Aegis Logistics - Can It Be Exception?

Collaborators Corner
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Another decent quarter from Aegis with EPS growing by 14%. Management is confident of growing at 25%+ EPS for next 3 years. Concall notes below.

FY25Q1 concall

  • Confident to achieve 25% CAGR in EPS in next 3-years

  • Mumbai/Trombay:

    • Aegis is now setting up another liquid storage terminal (150,000 kl) with capex of 250 cr. This is separate from JNPT expansion

  • Terminaling: 1’013’000 MT (vs 881’000 MT in Q1FY24)

  • Distribution:

    • 129’000 MT generated 42 cr. EBITDA (vs 159’000 MT in Q1FY24; 45 cr. EBITDA)

    • EBITDA/kg was 3255 in Q1FY25 vs 2830 in Q1FY24

    • Natural gas prices were reduced significantly by Gujarat gas (which has been increased again in July).

  • Sourcing volumes: 124’000 MT (vs 226’000 MT in Q1FY24)

  • Annual capex of 1000 cr. (vs 900 cr. earlier guidance)

Disclosure: Invested (no transactions in last-30 days)

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Aegis Logistics Limited Q1 FY25 Analysis: Key takeaways!!

Business Outlook:

  • Aegis Logistics Limited has reported its strongest Q1 performance ever, with record-breaking volumes, EBITDA, and profitability in both its gas and liquid divisions.
  • The company is well-positioned to sustain the positive momentum, driven by the commissioning of new projects, expansion of existing facilities, and improved utilization across terminals.
  • Aegis is dedicated to supporting India’s transition to more sustainable fuels, with plans to develop its first ammonia terminal in Gujarat.

Strategic Initiatives:

  • Aegis has an aggressive capex plan of INR4,500 crores by FY’27, with nearly 50% already completed or in progress.
  • The company is expanding capacity across key ports like JNPT, Pipavav, Mangalore, and Kandla, which will enhance its ability to handle higher volumes and cater to growing demand.
  • Aegis is also exploring opportunities to become vertically integrated in the ammonia business, similar to its strategy in the LPG business.

Trends and Themes:

  • The strong performance is driven by the continued growth in volumes at the Kandla terminal and the addition of new capacity across various terminals.
  • The liquid division’s EBITDA grew by 38% year-on-year, reflecting the positive impact of new capacity additions and acquisitions.
  • The LPG division witnessed a 7% growth in EBITDA, aided by a 15% increase in logistics volumes.

Industry Tailwinds:

  • The Indian energy sector is witnessing a transition towards cleaner fuels, driven by government policies and environmental concerns, which bodes well for Aegis’ focus on sustainable energy infrastructure.
  • The growing demand for LPG and the need for efficient handling and distribution infrastructure provide ample opportunities for the company to capitalize on.

Industry Headwinds:

  • Aegis’ distribution segment saw a decline in volumes, which the management attributed to the temporary reduction in natural gas prices by Gujarat Gas. However, the company expects this to be reversed going forward.

Analyst Concerns and Management Response:

  • Analysts raised concerns about the discrepancy between Aegis’ LPG volume growth and the national import growth, which the management clarified is due to the exclusion of private imports in the national data.
  • The management reiterated its confidence in maintaining a 25% CAGR in throughput volumes over the next few years, driven by the ramp-up of the Kandla terminal and the commissioning of new capacities.

Competitive Landscape:

  • Aegis faces competition from other terminal operators, but the management emphasized its focus on operational efficiency, safety, and cost-effectiveness, which it believes will keep the company competitive.
  • The management also highlighted the company’s strong partnerships and experience in the industry as a key differentiator.

Guidance and Outlook:

  • Aegis guided for a 25% CAGR in revenues and profitability over the next 3 years, supported by the new capacities coming online and the ramp-up of existing terminals.
  • The management expressed confidence in the company’s ability to maintain its earnings growth momentum, leveraging the benefits of its investments in both the terminaling and distribution businesses.

Capital Allocation Strategy:

  • Aegis has a robust capital allocation strategy, with a focus on expanding its asset base through greenfield and brownfield projects.
  • The management indicated that the pace of capital spending is expected to persist beyond FY’27 as the company explores further opportunities in its pipeline.

Opportunities & Risks:

  • Opportunities: The growing demand for cleaner fuels, the need for efficient handling and distribution infrastructure, and the company’s ability to capitalize on these trends.
  • Risks: Potential delays in the completion of expansion projects, regulatory changes, and competition from new entrants.

