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India Equity Research I Logistics I Institution Result Update (Small Cap)
Aegis Logistics Limited (ALL) INR: 67
Auto LPG to fuel growth BUY
We have analyzed the Q2FY09 results of Aegis Logistics and Price Outlook: Rs 96
our key findings are:
Market Data November 17, 2008
Q2FY09 Result Analysis
• Net sales increased 42.5% y-o-y to Rs 130.9 crore driven Shares outs (Cr) 1.991
by strong growth in both gas (↑ 47.6%) and liquid logistics Mkt Cap (Rs. Cr) 134
(↑ 18.0%) divisions. The growth in the gas division was 52 Wk H/L 404.4 / 65..2
mainly price driven, whereas the growth in the liquid Avg Vol (1yr avg) 16,688
logistics division was volume driven. Face Value 10
Bloomberg Code AGIS IN
• EBITDA increased 15.8% y-o-y to Rs 15.2 crore. EBITDA
margin declined 267 bps y-o-y to 11.6% mainly due to
Market Info:
change in product mix as more of lower margin public Sensex: 9,272
sector (PSU) throughput was sold and also due to less Nifty: 2,800
volumes handled for IPCL.
• Net profit dipped 13.0% y-o-y to Rs 7.8 crore mainly due to Price Performance
muted operating performance and by higher interest and
200
depreciation expenses.
160
120
Outlook and valuation 80
We believe ALL’s Q2FY09 performance is an aberration owing 40
to the ongoing global crises which took a toll on the gas 0
volumes. However, we remain optimistic of the ALL’s
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performance in the second half of FY09 due to bounce back in Aegis Logistics Ltd BSE SENSEX
IPCL volumes and continued growth in the public sector
throughput. In the long run, we firmly believe that the key
Share Holding (%)
upside to Aegis’ story is its Auto Gas business, which is
likely to be driven by the company’s strong expansion plan Particulars Sept June Chg
and increasing price differential between Auto LPG, with Promoters 63.33 63.32 0.01
respect to diesel and petrol. At CMP of Rs 67, the stock is Institution 2.6 2.61 -0.01
trading at 3.2x on FY09E EPS of Rs 20.7. We recommend a Foreign 2.66 2.65 0.01
BUY on this stock with target price of Rs 96, which represents Public & Others 31.41 31.42 -0.01
an upside potential of 43.3%.
Financial Performance (Rs in crore) Analyst
Q2 Q2 YoY Q1 QoQ Kunal Lakhan
Particulars kunal.lakhan@krchoksey.com
FY09 FY08 (%) FY09 (%) ℡ 91-22-6696 5568
Net Sales 130.9 91.9 42.5% 115.1 13.7%
Sanford Tauro
EBITDA 15.2 13.1 15.8% 15.7 -3.5% sanford.tauro@krchoksey.com
Net Profit 7.8 9.0 -13.0% 8.0 -2.1% ℡ 91-22-6696 5566
EPS 3.9 5.5 -28.7% 4.0 -2.0%
OPM (%) 11.6% 14.2% -267 bps 13.6% -207 bps www.krchoksey.com
℡ 91-22-6696 5203
NPM (%) 6.0% 9.8% -382 bps 6.9% -97 bps 91-22-6691 9569
Source: Company data
KRC Research is also available on Bloomberg KRCS<GO>, Thomson First Call, Reuters and Factset
Aegis Logistics Ltd
Detailed Result Analysis
Robust sales despite increase in LPG prices
Consolidated net sales of the company grew 42.5% y-o-y to Rs 130.9 crore mainly
Sales increase more due
driven by:-
to price hikes than
volumes
• Liquid Logistics Division (LLD) - The LLD business of the company grew by
17.96% y-o-y to Rs 18.46 crore driven by 27.3% increase in volumes and 7.3%
decrease in average pricing. The increase in volumes came from the addition of
Sealords Container Terminal (additional capacity of 75,000 KL). As on date the
total capacity of LLD stands at 3,50,000 KL.
• Gas Division - Income from Gas Division grew by 47.6% y-o-y to Rs 112.5
crore, mainly driven by higher international gas prices (US$855 in Q2FY09 V/s
US$570 in Q2FY08) which caused a 70.4% y-o-y increase in average gas price
for the company. Volumes however decreased 13.4% y-o-y to 58,000 metric
tonnes. The steep increase in gas prices has led to a decrease in differential
between Rs 36/litre for Auto LPG versus Rs 39 and Rs 55 for diesel and petrol,
respectively, thereby pulling down volumes sold per station.
