Godavari Biorefineries (GBL) is an integrated sugar company operating in sugar, ethanol, bio-based chemicals and power.

GBL is one of the India’s largest producers of ethanol in terms of volume as of March 31, 2024. It is also the largest manufacturer of3-methyl- 3-pentene-2-one(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.

GBL has also set up first bio-based ethyl venyl ethers (EVE) manufacturing facility in India as on March 31, 2024.

The company markets multiple products including sugar, jaggery, salt and turmeric under its brand name `Jivana,’ which is distributed through retail stores as well as online retail channels. Revenues from products sold under the `Jivana’ brand increased from Rs 28.3 crore in FY22 to Rs 84.2 crore in FY24.

GBL has two manufacturing facilities, with one manufacturing facilitylocated in the Bagalkot district in Karnataka (theSameerwadi Manufacturing Facility) and anothermanufacturing facility located in the Ahmednagar district in Maharashtra (theSakarwadi ManufacturingFacility). The Sameerwadimanufacturing facility is an integrated facility dedicated to the manufacturing ofethanol, sugar and power, while the Sakarwadimanufacturing facility is currently dedicated to the manufacturingof bio-based chemicals. As at June 30, 2024, the Sameerwadimanufacturing facility had inter alia a sugarcanecrushing capacity of 18,000 TCD, an installed capacity of 600 Kilo Liter Per Day (KLPD) for rectified spirits, 570 KLPD of ethanol and power plants with anaggregate installed capacity of 45.56 MW, while at the Sakarwadimanufacturing facility, the aggregate installedcapacity for its bio-based chemicals including ethyl acetate, acetaldehyde, acetic acid, 3-methyl 3 penteneone (MPO), 1,3 BG, crotonaldehyde and paraldehyde and others was 117,826.20 MTPA.

The company has research & development (R&D) facility with one R&D Facility located at the Sakarwadi manufacturing facility, onelocated at the Sameerwadi manufacturing facility and one located in Navi Mumbai, Maharashtra.

The company utilizes sugarcane as a feedstock to manufacture its products and is in the process of exploring the utilization of grains to manufacture grain-based ethanol.

Products of the company find application in industries including food,beverages, pharmaceuticals, flavors& fragrances, power, fuel, personal care and cosmetics. Some of its clients include marquee players such as Hershey India Pvt Ltd, Hindustan Coca-Cola Beverages Private Limited, Karnataka Chemical Industries, Techno Waxchem Pvt Ltd, Ankit Raj Organo Chemicals Limited, Escorts Chemical Industries, Khushbu Dye Chem Pvt Ltd, PriviSpeciality Chemicals, Shivam Industries, as well as major oil marketing companies.

GBL exports its products to over 20 countries including Australia, China, Germany, France, Italy Japan, Kenya, Netherlands, Singapore, United Kingdom, United Arab Emirates, Indonesia and United States of America. It has also established offices in Hoofddorp (Netherlands) and Philadelphia (United States of America). Revenue from exports stood at 79.67 crore and Rs 280.9 crore respectively for 3 months ended June 30, 2024 and for FY2024 respectively.

Object of the offer

The IPO consists of a fresh issue of Rs 325 crore and an offer-for-sale(OFS) of up to 6526983 shares by its existing shareholders. The OFS comprises up to 4926983 shares by Mandala Capital AG Limited and the balance 16,00,000 shares by promoter and promoter group companies.

Out of the proceeds from the fresh issue, Rs 240 crore will be used for repayment, prepayment and redemption, in full or in part, of certain borrowings availed of by the company and the balance for general corporate purposes.

Strengths

The company has location advantage as its sugarcane crushing facility are located at Sameerwadi, Karnataka along with distillery and co-gen power plant. Besides,the company also has another manufacturing plant engaged in production of chemical products at Sakarwadi, Maharashtra.Sugarcane of Maharashtra and Karnataka has higher recovery than cane in other regions of India, which provides companies withmanufacturing facilities in this region better operational benefits.

The revenue profile of GBL is diversified characterized by its presence in production of sugar, ethanol, power and chemicals. Further, the company has well-established relationship with customer base across industries and geographies.

