While there are many criteria we use to analyse a business and management but there are few which pose long-term challenges if they occur.
• Focus (or lack of it)
• Truthfulness (there is thin line of difference between illegal or ethically wrong.)
While I was reading there were few questions came to my mind
- Why is Aegis too aggressive in capacity expansion when they themselves say full capacity utilization may take many-many years
- Why did they suddenly give so much equity to very few employees? Why did company come up with ESOP 2019 when they were thinking about partnering and probably selling significant stake?
- Who is the Employee who holds 4.4% of Aegis? How?
- Debt becomes Revenue
- Are Vopak folks Pessimist?
- Why were they so dismissive about competition from LNG?
- BPCL will move away from Haldia that was known well in advance
- The capacities that Aegis has built or building, they could generate 2000 cr kind of EBITDA few years down the line. Why did they sell the stake at such low valuation?
All valid questions but no Black and White hard answers.
Why is Aegis too aggressive in capacity expansion when they themselves say full capacity utilization may take many-many years?
• Location Location Location:
- Being First and Being Big : Once large capacity is created and being first gives cost advantage as replicating capacity will take much more capex and matching cost and efficiency of pre-existing player is almost impossible. Unless there is predatory pricing, new player will find it extremely difficult to lure the customers. Then add the uncertainty, which nobody would like to take to save pennies. Large capacities will ultimately help them capture incremental market and better capacity utilisation will lead to ever-increasing EBITDA. Future is much better than the present.
- Lowest cost producer : Aegis does many things to achieve 100x Turnover turn in the LPG business and there are many levers to achieve the low cost which have been discussed in the thread.
Why did they suddenly give so much equity to very few employees? Why did the company come up with ESOP 2019 when they were thinking about partnering and probably selling significant stake?
They started looking for international partners in 2019 and it seems they were thinking bid. If baffles me when I try to figure out why suddenly AEGIS in 2019 came out with a huge ESOP of close to 5% of equity. When you are trying to partner with an international player and future plans are in flux, What were they thinking when coming up with generous ESOP.
Who is the Employee who holds 4.4% of Aegis? How?
ESOP is a good idea and when a company says it is for President level employees, I may not agree with the idea of ESOP for selected few but I thought, fine.
Total ESPO: 5.6*3= 16.8 million shares. I thought, there would be quite a few Presidents who would be getting the ESOPs. But Then close to 4% went to a single person. I do not know much but I have never seen 4% ESOP to a single employee in a Non-Startup environment. I don’t know what this person brings to the table which others can’t. I could not find a valid reason. I’ll confess, I haven’t looked hard enough.
Its baffling, that too when the company was thinking of selling major stake. Is it just lack of better judgement?
Debt becomes Revenue:
Someone shall tell ZOMATO that easiest way to become profitable is through Debt. Do a JV, transfer some asset to the JV and take a big loan in the JV. So? Nothing, just transfer the loan to the parent and it becomes pre-tax profit. Something new I have learned through Aegis – Vopak JV transaction.
The press release of Vopak paints a very different picture than Aegis and when questioned in the conference call, Aegis could have accepted it as an oversight but there was an argument which justifyied Debt as Earning.
There is no wrongdoing, but hiding something or providing an incomplete picture was not called for.
Aegis on the transaction
JV Valuation: Different vantage point for the buyer and seller. Opinions could differ but Maths is not an opinion.
Vopak sells @ 6.3 times tailing EBITDA, though they have 70 terminals worldwide, why would they pay 23 time forward EBITDA to Aegis that too for non-controlling stake. But in Vopak’s mind they just paid 11 times EBITDA
Now look at how Vopak looks at the transaction
Are Vopak folks Pessimist? (or are they like Infosys, under promise and over deliver)
Let’s look at how similar or different Vopak and Aegis are looking at the future. Aegis expects to grow At 25-40% compounded for 5 years.
Wow. Just mind blowing. Since we are talking about growth prospect of the same company (at least part of the growth will come from the JV). Vopak shall have the same aspirations or opinion. This is what Vopak says: 6% CAGR for 5 years. What am I missing?

Part of Aegis growth will come from the commercial, retail and auto business. If JV is expected to grow at 6%, Aegis parent will have to grow at 19-33% from Mumbai, commercial, retail and auto segment. This has not happened in past. Can it happen in the future? If we take average of 26% then they will have to do 3.5x revenue in 5 years from the parent business. Let us see what Aegis expects from Auto business


Anish himself explains why it is very difficult to scale the Auto gas business.
BPCL will move away from Haldia that was known well in advance: The line of response focusses on BPCL moving out of Haldia. But this was known for long. The valuation that Haldia has got, is it because of BPCL or expected long gestation period of the project?
Why were they so dismissive about competition from LNG?
When we think about LPG we are thinking about energy and not Gases only. As @Anant alluded to, we are in the market of energy and energy need can be fulfilled by LPG/ Coal/Solar/ Batteries/CNG etc. Whoever gives best output at lowest cost will take away the market share. Nobody is emotionally attached with the idea of using LPG.
Aegis has been dismissive about competition from LNG and then we are not in the market of GASES. Now they are talking about building LNG storage. I am not drawing any conclusion but did they miscalculate the market growth of LPG and built (building) huge capacities?
The capacities that Aegis has built or building, they could generate 2000 cr kind of EBITDA few years down the line. Why did they sell the stake at such low valuation?
I don’t know. But my current hypothesis is that they overestimated the LPG story. They are trying to the correct the mistake by diversifying into upcoming opportunities.
Focus or Lack of it : It’s not uncommon when business losses focus, it suffers for years. This is one the patters I have noticed where management losses focus to get into Hot Sector. It’s extremely difficult to digest large amount of money and we are talking about 2500 cr of cash. Overconfidence or too much hurry to grow leads to unrelated diversification.
Are we seeing the first sign of beginning of Lack of Focus in Aegis?
The JV and possibalities gives me goosebumps but then i have no answer for the Gray area whether it tilts towards White or Black.
I could be just wrong in my interpretation and willing to change my opinion.
Disclosure: Not Invested. Still interested.
Vopak Press Release (1).pdf (569.7 KB)
Aegis Business call Update july 2021.pdf (2.4 MB)