Margins under pressure
Though the company’s EBIDTA increased 15.6% y-o-y to Rs 15.1 crore, the
operating margin was below our expectations and contracted by 269 bps to 11.6%.
Margins hit due to higher • Margins at the LLD side were more or less stable at 51% as compared to 53%
international gas prices y-o-y primarily because the Kochi terminal has lower rates and lower margins.
and disruption at IPCL • Margins of the gas division took a toll on the overall margins. The operating
margin for the gas division declined by 320 bps to 5% y-o-y mainly due to more
offtake from lower margin PSU business (1-2%), disruption in IPCL plant and
lower contribution from Auto LPG where margins are high at 10%. The higher
international gas prices led to price hikes which in turn pulled down volumes,
thereby bringing down the overall margins of the gas division.
Decline in the net profit
ALL’s Net profit decreased 137% y-o-y to Rs 7.83 crore mainly due to:-
Higher interest cost,
• Higher interest charges of Rs 2.8 crore this quarter as compared to Rs 1.0 crore
corporate cost and losses
in Q2FY08, as a result of new debt for Sealord projects and the Cochin
at subsidiary, dent overall
acquisition.
profitability
• Loss of about Rs 1 crore incurred by its subsidiary, KCPL, due to poor capacity
utilization.
2 KRC Equity Research
Aegis Logistics Ltd
Outlook
We believe ALL’s Q2FY09 performance is an aberration owing to the ongoing global
crises which took a toll on the gas volumes. Higher International gas prices affected
Growth in H2FY09 to be the sales volume per station, although the number of stations doubled as compared to
driven by higher volumes last year. However, we remain optimistic of ALL’s performance in the second half of
from IPCL and PSUs FY09 due to bounce back in IPCL volumes and a continued growth in the public sector
throughput. We believe the continued demand in PSU throughput will drive the Gas
Division’s sales while margins would improve due to higher margins of IPCL and this
will compensate for the expected lower volumes in industrial gas.
In the long run, we firmly believe that the key upside to Aegis’ story is its Auto Gas
Auto gas stations to
business. We believe that the management’s guidance of 300 tonnes per station per
\increase from existing 51 year for the auto gas business (as opposed to previous guidance of 600 tonnes per
to 100 by the end of FY09
station year owing to volatile international gas prices) is very conservative.
Nevertheless, the sales are expected to increase owing to increase in number of
stations in H2FY09 (from existing 51 stations to 100 by the end of FY09). We believe
the highest growth opportunity would come from Auto gas business. The
international gas prices have crashed from $930 per tonne in Saudi Arabia to
Widening price
$490 per tonne, which will lead to significant price cuts in the subsequent
differential between Auto
months. Although, we expect the government to reduce the fuel prices in coming
LPG, with respect to
months, the price differential between Auto LPG, with respect to diesel and
diesel and petrol to drive
petrol will be wider due to higher cut in the LPG prices, which is likely to drive
the volumes
the volumes in the LPG business.
Valuation
Based on our DCF valuation we arrive at a target price of Rs 96. At the CMP of Rs 67,
ALL is trading at 3.2x FY09E EPS of Rs 20.7. At the target price the stock would be
valued at 4.6x FY09E EPS and 4.1x FY10E EPS of Rs 23.7, implying an upside
potential of 43.3%.
