Godavari Biorefineries IPO : 7 things to know

Godavari Biorefineries Ltd, a producer of ethanol and ethanol based products in India, had filed its draft red herring prospectus (DRHP) in September 2021 and SEBI had already approved the IPO in November 2021.

However, due to the fairly volatile market conditions and IPOs reducing to a trickle, Godavari Biorefineries Ltd is yet to announce the dates of its IPO. The IPO will be a combination of a fresh issue and an offer for sale and the company is a dominant player in the high growth ethanol segment in India.
 

7 important things to know about Godavari Biorefineries IPO
 

1) Godavari Biorefineries Ltd has filed for an IPO with SEBI which comprises of a fresh issue of Rs.370 crore and an offer for sale or OFS of 65,58,278 shares. However, since the price band for the stock has not been fixed, the size of the OFS and the value of the OFS is not known as of now.

Godavari Biorefineries Ltd is into the production of ethanol, which is a derivative of sugar / sugar syrup and is an important and critical input from the government policy standpoint as ethanol has to be blended with petrol to reduce the use of crude and also adopt an eco-friendly approach.

2) Godavari Biorefineries IPO the total issue size, let us look at the OFS portion first. The OFS comprises of 65,58,278 shares by early shareholders and promoters of the company. Among the key persons tendering shares as part of the offer for sale, Samir Shantilal  Somaiya and Somaiya Agencies will tender 5 lakh shares each. In addition, up to 49.27 lakh shares in the OFS will be tendered by Mandala Capital.

The other names participating in the OFS by tendering shares include 3 lakh shares by Filmedia Communication Systems, 1.31 lakh shares by Somaiya Properties and 2 lakh shares by Lakshmiwadi Mines and Minerals. The OFS will not be capital dilutive or EPS dilutive but will enable the early investors to partially monetize their stake and also improve the free float in the company.

3) The Rs.370 crore fresh issue portion will be used for predominantly for debt reduction, including pre-payment of debt where feasible. In addition, Godavari Biorefineries Ltd will also use the fresh issue component to bankroll its capital expenditure plans pertaining to expansion of sugarcane crushing capacity.

In addition, part of the fresh funds will also be used to fund the capital expenditure of the potash unit. In addition, the company will use a small portion of the fresh issue for general corporate expenses also.

4) The company is also considering to do a pre-IPO placement of shares to key investors like HNIs, family offices and to qualified institutional buyers to the tune of Rs.100 crore. If the pre-IPO placement is successful, then the fresh issue portion will be reduced commensurately.

Pre IPO placements are different from the anchor placements happening closer to the IPO date in that the pre-IPO placement has a longer lock-in period but the company has more leeway in fixing of prices for the placement.

5) Godavari Biorefineries Ltd is not just a leading producer of ethanol but also a sort of pioneer in India in the manufacture of ethanol based chemicals. Its product portfolio is quite impressive comprising of bio-based chemicals, sugar, rectified spirits, ethanol, apart from also having a power plant. 

6) The company does find itself in a sweet spot with the government pushing forward the target date for 20% ethanol blending to 2025. That should substantially boost the fortunes of most of the sugar and ethanol companies. Also, fresh ethanol capacities are just about coming up and for some time now, the segment is likely to be undersupplied.

That will be favourable for prices and that should benefit the ethanol companies like Godavari Biorefineries Ltd. Ethanol blending in India with petrol is still catching up but it is a big business in other countries. The opportunities are humongous.

7) The IPO of Godavari Biorefineries Ltd will be lead managed by Equirus Capital, JM Financial. They will act as the book running lead managers or BRLMs to the issue.

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