IPO Size: Rs. 555 cr 

• Rs. 325 cr Fresh Issue to repay Rs. 240 cr debt (of Rs. 663 cr net debt)
• Rs. 230 cr is Offer For Sale (OFS) by investor Mandala Capital (completely exiting its 9.5 year old 11.75% stake at 6.8% IRR) and promoter (81% to shrink to 63% post IPO)

Price band: Rs. 334-352 per share

M cap: Rs.1,801 cr, implying 31% dilution

IPO Date: Wed 23^rd Oct to Fri 25^th Oct 2024, Listing Wed 30^th Oct 2024

Grey Market Premium (GMP): We are strongly against ‘grey market premium’ as it is an unofficial figure, against SEBI guidelines.

Sugar Mill and Bio-Chemicals Maker

Godavari Biorefineries has a sugar mill in Karnataka and a bio-chemicals plant in Maharashtra, manufacturing sugar, ethanol and bio-based chemicals such as ethyl acetate, bio-ethyl acetate, crotonaldehyde, MPO among others. FY24 revenue of Rs. 1,687 cr was split nearly equally between the 3 product segments. Company’s installed capacity is 18,000 TCD sugarcane crushing, 600 KLPD rectified spirits (being expanded to 1,000 KLPD), 45 MW power plant and 1.2 lakh MTPA chemicals. 

5 Causes of Concerns:

1. Bio-based chemicals segment, accounting for 1/3^rd topline, clocked EBITDA margin of less than 5% in all the past 3 fiscals, indicating poor returns.
2. Even if Q1FY25 loss is ignored due to seasonality, company has huge dependence on external factors like rainfall and sugarcane production. This caused 16% and 37% YoY de-growth in FY24 revenue and profits respectively. Even in a ‘good years’ FY23 and FY22 when gross recovery of sugarcane was 11.8%, RoE was in single digit, being around just 8%. This is very poor, highlighting weak fundamentals.   
3. High dilution of 31% with investor exiting at meagre return (even lower than bank fixed deposit interest rate) despite near-decadal holding period
4. Debt of Rs. 420 cr to continue on company’s books post-IPO, with net debt to equity ratio of 0.5:1. So even after the large dilution, company does not become debt-free.
5. Exorbitant pricing: EPS for FY23 and FY24 stood at 4.7 and Rs. 2.9 respectively. Even if EPS of Rs. 5 is taken for FY25E, PE multiple works out to 70x, which is grossly expensive for company’s weak fundamentals. Even large sugar mills with double digit RoEs are ruling at PE multiples of ~20x.