Madhusudan Kela's Wife Acquires Stake in Recently Listed IPO

India has seen some remarkable success in producing renowned and respected stock market investors who not only accumulated immense wealth but also gained global recognition from financial communities worldwide.

These brilliant minds have a keen eye for recognizing trends within the markets, an exceptional understanding of our nation's economy, as well as possessing intuition to make strategic investments that pay off exceptionally.

Therefore, many investors turn to studying the strategies of these investment maestros, hoping to glean insights that can propel their portfolios to new heights.

For investors seeking such news, there is noteworthy stock market news: Madhusudan Kela bought a stake in a sugar stock.

Who is Madhusudan Kela?

Known for his ability to identify quality companies with strong growth prospects, Madhusudan Kela is one of the most well-known and seasoned investors in the Indian stock market, with extensive experience of over 27 years.

He prefers a value investing style and has a long-term investment horizon.

Which Stock Did Madhusudan Kela Buy and Why?

The stock in question is Godavari Biorefineries.

Godavari Biorefineries Limited (GBL) is a biorefining company that produces a range of products using sugarcane as its primary feedstock.

Godavari Biorefineries made its stock market debut on Wednesday, 30 October, and saw a flurry of bulk deals on the NSE.

Notably, among the key transactions was a purchase by Madhuri Madhusudan Kela, wife of ace investor Madhusudan Kela, who acquired 500,000 shares of the company in a bulk deal.

According to NSE data, Madhuri Kela bought 5,00,000 shares at an average price of Rs 335.7 per share, aggregating to Rs 167.8 m.

Godavari Biorefineries stock was today listed at Rs 310.55 on the BSE which was a 12% discount over the issue price of Rs 352.

Post its listing the stock recovered some of its losses to close the session at Rs 342.85, up by Rs 32.30 or 10.40% over the listing price.

The issue, which included a fresh equity sale worth Rs 325 crore and an offer-for-sale (OFS) of up to 6.53 million (m) shares, was subscribed 2 times at close.

While we don't know what prompted this decision, there are some reasons that we can guess.

#1 Commanding Ethanol Position

One of the reasons the ace investor may have taken a stake in GBL is its commanding presence in India's ethanol market and its innovative approach within the bio-refinery space.

GBL stands as India's largest ethanol producer by volume and caters to high-profile clients like Hershey's India, Hindustan Coca-Cola Beverages, and major oil marketing companies.

Its longstanding relationships with this diverse customer base, spanning multiple industries and regions, underscore its strong market position and steady revenue sources.

Moreover, GBL holds a unique position as the only Indian company producing bio-ethyl acetate, a high-demand biochemical, and operates the country's first bio-based ethyl vinyl ether (EVE) manufacturing facility, launched on 31 March 2024.

On the global stage, GBL further distinguishes itself as the largest producer of 3-methyl-3-pentene-2-one (MPO) with a substantial production capacity of 6,000 MTPA.

This integrated model, combined with GBL's strategic expansions and exclusive product offerings, likely makes it an attractive addition to the ace investor's portfolio, with promising growth potential in both domestic and international markets.

#2 Strong Growth Plans

Another compelling reason behind the ace investor's stake in Godavari Biorefineries may be its strategic alignment with government initiatives to boost ethanol blending, positioning the company for growth in the biofuels sector.

With plans to expand its distillery capacity from 600 KLPD to 1,000 KLPD, the company has obtained environmental clearance for this expansion, which will generate significant free cash flow to reduce debt and fund investments in bio-based speciality chemicals.

Additionally, Godavari's focus on sugarcane valorization-diverting feedstock towards high-value products-and its exploration of grain-based ethanol production reflect its commitment to sustainable growth.

Plans are also underway to commence the production of second-generation ethanol from bagasse, a by-product of sugar, to optimise feedstock utilisation.

A recent memorandum of agreement with the Centre for High Technology, under the Ministry of Petroleum & Natural Gas, includes a grant of up to Rs 150 m for the installation of a 2G ethanol plant at its Sameerwadi facility, further enhancing its competitive edge.

A look at the Financials

For the June 2024 quarter, the company posted a loss of Rs 261 million (m) on a revenue of Rs 5,225.0 m.

Godavari Bio-Refineries' financial performance from FY22 to FY24 reflects a dynamic period of growth followed by challenges, particularly in revenue.

Godavari Biorefineries Financial Snapshot (FY22-24)

(Rs bn, Consolidated)	FY22	FY23	FY24
Operational Revenue	17,099.8	20,230.8	17,010.6
Growth (%)	-	18.3	(-15.9)
Net profit	191.0	196.4	123.0

Source: Equitymaster

Between FY22 and FY23, the company achieved an 18.3% growth in operational revenue, rising from Rs 17,099.8 m to Rs 20,230.8 m.

However, FY24 saw a decline of approximately 15.9%, reducing revenue back to Rs 17,010.6 m. This contraction could suggest a shift in demand or potential fluctuations in the ethanol and bio-refinery market, which may impact long-term revenue growth.

In terms of net profit, Godavari Biorefineries achieved modest gains from FY22 to FY23, increasing from Rs 191 m to Rs 196.4 m. However, FY24 saw a notable dip in net profit to Rs 123 m, indicating pressures on profitability despite an expansion in operations.

What Next?

Godavari Biorefineries stands poised to capitalise on the Ethanol Blended Petrol (EBP) program, with the Indian government's ambitious goal to raise ethanol blending in petrol to 20% by 2025.

This initiative could create significant demand for ethanol, potentially positioning Godavari as a key supplier to meet this national mandate.

Given its substantial production capacity and ongoing expansion, the company is well-placed to support the program's requirements, which could drive both revenue growth and market share in the coming years.

However, one of the core challenges lies in the availability and pricing of sugarcane, the primary raw material for ethanol production.

The seasonality of sugarcane poses inherent risks, as adverse weather conditions such as droughts, floods, and crop diseases can disrupt the crop's yield and availability. These factors could directly influence the company's production costs and, in turn, its profitability.

Furthermore, any potential fluctuations in sugarcane supply can lead to volatility in raw material costs, adding another layer of uncertainty to financial projections.

Godavari Biorefineries' strategy will likely need to include sustainable sourcing and diversification of feedstock, such as exploring grain-based ethanol production, to mitigate these supply risks.

By strengthening its supply chain and optimising operations, Godavari Biorefineries could maximise the opportunities arising from the EBP program while addressing the seasonal and climatic challenges associated with sugarcane-based ethanol production.

About Godavari Biorefineries

Godavari Biorefineries Limited (GBL) is a prominent producer of ethanol-derived chemicals, offering a diverse range of products that include bio-based chemicals, sugar, various grades of ethanol, and power.

These products cater to a wide array of industries, including food and beverages, pharmaceuticals, flavours and fragrances, power generation, fuel, and personal care and cosmetics.

As of 30 June 2024, Godavari operates an integrated biorefinery with an impressive ethanol production capacity of 570 KLPD.

Notably, as of 31 March 2024, the company holds the distinction of being the world's largest manufacturer of 3-methyl-3-pentene-2-one (MPO) by installed capacity.

Additionally, it is one of only two global producers of natural 1,3-butanediol and the sole manufacturer of bioethyl acetate in India.

Godavari Biorefineries prides itself on supplying high-quality products to leading companies across various sectors.

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