Godavari Biorefineries IPO: Last Chance to Bid Today as GMP Surges 6% – Can Debt Repayment and Ethanol Expansion Drive Growth?

Today is the last day to bid for the Godavari Biorefineries IPO. Despite low demand, the grey market premium (GMP) for the company’s shares has improved, now trading at a 6% premium over the issue price.

So far, the IPO has been subscribed just 55%, with the retail portion almost fully subscribed at 96%. Non-institutional investors (NIIs) have shown less interest, with only 26% subscription, and no bids have come in from qualified institutional buyers.

Analysts have a neutral view on the IPO. While Godavari Biorefineries is a global leader in the production of MPO (methyl pentene oxide) and a key player in ethanol-based specialty chemicals, the company faces financial struggles.

Swastika Investmart commented, “The company has significant debt, and the IPO seems overpriced. Although the business may benefit from recent government policies promoting ethanol production, the current valuation is not very appealing. Investors who believe in the company’s long-term potential and are prepared to face the risks from high debt and recent financial difficulties may want to consider applying cautiously.”

The funds raised from the fresh issue will be used to repay ₹240 crore of the company’s debt, while the rest will be for general corporate purposes. As of June 2024, Godavari Biorefineries had consolidated debt of ₹748.9 crore.

The company is one of India’s largest ethanol producers, with a bio-refinery capacity of 570 KLPD (kiloliters per day). Its products include bio-based chemicals, sugar, ethanol, and power, which are used in industries such as food, beverages, pharmaceuticals, personal care, and fuel. With plans to support government initiatives on ethanol blending, Godavari aims to increase its distillery capacity from 600 KLPD to 1,000 KLPD.

Godavari Biorefineries supplies to major companies like Hershey India, Hindustan Coca-Cola Beverages, and LANXESS India.

Financially, the company’s profit dropped to ₹12.3 crore for the year ending March 2024, down from ₹19.6 crore the previous year. Revenue also fell from ₹2,014.7 crore to ₹1,686.7 crore. In the June 2024 quarter, the company reported a loss of ₹26.1 crore on revenue of ₹522.5 crore.

The IPO is managed by Equirus Capital and SBI Capital Markets, with Link Intime India as the registrar.