Godavari Biorefineries LtdQ3 FY24Diversified FMCG

Godavari Biorefineries Ltd

Q3 FY24 Earnings Call Analysis

Management growth scorecard

Revenue

Category 2

Margin

Category 1

Fundraise

N/A

Order

N/A

Capex

Yes

2 of 3 growth signals are positive.

Full analysis

Revenue guidance

Category 2

→The company anticipates a better sugarcane crushing season from November 2024 to April 2025 due to favorable monsoon and restored ethanol blending program, leading to higher volumes and revenue in H2 FY25.
→Revenue growth was 34% YoY in Q2 FY25 and 25% in H1 FY25 despite seasonality; a stronger performance and improved profitability are expected in H2 FY25 due to crushing season commencement.
→Expansion plans include increasing capacities in biobased specialty chemicals starting Q4 2025, driven by strong global demand and co-creation with customers for decarbonization.
→Investment in grain-based ethanol production will add dual feedstock flexibility, mitigate climate risks, and support growing ethanol blending mandates, potentially boosting volumes and sales.
→Enhanced capacity utilization and debt reduction will free cash flow for growth investments, improving margins and scaling up specialty chemical offerings especially from 2025 onwards.

Margin guidance

Category 1

→Company expects significant improvement in H2 FY25 results due to commencement of sugarcane crushing from November 2024 and restoration of ethanol blending program, leading to higher production and revenue.
→EBITDA and profitability traditionally stronger in H2; last 3 years showed H2 EBITDA over 100% of full-year EBITDA.
→Investment focus on biobased chemicals expansion starting Q4 2025, aiming to improve segment profitability and ROCE.
→Debt reduction via IPO proceeds will save approx. Rs. 24-25 crores annually in interest, freeing cash flow for growth investments.
→Grain-based ethanol facility under planning, expected to give feedstock flexibility and mitigate climate risk, enhancing earnings stability.
→Biobased specialty chemicals segment expected to see stronger demand and capacity ramp-up in H2 FY25, improving margins.
→Overall, optimistic about improved profitability, cash flow, and sustained EPS growth in coming years aligned with expanding product portfolio and green transition.

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Fundraise plans

- As of March 31, 2024, Godavari Biorefineries had consolidated borrowings of Rs. 663 crores. - The company recently completed an IPO to raise equity capital. - Rs. 240 crores from the IPO proceeds were allocated for full or partial repayment/prepayment of certain borrowings, aimed at reducing debt and interest costs. - The improved debt equity position is intended to free up internal accruals for business growth, especially in biobased chemicals. - There was no mention of new or upcoming fundraising through additional debt or equity beyond the completed IPO and debt repayment plans. - The focus appears to be on utilizing freed-up cash flow from debt reduction to finance expansion and CAPEX, including investments in grain-based ethanol capacity and biobased chemical capacity increases. In summary, no new fundraising through debt or equity is indicated beyond the recent IPO and planned debt repayment.

Order book

→For ethanol bidding under government tenders, Godavari Biorefineries bid for over 10 crore liters but was allotted about 7.5 crore liters (5.4 crore liters for juice-based ethanol and 2.5 crore liters for B-heavy molasses).
→No bids have been placed yet for grain-based ethanol as the company is still in the process of creating that capacity.
→The company expects increased demand for biobased specialty chemicals in the second half of FY25, leading to capacity expansions starting Q4 FY25.
→There is a strong funnel of product development projects with customers for biobased chemicals, with many early-stage molecules in development expected to mature over 3-4 years.
→The crushing season for sugarcane has started recently, and full seasonal production will contribute positively to the order fulfillment and revenue in H2 FY25.

Capex plans

Yes

→The company plans to invest in expanding biobased specialty chemicals capacities, with some capacity increases expected from Q4 2025 onwards.
→There is a strategic focus on developing a grain-based ethanol facility to add dual feedstock capability, providing flexibility and mitigating climate risk.
→Current CAPEX for the grain-based ethanol project is under assessment, with a stronger update expected in the next quarter.
→The IPO proceeds are being used primarily to reduce debt, thereby freeing up internal accruals and cash flow for these growth investments.
→Investments will support participation in India’s ethanol blending program and biobased chemicals market, aligning with the company’s green energy transition strategy.
→The company is investing in research and development, including in biobased chemicals and a cancer drug currently in safety trials.

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