Godavari Biorefineries IPO: 10 key risks investors should know before applying to the ₹555 crore issue

Godavari Biorefineries, a company that produces ethanol-based chemicals, launched its initial public offering (IPO) on Wednesday, October 23. The IPO is worth ₹555 crore, and it includes a fresh issue of 92 lakh shares and an offer for sale (OFS) of 65 lakh shares. The issue will close on Friday, October 25, with a price range set between ₹334 and ₹352 per share.

Out of the ₹555 crore, ₹325 crore will be raised from the fresh shares. The company plans to use this money to repay some of its debts and cover general corporate expenses.

Important dates:

• The share allotment is expected to be finalised on Monday, October 28.
• Successful investors will have the shares in their demat accounts by Tuesday, October 29, while refunds will also be processed on the same day for those who did not get an allotment.
• The stock may be listed on the BSE and NSE on Wednesday, October 30.

Grey Market Premium (GMP):

Currently, the grey market premium for Godavari Biorefineries is zero, which suggests the stock may list at around the issue price.

10 Key Risks to Consider Before Subscribing to the IPO:

1. Limited suppliers: The company relies on a small group of suppliers for important raw materials (excluding sugarcane). Any problems in securing these materials could disrupt production.
2. High material costs: Material costs make up a big portion of the company’s total expenses. Any increase in these costs or inability to manage them may hurt profitability.
3. Revenue concentration: A significant part of the company’s revenue comes from a few customers and products. A drop in demand or sales from these could negatively impact operations.
4. Legal issues: There are ongoing legal proceedings involving the company and some of its directors and promoters.
5. Unsecured loans: The company has taken certain unsecured loans that lenders can recall at any time, which could put pressure on its finances.
6. Third-party manufacturers: The company depends on external manufacturers for its retail brand, Jivana. Any issues with these manufacturers, like delays or quality problems, could affect business.
7. Seasonal impact: The company’s sugar, distillery, and power generation segments are affected by seasonal changes, which could impact its overall financial health.
8. Government policy: A portion of the company’s revenue comes from selling ethanol to oil companies as part of the government’s ethanol-blended fuel programme. Any negative changes in government policy could hurt the company’s revenue.
9. Capital needs: The biochemicals industry requires significant investment. The company may need to raise additional funds in the future to support its growth.
10. Currency risks: Some of the company’s earnings come in foreign currencies, exposing it to risks related to currency exchange rates.

Investors should carefully consider these risks before deciding whether to invest in Godavari Biorefineries’ IPO.