Company Name – Aegis Logistics Limited (Aegis) Current Share Price – INR 360 (July 11, 2023) Market Cap – INR 12,670 cr |
1. What is interesting about the stock?
Liquefied Petroleum Gas (LPG) is a widely used energy source in India with various applications in different sectors. It is commonly used for cooking in households, replacing traditional fuels like firewood, coal, and kerosene. LPG is also used for residential heating, industrial processes, and commercial establishments such as restaurants and hotels. Additionally, LPG is used as an automotive fuel, for electricity generation, as a refrigerant in specialized applications, and in portable cylinders for outdoor activities and rural areas with limited access to other energy sources.
An LPG terminal is used for the storage, handling, and loading/unloading of liquefied petroleum gas (LPG) at a port. LPG is a mixture of propane and butane, which are gases at ambient temperature and pressure. However, when they are cooled to a liquid state, they become much more dense and easier to transport and store.
Aegis Logistics is in the import and distribution business of Liquified Petroleum Gas (LPG) and storage and terminal facility for LPG and other chemical products. India’s leading oil, gas, and chemical logistics company operates a network of bulk liquid handling terminals, liquefied petroleum gas (LPG) terminals, filling plants, pipelines, and LPG gas stations to deliver products and services. The Company has terminals in six ports (Mumbai, Kandla, Pipavav, Mangalore, Haldia, Kochi) with a total operational capacity of 729,000 Kiloliters and is in the process of building a new terminal at JNPT.
The Company divides its business into 2 segments: The Gas and Liquid divisions.
Aegis is likely to do well because of the following reasons:
LPG sourcing and retailing – Aegis sources LPG through a JV with Itochu, bottles it through 37 bottling stations and retails it through 142 Autogas stations in 10 states and 290 LPG distributors across 140 cities. This is the Company’s highest-margin business.
Joint Venture, majority owned by Aegis – The Company has signed a JV agreement with Vopak, the world's leading tank storage company, in 2021 to expand its product offerings to other chemicals and gas storage not in their current product basket, and also to explore growth opportunities in renewable energy.
Strong clientele – Aegis has a diversified clientele including companies like Shell, Reliance, HPCL, BPCL, ONGC, HUL,and Bombay Dyeing amongst others. The Company also has pipeline connectivity with its major customers like HPCL, BPCL and helping it to maintain a long-term relationship with its leading customers.
Expanding capacity – The Company has planned capacity expansion by 500,000 Kiloliters between 2023-27 in the JV company through organic and inorganic means with a total capital outlay of INR 4,500 crores. Aegis has commenced greenfield capacity expansion of 131,000 MT for cryogenic LPG terminals and 120,000 CBM for liquid capacity. It has also expanded capacity through acquisitions in the last few years.
2. Key Historical Financials
Company revenue and profit have been growing 12% and 18% on a CAGR basis respectively in the last 5 years. Aegis grew 86% in FY23 and management expects FY24 growth to match it
EBITDA margin has fallen in FY23 due to a change in the business mix – sourcing business has a lower margin
Higher other income led to a sharp increase in PAT in FY23
Cash flow conversion (CFO/EBITDA) has been poor for the last couple of years
ROCE and ROE have been stable at around 17-19%
3. What is my view on company valuation?
The Company is trading at a trailing P/E of 28x against a historical median P/E of 32x. As the leading player in this segment of logistics with good long-term customers and strategic tie-ups, this Company looks good from a long-term perspective. The increased capacity expansion and acquisitions would help the Company grow consistently for the next few years, and any further correction, leading to P/E below 25x, could be a good entry point for long-term investors.
4. What are the risks to the investment analysis?
Risks to the analysis are:
Any significant price change or aggressive competition in alternate fuels like Compressed Natural Gas (CNG) or electricity will affect LPG offtake and impact the Company’s Gas division business significantly
Any significant change in LPG prices by the exporting countries or geopolitical challenges can lead to abnormal profits/losses in the short term but would normalize soon as there is a pass-through to the end-customer
OMCs can invest aggressively in their terminals and infrastructure and that can impact pricing power for the Company
About the Author
I have over 19 years of experience in private equity and public markets. I am an engineer by background, and MBA from a premier institute in India.
Disclosure
I have no stock, option, or similar derivative position in any of the companies mentioned in the last 30 days, and shall not initiate any such positions within the next 5 days. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from SocInvest). I have no business relationship with any company whose stock is mentioned in this article.
I am not a SEBI registered advisor. This article is purely for educational purposes and is not to be construed as investment advice. Please consult your financial advisor before acting on it.
I have used publicly available information while writing this article.