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00:00Hello and welcome to NDTV Profit. You are watching IPO at DA and my company in focus
00:13today is Godavari Bio Refineries. It's a company which is India's one of the largest producers
00:19of ethanol in the country. The company's IPO is opening on October 23rd, closes on 25th
00:24of October, price between Rs.334 to Rs.352 per share. It's a fresh issue of Rs.325 crores
00:30and OFS of Rs.230 crores. So total size of the issue comes to around Rs.554 crores. The
00:36company is valued at little over Rs.1800 crores at the upper end of the price band. And joining
00:42me today is Sameer Soumaya, who is the Chairman and Managing Director of the company and Naresh
00:46Khetan, who is the CF of the company. Gentlemen, thank you very much for joining us on NDTV
00:51Profit. Mr. Soumaya, let me start with you. You are one of the largest producers of ethanol
00:57in the country, but give us a bit of a break up about the kind of manufacturing you do
01:04and what kind of products that you manufacture. Thank you firstly for this opportunity. We
01:09are a Godavari Bio Refineries, which is the conversion of biomass into food, biofuels
01:15and chemicals. And so that's what our whole focus is. We are converting primarily producers
01:23of sugarcane, converging sugarcane into sugar, ethanol under the government of India's program,
01:29especially for the ethanol blending program. And we convert the ethanol also into speciality
01:35chemicals that find applications into a variety of fields. They could be in coatings, it could
01:40be in fragrances, it could be in skincare and cosmetics, it could be in agrochemicals across.
01:47And that's the work we do. You are raising around 325 crores in primary issue.
01:53What is it going to be used for? The aim is to retire the debt of the company
02:00and the free cash flow so generated will be used to invest into later on biobased speciality
02:07chemicals. So the main the objective is to retire the debt in the company.
02:12What is the kind of debt we are sitting on today?
02:15Today we are sitting as of March 24, debt of 652 crores.
02:26And how much will you be retiring post the IPO?
02:31Post the IPO we will be repaying 240 crores of term loans.
02:35Okay. Give me a sense of Mr. Khetan, this question is to you. FY24 top line was lower than FY23,
02:47the profitability was also lower and the margins were little higher there. In Q1 we saw
02:55the revenues to be around 522 crores. On the PAT level it was a loss. Is it a seasonal thing
03:03that is there in the business for you or is it something extraordinary which is there in the
03:08financials? See, let me put it this way. For the Q1 of 25, it is always off-season for us. So
03:17for the sugar production and the chemical and the ethanol and the power generation.
03:22So the production starts from November onwards. So normally the losses are there. But in the
03:29current year in the Q1, what has also happened is that the BME molasses stock was very minimal
03:36as compared to March 23. And this BME stock, which is almost around 1 lakh metric ton of
03:42process during the off-season. Since they were not available, the distillery division for the
03:49ethanol producing has a minimum profit as a minimum beta as compared to the corresponding
03:57gradients. But at the same time, we got supported from the chemical unit wherein we got a bit of
04:03almost like 9 crores for the Q1. Coming to your question for financial year 23-24,
04:14this was basically because we produced more of sugar and less of ethanol because the government
04:19in anticipation of less sugar has allowed us to produce less ethanol and produce more sugar.
04:30Okay. Mr. Somaiya, what we understand is that a couple of months back, the government did
04:35open up the entire thing of producing more ethanol and allowed many of the companies to
04:41expand laterally or vertically to make more alcohol to the distilleries, setting up distilleries. So
04:51can you take us through what kind of impact will that have on your operations?
