Godavari Biorefineries IPO analysis

Godavari Biorefineries IPO (initial public offering) will open for subscription on October 23, 2024 and close on October 25, 2024. Below is a breakdown of the ethanol maker's strengths, weaknesses and growth prospects to help investors make an informed decision. Godavari Biorefineries IPO in a nutshell Quality: Between FY22 and FY24, Godavari Biorefineries reported an average three-year ROE and ROCE of 7 and 9 per cent, respectively. Growth: During FY22-24, its revenue and net profit declined nearly -1 and -20 per cent per annum, respectively. Valuation: Godavari Biorefineries's stock is valued at a P/E and P/B of 148 and 3 times, respectively. Overview: Godavari Biorefineries can benefit from the EBP (Ethanol Blended Petrol) programme, under which the central government aims to increase the ethanol blend in petrol to 20 per cent by 2025. However, sugarcane, a critical raw material Godavari Biorefineries uses to produce ethanol, is subject to seasonality. Natural disasters like floods, droughts, crop diseases, and other adverse weather conditions can affect the production and pricing of sugarcane, which, in turn, impacts the company's financials. About Godavari Biorefineries Godavari Biorefineries is among the leading manufacturers of ethanol-based chemicals in India. With an installed capacity of 570 kilolitres per day, the company is among the largest ethanol producers in terms of volume (as of March 31, 2024). Godavari Biorefineries utilises sugarcane as a feedstock to manufacture a wide range of products, including sugar, ethanol, bio-based chemicals and power. It was among the first few companies in India to utilise sugarcane juice and syrup to produce ethanol. These products find application across various industries, such as food, beverages, pharmaceuticals, flavours & fragrances, power, fuel, personal care and cosmetics. Strengths of Godavari Biorefineries Strong customer base: The company's clientele comprises prominent players such as Hershey's India, Hindustan Coca-Cola Beverages and major oil marketing companies. Weaknesses of Godavari Biorefineries Heavy reliance on a single product: Godavari Biorefineries's financials are highly dependent on the sale of ethanol, which accounts for nearly 30 per cent of its revenue. Hence, external factors like regulatory restrictions or natural calamities can negatively impact the company's financials. For instance, a sudden ban by the government on ethanol blending led to the company incurring a loss in Q1FY25. Low Margins: The company has very low operating margins, ranging between 4 and 5 per cent. Thus, even a slight change in the prices of raw materials can hamper its profitability. Godavari Biorefineries IPO details Total IPO size (Rs cr) 555 Offer for sale (Rs cr) 230 Fresh issue (Rs cr) 325 Price band (Rs) 334 - 352 Subscription dates October 23 - 25, 2024 Purpose of issue Repayment of debt Post-IPO M-cap (Rs cr) 1,801 Net worth (Rs cr) 585 Promoter holding (%) 63.3 Price/earnings ratio (P/E) 147.6 Pri