Regulatory Environment:

  • Aegis operates in a heavily regulated industry, and the management highlighted the importance of securing necessary permits and approvals from regulatory authorities for its upcoming projects.

Customer Sentiment:

  • The company’s focus on operational efficiency, safety, and cost-effectiveness has helped it maintain strong relationships with its customers, including national oil companies and other distribution companies.

Top 3 Takeaways:

  1. Aegis Logistics Limited has reported its strongest Q1 performance ever, with record-breaking volumes, EBITDA, and profitability.
  2. The company is well-positioned to sustain the positive momentum, driven by its strategic initiatives, including aggressive capacity expansion and diversification into sustainable energy infrastructure.
  3. Aegis has a robust capital allocation strategy and a confident outlook, aiming to achieve a 25% CAGR in revenues and profitability over the next 3 years.

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Aegis Chem Report.pdf (2.2 MB)

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Recent Performance and Future Outlook (2022-2024)

Analysis of key themes, crucial insights, and significant financial information emerging from Aegis Logistics’ earnings calls and investor presentations between 2022 and 2024.

Overall Themes:

  • Strong Performance Across Divisions: Aegis Logistics has demonstrated robust growth in both its Liquid and Gas divisions. The Gas division, in particular, has been a star performer, driven by strategic expansions and favorable market conditions.

  • Strategic Acquisitions and Expansion: Aegis has adopted an aggressive growth strategy, acquiring strategic assets and venturing into new ports. The expansion in JNPT, acquisition of liquid storage terminals, and construction of cryogenic terminals showcase this commitment to growth.

  • Capitalizing on India’s LPG Demand: Aegis is well-positioned to capitalize on the increasing LPG demand in India. The company’s integrated LPG supply chain, coupled with its expanding terminal network and distribution capabilities, strengthens this position.

  • Focus on Distribution Growth: While maintaining a strong presence in throughput services, Aegis is actively seeking to expand its distribution network, particularly in industrial clusters like Morbi. The company sees significant potential in this high-margin segment.

Key Takeaways and Insights:

1. Gas Division - LPG Driving Growth:

  • Record Throughput Volumes: Aegis has achieved record throughput volumes, driven by increased capacity and strategic port expansions. In Q2 FY24, LPG volumes reached 1.02 million metric tons, a significant year-on-year increase.

“The LPG volumes for Q2 FY '24 handled at all four terminals, Mumbai, Haldia, Kandla, and Pipavav were 1.02 million metric ton versus 830,000 metric tons in Q2 of FY '23, an increase of 23%.” - Q2 FY24 Earnings Call

  • Kandla Terminal - A Game Changer: The Kandla LPG terminal has been instrumental in driving growth, enabling Aegis to tap into the Gujarat market and compete effectively with natural gas.

“Is there – what are the other plans to, let’s say, enhance the distribution? Can you replicate this Gujarat type model in other, let’s say, localities?” - Priyankar Biswas, Nomura (Feb 2023) “There are definitely further industrial clusters in Gujarat, which we are actively pursuing. Our sales force, of course, is actively pursuing in Gujarat between Kandla and Pipavav.” - Raj Chandaria, Aegis Logistics (Feb 2023)

  • Pipavav Expansion to Support KGPL Pipeline: The expansion in Pipavav with a new cryogenic terminal is strategically aligned to cater to the upcoming Kandla-Gorakhpur Pipeline (KGPL), further solidifying Aegis’s presence in the region.

  • Capacity Utilization and VLGC Compatibility: Aegis is continuously optimizing its terminals for VLGC compatibility. While Mumbai and Haldia might require two-port discharges, the company is focused on enhancing efficiency and turnaround times.

2. Distribution Network - Tapping into High-Margin Segment:

  • Shift from Natural Gas to LPG: Aegis has successfully captured market share in industrial clusters like Morbi by offering LPG as a cost-effective alternative to natural gas, particularly during price spikes.

“Almost half of Morbi tile cos switched to LPG (propane) from natural gas” - FY23 Q2 Concall

  • EBITDA Margins in Distribution: Aegis consistently achieves strong EBITDA margins in its distribution business, averaging around INR 3,000 per tonne.

“please take INR3,000 as a standard EBITDA margin in Distribution business” - Murad Moledina, Aegis Logistics (May 2024)

  • Expanding Retail Footprint: Aegis aims to replicate its distribution success in other regions, leveraging the learnings from Kandla and expanding its network strategically.