04:56No, sir. Just to explain a little bit on the question that you asked Mr. Khaitan earlier,
05:01the company had expanded its capacity to process cane and make directly juice to ethanol last year
05:08itself. The drought in 2023 resulted in estimates of sugarcane production being lower in Maharashtra
05:15and Karnataka for which that program was temporarily suspended. As a result of which, we had
05:21what we will say difficult numbers, what you talked about and you asked Mr. Khaitan and we had
05:27the seasonality that you showed in the Q1 2025. What the government has now done
05:33in the consequence to a very good monsoon, they have fully restored the ethanol blending
05:40program and are targeting a 20% blend in the coming year. And they have issued, the oil marketing
05:48companies have issued a tender of more than 9 billion liters for this. And Godavari is looking
05:54forward very much to utilize its full capacity of producing ethanol for the ethanol blending program,
06:01which was made ready in the last season, but was not able to be operated fully because of
06:08the suspension in view of the drought in 2023. So we are looking forward that the program has
06:14been fully restored and the ethanol blending program is moving well and we are participating
06:19in it fully. Has the government also increased the ethanol prices for this season?
06:24No, currently the ethanol prices for the current season have not, the coming season have not been
06:29announced. When do you expect that to come in? So the ethanol year commences from 1st November.
06:39So we would hope the government, that is best for you to ask the government, but first the
06:44season would be the 1st November onwards. What is the expectation if I can ask you as an industry
06:50person? The industry has asked, but you know that the industry has asked for an increase.
06:59But we will wait for the government to give its feedback.
07:03Mr. Sumedh, give us a sense of your operations in the sense that sugar is always a regulated entity
07:11and it is dependent on climate, monsoon and others. How do you derisk yourself from that?
07:18Because you have integrated yourself into biochemicals as well. How do you see that
07:24segment picking up in the event of, you know, if there are restrictions that come in because of
07:31any adversities of climate or production of sugar? So we see the future in very interesting ways.
07:39Today climate change is a reality. As a result of climate change, there is a green energy
07:45transition in India and that is manifested in the ethanol blending program. And so therefore,
07:51the ethanol that we are making will find itself into the blending program and it gives a great
07:56stability to the industry. To go further, we are also looking at ethanol-based speciality chemicals.
08:05We co-create value because companies around the world are looking at how to look at more
08:11sustainability, transition to greater renewable supply chain and also reduce what we call scope
08:171, 2, 3 emissions because many countries have announced a path to net zero. India has given a
08:23path to net zero to 2070. So with knowledge, with researchers, we have more than 50 scientists.
08:30We are continuously working to convert biomass physically or chemically or biologically. I am at
08:36the core a science person and to make products which are going to help decarbonize and de-fossilize
08:42the world. The entire world is looking at this and we are looking and co-creating with customers.
08:47It takes a lot of time to develop with them. We have now done a lot of development and that is
08:52how we are looking to grow forward as well. So it is the green energy transition as well as working
08:57with customers around the globe to make chemicals which are there to help de-fossilize and they are
09:03primarily in the speciality segment as we go forward. Are you looking at substitution of
09:07sugar as well because my understanding is that you are looking at green-based ethanol as well?
09:12No. So that is, you know, when you asked about how do you de-risk, we are also looking at de-risk,
09:17de-risking from a feedstock point of view and a climate point of view. So grain or maize as a
09:22feedstock, maize is a four-month crop. So if there is, for example, a poor or monsoon, you can always
09:28de-risk by having alternative feedstock. Having a dual feedstock is always very important so that
09:34you de-risk from such a situation and also in the event, say a drought affects government policy in
09:40the future, we have a different, an additional leg to stand on and this is separate because
09:47there is also a greater opportunity as India continues to grow and even recently we saw that
09:53the government of India had said they were looking at ways to take the blend beyond 20%.
09:57We will look at, you know, this market of the green energy is continuing to grow and we want
10:01to be a participant in this. So we want to be participating in both these, you know, the green
10:06chemicals, that's why we are a biorefinery and the green energy transition in India and in the world.