As on March 31,2024, the company is one of the largest producers of ethanol in terms of volume. It is also the largest manufacturer of MPO worldwide in terms of installed capacity.

The company has well-developed in-house research and development (R&D) capabilities with R&D facilities which are registered with the Department of Scientific and Industrial Research, Government of India. The company has consistently invested in R&D and technology and has successfully implemented some of the process improvements and product developments at its manufacturing facilities over the years. During the three months ended June 30, 2024, and FY 2024, 2023 and 2022, its has incurred research and development expenditureaggregating to Rs 2.5 crore, Rs 14.4 crore, Rs 17.0 crore and Rs 13.4 crore million, respectively.

The company is part of the Somaiya group, which has diversified interests in inter alia the biorefinery, agriculturalresearch, education and healthcare industries. The group has a well experienced Board, which is supported by qualified functional heads and key managerial personnel and senior management who actively contribute to and participate in its strategies, operations and business development.

Weaknesses

The company faces supplier concentration risk as it procures significant portion of its raw materials (excluding sugarcane) from a few suppliers.

Raw material constitutes around 70% of the total revenue for the company as such margins of the company are susceptible to fluctuation in raw material prices.

The company is dependent on a limited number of customers (oil marketing companies for ethanol) for a portion of its revenues and does not enter long-term supply agreements with key customers resulting in customer concentration risk.

There are certain outstanding legal proceedings involving the company and some of its promoters and directors. Aggregate amount of claims against the company stood at Rs 132.8 crore and against the promoters stood at Rs 2.7 crore.

SEBI has in the past directed the company to refund amounts received pursuant to certain allotments to Sameerwadi Sugarcane Farmers’ Welfare Trust or to pro rata distribute Equity Shares, to beneficiaries of the Sameerwadi Sugarcane Farmers’ Welfare Trust. Any regulatory or legal proceedings in the future may adversely affect the financial condition of the company.

The company is dependent on third party manufacturers for the manufacture and sale of products under its retail brand ‘Jivana’. Any disruption in such third party manufacturers’ ability to supply these products or their failure to meet the quality standards or delivery timelines could adversely affect the company’s business.

Operations of the company are working capital intensive and insufficient cash flows may have adverse effect on the operations of the company.

Contingent liabilities as on June 30,2024 stood at Rs 206.5 crore.

Valuation

For the three months ended June 30, 2024, the company incurred net loss of Rs 26.1 crore on revenues of Rs 522.

Sales were down by 16.3% to Rs 554.41 crore in FY 2024.The OPM increased by 66 bps. However,OP decreased by 8.7% to Rs 133.54 crore. OI increased 71.7% to Rs 14.40 crore. Interest costsrose3.8% to Rs 75.56 crore. Depreciation increased 19.7% to Rs 59.93 crore. PBTstood at Rs 12.45 crore as against Rs 31.75 crore in FY2023. Net profit stood at Rs 12.30 crore as against net profit of Rs 19.64 crore.

At the higher price band of Rs 352, the offer is made at a P/E of 146.47 times FY2024 EPS (EPS of Rs 2.4).

The total outstanding borrowings were Rs 693.7 crore on a consolidated basis as of 30June 2024. The plan is to repay 34.6% of the debt using the issue proceeds. This will significantly reduce interest costs and boost profits. The FY2024 EPS would be Rs 7.5 if 34.6% of the interest cost is eliminated, assuming all other factors, including the tax rate, remain unchanged. The adjusted P/E ratio, at the upper price band, moderates to 47.2.

Listed industry peers are EID Parry (India), Triveni Engineering and Industries, Balrampur Chini Mills, Dalmia Bharat Sugar & Industries and Dwarkish Sugar Industries.In comparison,EID Parry (India) trades at 16 times its P/TTM EPS(TTM EPS Rs 49.69), Triveni Engineering and Industries trades at 26 times its P/TTM EPS (TTM EPS Rs 16.4), Balrampur Chini Mills trades at 24 times its P/TTM EPS (TTM EPS Rs 26.33), Dalmia Bharat Sugar and Industries trades at 15 times P/TTM EPS( TTM EPS Rs 32.87) and Dwarkish Sugar trades at 40 times it P/TTM EPS(TTM EPS Rs 1.75).