3. Liquid Division - Steady Growth and Capacity Expansion:

  • New Terminals and Capacity Augmentation: Aegis has significantly expanded its liquid storage capacity through acquisitions and brownfield developments. The company commissioned 50,000 kiloliters and had an additional 230,000 kiloliters under construction in FY24.

“In summary, at the moment, we have just commissioned 50,000 kiloliters of liquid tankage and have an additional 230,000 kiloliters under construction, which will be fully available in FY '25.” - May 2024 Earnings Call

  • JNPT Expansion: The new liquid terminal in JNPT, with a capacity of 110,000 kiloliters, highlights Aegis’s expansion into new strategic port locations.

  • High Capacity Utilization: Aegis enjoys high capacity utilization in its liquid division, with expectations of reaching 90-100% in FY24 for the newly commissioned 50,000 kiloliters.

“I think liquids, generally speaking, I would confidently say that it’s basically been sold out already. And it’s a fairly simple business model that we have. So you can assume more or less 90% to 100% capacity utilization in FY '24 for that 50,000 cubic liters.” - Raj Chandaria, Aegis Logistics (Feb 2023)

4. Future Outlook and Growth Drivers:

  • Positive Outlook for LPG Demand: Aegis is optimistic about the long-term growth prospects of LPG in India, fueled by increasing domestic consumption and government initiatives.

  • Expansion into New Avenues: Aegis is exploring opportunities in ammonia storage and distribution, capitalizing on the growing demand for clean energy solutions.

“this ammonia terminal would be equipped to handle import as well as exports. So effectively, it means that it can store gray, blue, green, any type of ammonia because the molecule is the same.” - Murad Moledina, Aegis Logistics (May 2024)

  • Robust Financial Position: Aegis maintains a strong financial position with low debt, healthy cash flows, and a solid balance sheet, providing a stable platform for future investments and expansions.

  • Investor Confidence: Despite some concerns regarding competition, the overall investor sentiment towards Aegis remains positive, driven by the company’s consistent performance, strategic growth strategy, and strong management team.

Challenges:

  • Competition: The entry of new players, particularly Adani, in the LPG terminal space poses a potential challenge. However, Aegis is confident in its ability to compete effectively based on its established infrastructure, customer relationships, and strategic locations.

  • Dependence on LPG Imports: India’s reliance on LPG imports exposes Aegis to potential volatility in global energy prices.

  • Execution of Expansion Plans: The successful and timely execution of the ambitious expansion plans, particularly the construction of new terminals and expansion into ammonia, will be critical for Aegis to achieve its growth targets.

Overall, Aegis Logistics is well-positioned for continued growth and success. With its strategic emphasis on both Gas and Liquid divisions, strong financial stability, and dedication to expanding its presence in India’s fast-growing energy sector, the company stands out as a notable player.

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EBITDA grew by 8% and EPS was flat. Distribution business growth seems to be slower, their LPG and liquid units should be commercialized in FY25 acting as the next lever of growth. Concall notes below.

FY25Q2 concall

  • Terminaling: 1’064’000 MT (vs 1’020’000 MT in Q2FY24)
  • LPG capacity will increase by 130’000 MT by end of FY25 (Mangalore and Pipavav)
  • Aegis Vopak: filed DRHP for IPO (will reduce debt, general corporate purposes, expansion)
  • Mumbai: JNPT unit will be commercialized in FY25, its held under Aegis Vopak JV
  • Ammonia
    o Have got commitments from customers for Pipavav terminal
    o Ammonia division economics will be similar to liquid division, throughput will be lower than LPG but realizations higher than LPG (2.5-3x of LPG realizations). EBITDA margins will be ~90%
    o Will be hosted in Aegis Vopak JV
  • Sourcing: 194’000 MT (vs 174’000 MT in Q2FY24)
  • Kandla Gorakhpur pipeline should be commercialized in mid-2026

Disclosure: Invested (sold shares in last-30 days)

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Aegis has announced filing of the Draft Red Herring Prospectus for IPO of AVTL for raising Rs.3,500Cr. I do not see the DRHP link on the SEBI website yet( SEBI | Public Issues), so cannot share more details.

Proposed initial public offering (“IPO”) of Aegis Vopak Terminals Limited

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I am hearing on some of the forums that the proposed IPO of AVTL is unfavorable to minority shareholders. Anyone has done some work or seen any report that explains why. Voting opens tomorrow. Share price is falling for the past few days since the announcement and I guess market is not liking this.