10:13Give me a sense of how equipped is your refinery to manage your multi-grain
10:18and sugar, there is the refinery will be able to do that or you need to change the
10:23configuration to some bit? No, we will have to add equipment to bring in ability to convert
10:30starch, which is grain or maize or rice, damaged food grains to convert it into
10:35fermentable sugars. So that will be done in the course of time. And is there a plan of
10:40expansion over the next two to three years? I mean, have you planned out how you will do it?
10:46Yes sir, we had applied to the government of India under their scheme and we have received
10:51clearance from them as well. Give me a sense of the expansion plans, you know, you spoke
10:56of the fact that you are going to use a large chunk of the money for reducing your debt levels
11:01by 240 odd crores, but I also understand that you already have permissions in place to increase your
11:07crushing capacity as well as expansion in your distillery. So right now we have permissions,
11:15these permissions are enabling permissions, our immediate use of free cash flows, when we pay
11:21down the debt, the investment, you know, that will automatically generate free cash flows over
11:27the next two years, which is an investment cycle we need to invest in speciality chemicals. So that
11:33money released, so to speak, the free cash flow released will be used to invest in speciality
11:39chemicals. And secondly, the government has also sanctioned the interest subvention program
11:46for our creation of a grain-based ethanol facility. So that's how we are going to take
11:51the business forward. Mr. Khetan, what is the kind of cash flows that can be expected
11:57once you pay down your debt by 240 odd crores? Cash flow in the sense, if you consider 140
12:03crores, if it is payable over a period of five years, so every year we will get a cash flow of
12:1050 crores towards principal and about 6 to 7, 5 to 6 crores of the interest amount. So it will
12:15be around 55 crores, 60. Incremental cash flows. You are adding something here? No, I was just
12:23saying beyond that forward-looking numbers, I think we are, you know, he's just talking about
12:27what would be the saving in print, but you know, forward-looking numbers, we are at. I understand
12:32that. But it's my job to ask as well. So I was trying my luck. You know, just to look at the
12:41business mix that you have today, you know, sugar 42 percent, bio-based chemicals 28 percent and
12:48distillery 26 percent. Over a period of next couple of years, do you see this mix changing?
12:54Because I think the street would be a little more excited on the kind of the biochemical story that
12:59you're, you know, building. And sugar is something much more regulated in nature and so it's very,
13:04you know, seasonal in that sense. Sir, I repeat in the past year, the suspension of the ethanol
13:13program did not allow us to make the full ethanol we could. And therefore, our product mix switched
13:20to a little more sugar in the year gone by. With the complete restoration of the ethanol program
13:27that the government has announced and the tenders announced by the OMCs, you will see a much, we
13:33will be able to utilize the facilities we set in place and the ethanol mix will be greater going
13:38forward. I also talk about, as the company continues to explore opportunities using its
13:45science knowledge to do ethanol-based, I will say bio-based speciality chemicals. And so we
13:52will continue to grow these businesses. I don't want you to give me a forward
13:56statement, but given the kind of capacity that you have and now that restrictions are removed,
14:02at this capacity, what could be the mix that we can look at?
14:07So you will, in the overall mix, given that I'll be able to create more ethanol than I did before,
14:13we will definitely see more ethanol and chemicals compared to sugar in the mix.
14:20Give me also a sense of the export market that you cater to. You cater to around 20-odd countries.
14:26UAE being one of the largest and followed by US. What is the kind of growth that you see
14:32in these markets and what kind of products are you exporting to these markets?
14:36So in our speciality chemicals segment, we find customers across the world, including India.
14:44We are finding opportunities in skincare, cosmetics with customers in Japan, customers in
14:51Korea, customers in Europe. We are seeing opportunities in the agrochemical market,
14:56in the coatings market, again, across Europe, Middle East, across all over. So what we are
15:04finding is that many companies are having targets to move towards a renewable supply chain, a more
15:11circular supply chain, and one in which reduces their carbon footprint. So often when we talk
15:17with them, there are two possibilities that they work with us. Either it is a drop-in,
15:21a drop-in which means it's an exact substitute, or it is a substitute which has different
15:26properties. So I might make a molecule that is a moisturizing agent. It substitutes for a
15:33petroleum-derived product, but it has better properties than the petroleum substitute.
