Case Study: Godavari Biorefineries Limited IPO
Introduction
Godavari Biorefineries Limited (GBL) is a well-established company in the Indian bio-based chemical sector, engaged in the production of ethanol-based chemicals, bio-based chemicals, and power. The company is among the pioneers in this industry, providing products used in diverse sectors such as food, beverages, pharmaceuticals, cosmetics, and personal care. GBL has decided to enter the equity market by launching an Initial Public Offering (IPO) to raise ₹554.75 crores. The IPO consists of both a fresh issue and an offer for sale, set between October 23, 2024, and October 25, 2024.
This case study analyzes the company’s performance, the details of its IPO, and the factors that potential investors should consider before making an investment decision.
IPO Overview
The Godavari Biorefineries IPO consists of a fresh issue of ₹325.00 crores and an offer for sale (OFS) of ₹229.75 crores, aggregating to ₹554.75 crores. The IPO price band is set between ₹334 to ₹352 per share. The minimum application size for retail investors is 42 shares, requiring a minimum investment of ₹14,784. For high-net-worth individuals (HNI), the smallest investment amount is ₹206,976.
| IPO Key Details | Values |
|---|---|
| Issue Type | Book Built Issue IPO |
| Total Issue Size | ₹554.75 Cr |
| Fresh Issue | ₹325.00 Cr |
| Offer for Sale (OFS) | ₹229.75 Cr |
| Price Band | ₹334 to ₹352 per share |
| Minimum Application (Retail) | 42 Shares, ₹14,784 |
| Minimum Application (HNI) | 588 Shares, ₹206,976 |
| Listing at | BSE, NSE |
| Lead Managers | Equirus Capital, SBI Caps |
| Registrar | Link Intime India |
Reservation of Shares
The IPO has a well-defined allocation structure. Institutional investors, non-institutional investors (HNIs), and retail investors each have designated proportions of the total offer:
| Category | Percentage | Shares Offered |
|---|---|---|
| Qualified Institutional Buyers (QIB) | 20% | 3,151,989 |
| Non-Institutional Investors (NII) | 15% | 2,363,991 |
| Retail Investors (RII) | 35% | 5,515,978 |
| Anchor Investors | 30% | 4,727,980 |
| Total Shares Offered | 100% | 15,759,938 |
Objectives of the Issue
The primary objective of the fresh issue is to utilize the net proceeds for:
- Repayment/pre-payment of borrowings: The company aims to repay or pre-pay some of its outstanding debts, helping improve its financial leverage.
- General corporate purposes: A portion of the funds will be allocated for general corporate use, which may include strengthening working capital, operational needs, and other financial improvements.
About the Company
Business Overview
Founded in 1956, Godavari Biorefineries Limited is a vertically integrated biorefinery producing ethanol, bio-based chemicals, and power. As of March 31, 2024, the company is the largest producer of MPO (methanol production oil) in the world and one of the two global manufacturers of natural 1,3-butanediol. It is also the only Indian company that produces bio-ethyl acetate, which finds applications in personal care products, pharmaceuticals, and other industries.
The company’s customer base spans 20+ countries, with clients from industries such as food and beverages, pharmaceuticals, fragrances, and cosmetics. Godavari Biorefineries has a robust research and development setup, with three R&D facilities in Maharashtra and Karnataka. As of June 30, 2024, the company has 18 patents and 53 registrations.
Financial Performance
Godavari Biorefineries has witnessed a decrease in its financial performance in recent years, primarily due to regulatory challenges around ethanol production and the impact of natural disasters. Despite this, the company has a solid market presence and a diversified revenue stream.
| Financial Metrics | June 30, 2024 | March 31, 2024 | March 31, 2023 | March 31, 2022 |
|---|---|---|---|---|
| Revenue (₹ Cr) | 525.27 | 1,701.06 | 2,023.08 | 1,709.98 |
| Profit After Tax (₹ Cr) | -26.11 | 12.30 | 19.64 | 19.10 |
| Total Borrowing (₹ Cr) | 703.75 | 663.27 | 738.01 | 636.72 |
| Net Worth (₹ Cr) | 233.84 | 260.25 | 249.01 | 232.57 |
Strengths of Godavari Biorefineries Limited
- Market Leadership: GBL is a global leader in MPO production and is one of the few players in bio-based chemicals, giving it a competitive edge in the market.
- Diverse Product Portfolio: The company operates in multiple sectors, including bio-based chemicals, ethanol production, and sugar. This diversification allows it to capture different revenue streams and reduce risk exposure to any single market.
- Strong R&D Capabilities: GBL’s innovation-driven approach, reflected in its 18 patents and 53 product registrations, enables it to remain competitive in global markets.
- Robust Client Base: The company serves some of the largest companies in various sectors, including Hershey India Pvt Ltd, LANXESS India Pvt Ltd, and IFF Inc., among others.
Risks and Challenges
- Financial Performance: The company’s revenue and profit after tax (PAT) have significantly decreased in recent years due to regulatory and environmental issues. This raises concerns about future profitability.
- Debt Levels: With a debt/equity ratio of 3.01, the company is heavily reliant on borrowings, which could be a potential risk if interest rates rise or the company faces liquidity challenges.
- Government Policies: Being in the ethanol and bio-based chemical industry, GBL is highly dependent on government policies. Any adverse regulatory change could impact its business.
- Global Market Exposure: While having a global customer base is an advantage, it also exposes the company to foreign exchange risks and global market fluctuations.
Key Performance Indicators (KPIs)
| KPI | Value |
|---|---|
| Return on Equity (ROE) | -11.16% |
| Return on Capital Employed (ROCE) | -2.35% |
| Debt to Equity Ratio | 3.01 |
| Price to Book Value (P/BV) | 6.31 |
| PAT Margin (%) | -4.97% |
Peer Comparison
When evaluating Godavari Biorefineries against its peers, the company lags behind in terms of profitability metrics like return on equity and PAT margin, primarily due to its recent financial struggles. However, its market leadership and diverse product offerings provide long-term growth potential.
Investment Considerations
Godavari Biorefineries’ IPO is aggressively priced, and its recent financial performance might raise concerns among conservative investors. However, for long-term investors with an appetite for risk, the company’s market leadership and strategic positioning in bio-based chemicals could offer potential growth opportunities, especially with favorable regulatory changes for ethanol production.
Investors should weigh the risks posed by the company’s financial health, its reliance on government policies, and its debt levels against its strengths in market positioning and product diversification.
Conclusion
Godavari Biorefineries Limited, with its diverse product portfolio and market leadership in bio-based chemicals, presents a unique investment opportunity. While recent financial performance and high debt levels are concerning, the company’s growth prospects, driven by favorable regulations and a global client base, offer potential for long-term appreciation.
Disclaimer: This case study is for educational and informational purposes only and should not be construed as investment advice. Investors are advised to conduct their own research and consult with a financial advisor before making investment decisions. The details mentioned here are based on publicly available information as of October 23, 2024.
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