Aegis Logistics – Can It Be Exception?

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.