Godavari Biorefineries Limited (Avoid)

Highlights

Godavari Biorefineries Limited (GBL) incorporated in 1956, is one of the manufacturers of ethanol-based chemicals in India and they are an integrated bio-refinery in India with an installed capacity of 570 KLPD for manufacturing ethanol as at Q1FY25. They are one of India’s largest producers of ethanol in terms of volume as of FY24.

They were also the largest manufacturer of 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. They have also set up India’s first bio-based EVE manufacturing facility in India.

Their diversified product portfolio comprises of (i) bio-based chemicals, (ii) sugar, (iii) different grades of ethanol and (iv) power. These products find application in a range of industries such as food, beverages, pharmaceuticals, flavours & fragrances, power, fuel, personal care and cosmetics.

GBL has a wide range of bio-based chemicals such as ethyl acetate, bio-ethyl acetate, MPO, 1,3 butylene glycol, crotonaldehyde, acetaldehyde, bio-acetic acid, butanol, EVE, and paraldehyde. They are also in the process of exploring the utilisation of grains to manufacture grain-based ethanol.

They have catered to customers from over 20 countries including Australia, China, Germany, France, Italy Japan, Kenya, Netherlands, Singapore, United Kingdom, United Arab Emirates, Indonesia and United States of America. Their customers include marquee players such as Hershey India Pvt Ltd, Hindustan Coca-Cola Beverages Private Limited, M/s Karnataka Chemical Industries, Escorts Chemical Industries, Khushbu Dye Chem Pvt Ltd, Privi Speciality Chemicals Limited, Shivam Industries, as well as major oil marketing companies.

Out of the total proceeds of Rs. 5,547 mn, Rs. 2,400 mn would go towards repayment/pre-payment, in full or in part, of certain outstanding borrowings availed by the Company. ~Rs. 850 mn would use for general corporate purpose and Rs. 2,297 mn would go towards existing selling shareholders of the company.

Key Highlights

• As per report, the market for bio-based chemicals in 2023 was valued at USD 97.2 bn, expected to be register a CAGR of 10.4 pct, for the next five years from 2023 to 2028. In 2028, the market is expected to reach a value of USD 159.3 bn indicating exponential to players operating in this industry.
• Their Sameerwadi manufacturing facility has a crushing capacity of 18,000 TCD and Company’s sugar mill, is among the top 15 sugar complexes in India in terms of crushing capacity. They also have an environmental clearance to expand crushing capacity up to 25,000 TCD.
• In order to improve the valorisation of sugarcane and in light of the government initiatives for increasing fuel ethanol blending, WBL intend to expand their distillery capacity from 600 KLPD to 1,000 KLPD and have obtained environmental clearance for such expansion.
• Further, WBL proposes to commence the manufacturing of 2^nd generation Ethanol from bagasse, a by-product of sugar, to further improve the utilisation of available feedstock for their distillery. They have entered into a MoA with the Centre for High Technology in relation to grant of financial assistance to company for a maximum amount of Rs. 150 million for the proposed installation of a 2G ethanol plant.
• The company’s key strategy includes (i) Continuing to diversify product offerings and improving operational efficiency (ii) Implementation of additional measures for improving feedstock security and increasing value derived from feedstock (iii) Increasing the share of business of existing customers and further diversifying customer base (iv) Continuing focus on implementation of sustainable practices and strengthening control over inputs.
• During FY24, company reported sales of Rs. 16,876 mn which fell by 16.28 pct YoY primarily due to reduction in sale of sugar to overseas customers due to the restriction in the export of sugar by the Government of India. While EBITDA also tumbled by 4.32 pct YoY to Rs. 1,479 mn. Despite fall in sales and EBITDA, EBITDA margin expanded from 7.67 pct in FY23 to 8.77 pct in FY24. As of FY24 the company reported profit of Rs. 123 mn which was slipped by 37.37 pct YoY.

Key Risk

• Their sugar, distillery and cogeneration segments are subject to seasonal vagaries which may have an adverse impact on their business,
• GBL benefit from certain export incentives from the Government of India and certain other benefits, which if withdrawn or modified may have an adverse impact on their results of operations.

Financial Performance

Peer comparison based on FY24 Financials

Valuation

Godavari Biorefineries Limited is one of the prominent manufacturers of ethanol-based chemicals in India. The company is the part of Somaiya group of companies, which has experience of over eight decades in the sugar industry and over six decades in the bio-based chemicals industry. At the upper end of the price band of Rs. 352 the issue is priced at a Mcap/sales of ~1.08 its FY24 sales. The issue looks fully priced. One can avoid this issue.

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