Aegis Logistics Ltd (Aegis) is a leader in oil and gas logistics. The services provided by the company include sourcing of product, storage and port operations, arranging road and pipeline movement, shipping, and integrated supply chain management. The Company also charges its customers for using various other facilities like jetty operations, loading and unloading. Aegis also imports, markets, and distributes bulk propane and liquid petroleum gas to various industrial customers in steel, ceramics, glass, and pharmaceutical sectors.
Over FY11-19, LPG consumption in India registered ~7% CAGR while LPG imports clocked ~14% CAGR over the same period. Despite ~34% (over FY11-19) increase in domestic refining capacity, percentage of imports surged to ~53% in FY19 from ~21% in FY10. LPG demand in India is expected to grow from ~23mmt in FY19 to ~40mmt in FY35 (a conservative estimate) supported by increased LPG penetration in the country and rise in average consumption per household. Aegis has been a key beneficiary of the government’s thrust on increasing LPG penetration in the country. In FY19, Aegis handled ~2.5mmt (19%) of the total ~13.2mmt LPG imports in India. Over the next couple of years, the Company is expected to post logistics volume CAGR of ~25%. The logistics enhancement is expected to help the company ramp up its market share to ~30-33% in the near to medium term.
Aegis currently has three operational LPG terminals with static capacity of ~63,000mt and throughput capacity of around 5 mmtpa. The Company is in the process of increasing its capacity to 10 mmtpa which would enable the company to capture a market share of around 40% in the LPG import business. Aegis is also a leading liquid terminal operator with six terminals strategically located pan India with a total capacity of 689,000 KL. Strong infrastructure, locational advantage and strong customer relationship should enable the company to deliver healthy revenue growth.
The long awaited (HPCL/BPCL’s) Uran-Chakan pipeline has been completed and is charged with gas. The sub-sea pipe line from Mumbai to Uran is already functioning, while the second part of Uran-Chakan-Shikrapur has got completed in Q2FY20. Aegis has already connected its Mumbai terminal to the Uran-Chakan pipeline and the company expects to push gas through its Mumbai terminal starting January 2020, which should aid additional throughput of ~400-500,000mtpa (taking the total throughput to 1.2mmtpa).
The Company is building a railway gantry and two additional spheres of 1,900mt each at a cost of Rs.75 cr, which is expected to commence operations from 2QFY21. Aegis is expecting an incremental throughput of ~300-400,000mtpa via the rail route from 18300 MT to 22100 MT. The Pipavav gantry project will be cost lucrative for the OMCs’ bottling plants in North India.
A new LPG project at Kandla with static capacity of 45,000mt and a through put capacity of 4 mn is expected to be completed by 4QFY21 at a cost of Rs.350 cr. The project is on the grid of Jamnagar- Loni Pipeline (JLPL) and the proposed KGPL pipeline. We expect the capacity to be operational by H2FY21. Currently, the construction of this facility is on track. Aegis is bullish about LPG prospects in Kandla. The facility at Kandla would be connected to Kandla- Gorakhpur Pipeline and is estimated to serve the East and North parts of the country.
The Company has announced a new 12,000kl liquid capacity at Haldia (with capex of Rs.10 cr), taking the total capacity to 156,000kl at Haldia. Aegis’ sourcing partner ITOCHU (has ~20% stake in Haldia) facilitates better procurement for its customers in the global market.
With a necklace of terminals around India, Aegis plans to expand its auto LPG business by increasing the number of LPG stations to 200 (from 114 currently) and LPG cylinder business to more than 20 states (from 9 currently).
SHV Energy and TOTAL are among the only private players planning to set up terminals for distribution of LPG in India. BPCL’s Haldia LPG terminal with capacity of 30,000mt is behind schedule with huge capex of Rs.1200cr. Only, Indian Oil Petronas Private Limited (IPPL), a JV between IOCL and Petronas (50% each), has a 1-1.2mmt throughput terminal at Haldia.
The Company has granted ~56.6 lakh shares under ESOPs for FY20, taking a non-cash expense of Rs.154.5cr during 2QFY20. This expense is taken as credit against Reserves and Surplus in the balance sheet, translating to no change in the net worth of the company. The same number of shares (56.6 lakhs) is likely to be issued in FY21 and FY22 each, resulting in total shares issued under ESOP to touch ~1.7 cr. Assuming the current share price (~ Rs.190), the expense under ESOP will be ~Rs.350 cr, of which a major chunk will be expensed (in the P&L) in FY20 itself. The ESOPs are only for senior employees and promoters are not eligible for it.
Aegis reported total sales at Rs.1817 cr (+27.5% YoY) led by strong performance of the gas division, which reported revenue of Rs.1767 cr (+28% YoY). Even performance of the liquid division was robust with revenue of Rs 50 cr (+13% YoY). Consequently the Company reported a strong absolute EBIDTA of Rs 126 cr. EBIDTA margin was strong at 7% (+73bps YoY).
We expect strong cash flow generation over the next couple of years and the Company plans to fund its entire capex through internal accruals. Aegis expects tax rate of ~15-18% over the next 5 years as it enjoys tax incentive under the infrastructure holiday provision.
Sabyasachi Paul has been associated with equity research and advisory on equity markets in India for over 12 years & currently heads the equity research desk of Eastern Financiers Ltd, Kolkata. He also manages a portfolio on the online platform Kristal. Find link to the strategy named ‘The Tortoise’