Godavari Biorefineries IPO opens on October 23 and will close on October 25. The company aims to raise Rs 554.75 crore through the issue. The IPO has been subscribed 0.07 times as of 11:25 am on October 23. Here are key risks associated with the issue that investors should consider before deciding to subscribe
Consolidation of raw material suppliers: The company depends on a few suppliers for its raw materials, excluding sugarcane. The top three suppliers hold 77.06% of the raw material supply to the company. “Any failure to procure such raw materials from these suppliers may have an adverse impact on our manufacturing operations and results of operations,” said the company in its DRHP filed with SEBI.
Raw materials are a major expense: The company’s cost of materials consumed constituted a majority of the total expenses incurred. So, if there is any increase in the raw material cost or the company’s inability to reasonably offset its costs with the prices of products then it’ll hurt the company’s profitability.
Not just raw material suppliers but customers as well: The company derive a portion of its revenue from a few customers. If any of the customers make a loss or there’s a reduction in their demand for the company’s products then it may adversely affect the business, results of operations, financial condition and cash flows. “We are dependent on a limited number of customers for a portion of our revenues. We typically do not have a firm commitment in the form of long-term supply agreements with most of our key customers and instead rely on purchase orders including through the tender route to govern the volume and other terms of our sales of products. We do not typically have exclusivity arrangements with most of our customers,” read DRHP.
Ethanol sales depend on OMCs: The oil refiner’s revenue from ethanol is dependent on the sales to oil marketing companies and according to the ethanol-blended petrol programme instituted by the Government of India. “Any adverse change in the policies of the Government of India in this regard would have an adverse effect on our revenue, results of operations and financial condition,” said the company.
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Godavari Refineries IPO Details
The IPO consists of two components: the sale of fresh shares and an offer for sale.
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