(Dilip Davda -SEBI registered Research Analyst-Mumbai,
Registration no. INH000003127 (Perpetual)
Email id: dilip_davda@rediffmail.com ).
The initial public offer (IPO) of Godavari Biorefineries Limited offers an early investment opportunity in Godavari Biorefineries Limited. A stock market investor can buy Godavari Biorefineries IPO shares by applying in IPO before Godavari Biorefineries Limited shares get listed at the stock exchanges. An investor could invest in Godavari Biorefineries IPO for short term listing gain or a long term.
Read the Godavari Biorefineries IPO recommendations by the leading analyst and leading stock brokers.
Godavari Biorefineries IPO offers an opportunity to buy IPO shares before they get listed at the stock exchanges. Read the Godavari Biorefineries IPO Notes, Analysis and Recommendations by leading stock brokerage firms and experts in the above answer.
Our recommendation for Godavari Biorefineries IPO is to subscribe for long term.
As per the analysis by our lead analyst Mr. Dilip Davda, we suggest you to subscribe for long term to the Godavari Biorefineries IPO.
The Godavari Biorefineries IPO allotment status will be available on or around October 28, 2024. The allotted shares will be credited in demat account by October 29, 2024. Visit Godavari Biorefineries IPO allotment status to check.
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