15:40But the process takes a long time. For co-creation, you have to work with the customer.
15:45It may take three years, four years, and they work together for the use of the application.
15:50So today, what we find is Godavari, because of its science knowledge, is becoming a partner
15:56of choice for companies across the world as they undertake their green transition.
16:02What are the kinds of pricing advantages that you have? Because if I look at your
16:08product profile, you are one of the two manufacturers of MPO,
16:12and maybe natural and 1,3-butylene glycol, one of the largest players in that market as well.
16:20How do you see the pricing of these biochemicals?
16:26So again, each molecule, each vertical has its own ecosystem. If you take a particular skincare,
16:32cosmetics, fragrance world, if you yourself were walking around an aisle in a shop,
16:40and if the product said made from natural sources, made from renewable materials,
16:44sensitive to the skin and sensitive to the earth, compared to made from oil and petroleum,
16:50the customer in such places is ready to pay a premium, which means the B2B to B2C,
16:56that you can get such possibilities. In other cases, you might just do a green product with
17:03an import substitution, which is derived from a petroleum molecule, and you do it at price.
17:09And in third cases, you might, so you know, I think again, repeating it is for each case,
17:14where I might be equal, but I might say I have a lower carbon footprint. And in some places,
17:20the customer clearly sees a perceived benefit, either because of its own properties of
17:25performance, or because it is their end use customer is ready to pay a premium.
17:30So there is no one common answer to what you're asking. But the one common answer rather is across
17:37the world, individuals, companies, and countries are looking towards moving to a lower carbon
17:44footprint and a carbon transition. And that's where the opportunity we are seeing arising.
17:50We have more than 50 scientists, lots of, we have PhDs, masters people, chemists, biologists,
17:56they understand physical, chemical and biological sciences, and we are working hard to make these
18:02products to co-create with our customers around the world. And that's the opportunity we see.
18:08And given the fact that you have lined up expansion plans, or you have in principle
18:12approval for the expansion plan, do you think that your cash flows will be enough to take care
18:18of those expansion organically? Or do you need to raise funds for the funds going forward?
18:24So we are very confident of the future.
18:28Mr. Khetan, one question on the margins front as well. You ended up FI24 with a
18:34margin of around 8% EBITDA margins. Given the kind of that FI25 will be a good full or next
18:42nine months of that could be a full blown year for you with all capacities opened up.
18:50What is the kind of stable margins in this business or blended margins in this business?
18:56I can put up this way because we have asset on the ground and given the government permission
19:01for producing ethanol, the margin will be improving with the Samirwadi side,
19:07which is integrated unit and as well as support by the chemical unit.
19:13Mr. Samir, are you saying something?
19:16No, no, it's just the same point, sir. That forward looking numbers,
19:21Mr. Khetan said it correctly. With the ethanol program being restored,
19:27we look forward to better operations.
19:30My final question to you is that, how do you see product prices moving in your segment?
19:38In the last 12 to 18 months, there has been a lot of volatility. Do you see
19:46some kind of stability coming into the especially speciality chemical prices?
19:53Again, speciality chemicals are done out of relationships and so we have a wide array
20:01of speciality chemicals that we make. So, each chemical has its own ecosystem and we
20:08continue with the science, keep developing new speciality chemicals. So, we have a pipeline
20:14to do. So, it is our relationships that give us stability and growth opportunities in the business.
20:22Gentlemen, it was a pleasure talking to you today. Your IPO is opening on October 23rd,
20:26closes on 25th. Price between Rs. 334 to Rs. 352 per share. The total IPO size is Rs. 554 crores
20:33and the company is priced at nearly Rs. 1800 crores at the upper end of the price band.
20:40Thank you very much for joining us on IPO day today.
20:43Thank you so much for the opportunity.