Ethanol-based chemicals maker Godavari Biorefineries is unlikely to see any major premium on the debut scheduled on October 30 despite some revival in the equity market sentiment in the last couple of days after recent sharp correction. The muted subscription numbers and high valuation may be some of reasons for expected tepid listing for the stock, according to experts.
The Mumbai-based company's initial public offering was subscribed just 1.83 times during October 23-25, with qualified institutional buyers bidding 2.76 times and retail investors 1.71 times their reserved portion. However, non-institutional investors' quota with 90 percent bids remained undersubscribed.
The firm has raised Rs 554.75 crore through its initial share sale at the upper price band of Rs 352 per share. It comprised a fresh issue of Rs 325 crore and an offer-for-sale of 65.26 lakh shares worth Rs 229.75 crore.
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"Godavari Biorefineries is expected to debut with a premium of around 1.5 percent above the upper price band," Prathamesh Masdekar, Research Analyst at StoxBox said.
Shivani Nyati, Head of Wealth at Swastika Investmart, also ruled out any listing benefits on Wednesday. "Although the liberalized ethanol production standards may help the company, the current IPO valuation is not advised. There is little chance of substantial listing benefits," she said.
The grey market is also not signalling any major listing premium as according to the market observers, Godavari Biorefineries IPO shares traded at around 0-1 percent premium against the issue price of Rs 352 per share. The grey market is an unofficial market wherein the IPO shares can be bought and sold till their listing on the bourses.
The company produces bio-based chemicals, sugar, various grades of ethanol, and power. Its products are generally used by several industries such as food and beverages, pharmaceuticals, flavours and fragrances, power, fuel, personal care, and cosmetics. The company also has long-standing relationships with customers, particularly in the sugar and bio-based chemicals sectors. This helps Godavari understand customer requirements and enables cross-selling of new products.
Overall, the Indian ethanol market is projected to grow from $7 billion in 2023 to $17.5 billion by 2028, reflecting a compound annual growth rate (CAGR) of 20 percent from 2023 to 2028. This growth is driven by increasing ethanol use in applications like fuel additives, disinfectants, and beverages.
Financially, however, there is no consistency in growth. Profit for the fiscal year 2024 dropped to Rs 12.3 crore, from Rs 19.6 crore in previous year, and even the revenue from operations declined to Rs 1,686.7 crore, from Rs 2,014.7 crore in the same period. Profit and revenue in FY23 were increased from Rs 19 crore and Rs 1,702.3 crore in FY22.
Its main object of fund raising via fresh issue is to reduce debt burden. It is going to utilise Rs 240 crore out of net fresh issue proceeds for repaying debt, while it had debt of Rs 748.9 crore as of June 2024. "Enhancing the debt-to-equity ratio will help the company raise additional resources to support potential business development opportunities," Prathamesh said.
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