Stock Price Sensitivity
WACC
12.0% 13.0% 14.0% 15.0% 16.0%
2.5% 122.6 107.4 93.8 81.7 70.8
2.8% 124.0 108.7 95.0 82.7 71.7
Terminal
Growth Rate 3.0% 125.6 110.0 96.2 83.8 72.6
3.3% 127.2 111.5 97.4 84.9 73.6
3.5% 128.9 112.9 98.7 86.0 74.6
Source: KRC Research
3 KRC Equity Research
Aegis Logistics Ltd
Financial Performance FY07 FY08 FY09E FY10E
Net Sales 240.4 389.3 505.0 590.0
Total operating expenses (210.5) (321.0) (404.0) (467.9)
EBITDA 29.9 68.3 101.0 122.1
Dep. & amortization (3.9) (12.0) (42.1) (50.5)
EBIT 26.0 56.3 58.9 71.6
Interest (3.2) (8.9) (20.8) (25.4)
Other Income 2.9 2.3 15.2 14.8
Profit before tax 25.7 49.6 53.3 60.9
Taxes (4.2) (11.2) (12.0) (13.8)
Net Profit 21.5 38.5 41.3 47.1
EPS 13.2 19.3 20.7 23.7
Operational Performance FY07 FY08 FY09E FY10E
EBITDA Margin 12.4% 17.5% 20.0% 20.7%
EBIT Margin 10.8% 14.5% 11.7% 12.1%
Interest / Sales 1.3% 2.3% 4.1% 4.3%
Tax / PBT 16.2% 22.5% 22.5% 22.7%
Net Profit Margin 8.9% 9.9% 8.2% 8.0%
Financial Performance FY07 FY08 FY09E FY10E
Debt / Equity (x) 0.6 0.7 1.0 1.1
Interest Coverage (x) 8.1 6.3 2.8 2.8
Inventory Turnover Ratio (x) 37.3 31.1 28.6 28.6
Fixed Assets Turnover (x) 2.2 1.7 1.5 1.4
Working Capital Turnover 7.2 10.4 10.8 7.9
Per Share Data FY07 FY08 FY09E FY10E
Earnings Per Share (Rs.) 13.2 19.3 20.7 23.7
Cash Earnings Per Share (Rs.) 15.5 25.3 41.9 49.0
Book Value Per Share(Rs.) 71.5 77.8 93.8 112.0
ROE (%) 18.4% 24.8% 22.1% 21.1%
ROCE (%) 22.3% 36.3% 31.5% 32.1%
Valuation Parameters FY07 FY08 FY09E FY10E
P/E ratio (x) 5.1 3.5 3.2 2.8
Market Capitalization to Sales (x) 0.5 0.3 0.3 0.2
EV / Sales (x) 0.6 0.6 0.6 0.6
EV / EBITDA 5.2 3.1 2.9 2.7
Price to Book Value 0.9 0.9 0.7 0.6
Source: Company Data, KRC Research
4 KRC Equity Research
Aegis Logistics Ltd
Rajiv Choksey Institutional Sales rajiv.choksey@krchoksey.com +91-22-6653 5135
Anuj Choksey Institutional Sales anuj.choksey@krchoksey.com +91-22-6696 5500
Poran Das Institutional Sales poran.das@krchoksey.com +91-22-6696 5500
Alok Agarwal Institutional Research alok.agarwal@krchoksey.com +91-22-6696 5502
Aegis Logistics Ltd Expected Performance in
Rating Legend
next 12 months
450
400
Buy Appreciate over 15%
350
300
250
200 BUY
Accumulate / Hold Upto 15%
150
100
50 Reduce Depreciate upto 10%
0
Nov-07
Nov-08
Jan-08
Jun-08
Jul-08
Dec-07
Feb-08
Mar-08
Apr-08
May-08
Aug-08
Sep-08
Oct-08
Sell Depreciate over 10%
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23 Oct 2008 Gateway Distriparks Result Update Buy 75 97
17 Oct 2008 Container Corp. Result Update Buy 740 884
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Disclaimer:
This publication has been prepared solely for information purpose and does not constitute a solicitation to any person to buy or sell a
security. While the information contained therein has been obtained from sources believed to be reliable, investors are advised to
satisfy themselves before making any investments. Kisan Ratilal Choksey Shares & Sec Pvt Ltd., does not bear any responsibility for
the authentication of the information contained in the reports and consequently, is not liable for any decisions taken based on the
same. Further, KRC Research Reports only provide information updates and analysis. All opinion for buying and selling are available
to investors when they are registered clients of KRC Investment Advisory Services. As per SEBI requirements it is stated that, Kisan
Ratilal Choksey Shares & Sec Pvt Ltd., and/or individuals thereof may have positions in securities referred herein and may make
purchases or sale thereof while this report is in circulation.
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Kisan Ratilal Choksey Shares and Securities Pvt. Ltd.
Registered Office:
1102, Stock Exchange Tower, Dalal Street, Fort, Mumbai – 400 001.
Phone: 91-22-6633 5000; Fax: 91-22-6633 8060.
Branch Office:
ABHISHEK, 5th Floor, Link Road, Dalia Industrial Estate, Andheri (W), Mumbai – 400 058.
Phone: 91-22-6696 5555; Fax: 91-22-6691 9576
5 KRC Equity Research
