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Recommendation From Transport & Logistic Sector

Recommendation From Transport & Logistic Sector

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This column gives you scrip chosen by the research team during the fortnight that is fundamentally strong and expected to give good capital appreciation over a time period of 1 year

AEGIS LOGISTICS LIMITED

CONNECTING THE LOGISTICAL DOTS


HERE IS WHY

Niche player in liquid and gas logistics
Expanding at strategic location
Strong balance-sheet with D/E ratio of 0.17x


In today’s era of globalisation we have a wide variety of choices, including those sourced from abroad, thanks to the services offered by companies engaged in the logistics sector. Given this scenario, our choice scrip this time is Aegis Logistics Limited, a company that is a key player in India’s downstream oil and gas sector. Aegis Logistics Limited (AEG), its flagship company, is a leading oil, gas and chemical logistics company. It is engaged in the terminal activities of oil products, chemicals and liquefied gases, sourcing of LPG, and retailing and distribution of LPG. The company has its major liquid terminals located at Mumbai, Pipavav and Kochi on the western coast. 

These terminals are well-connected to the major refineries and petrochemical companies through pipelines. The company also has an engineering, procurement, and construction (EPC) services division to cater to the growing trend of outsourcing in the oil and gas sector. The company last year announced a joint venture with Itochu Corporation of Japan, which is one of the big five general trading groups in Japan. The company’s major clients include Bharat Petroleum, Hindustan Petroleum, Reliance Industries, Jubilant Life Sciences, Bombay Dyeing, among others. It derived revenue from gas is 75 per cent and liquid is 25 per cent.

 

Looking at the recently concluded quarter i.e. Q1 FY20, the consolidated revenue came in at Rs.1,955.28 crore as against Rs.1,016.85 crore in the corresponding quarter last year, registering 92.3 per cent increase on a YoY basis. The EBITDA for the quarter rose by 18 per cent YoY to Rs.102.01 crore as against Rs.86.43 crore in the corresponding quarter last year, with a corresponding margin contraction of 328 bps. EBITDA margin for the quarter stood at 5.2 per cent. The PAT for the quarter came in at Rs.62.32 crore as against Rs.59.17 crore in the corresponding quarter last year with YoY increase of 5.3 per cent.

India’s LPG demand is expected to grow to 26 million metric tonnes by FY 2025 from the current 21 metric million tonnes in FY18. Further, India’s domestic supply is expected to grow to 14 metric million tonnes from 11 million metric tonnes currently. The gap between the demand and domestic supply is expected to come from imports. This gives enough visibility on the under-penetration of LPG supply in Indian economy and strong potential in LPG import. Further, to cater to rising LPG demand, new terminals of LPG are also required. The company is well-placed to ride on this opportunity as it follows a low-cost expansion model.

Under this model, the cost of building new facilities is one of the lowest in the industry and operational cost is expected to be low due to its connectivity to existing and upcoming pipelines rather than road transport. Along with that, expansion at Kandla of both liquid and gas is of strategic importance for the company. This is due to its connectivity to the JLPL pipeline and proposed KGPL line. This will provide it entry into states of Madhya Pradesh and Uttar Pradesh in addition to Gujarat. The company has low D/E of 0.17x, which gives solvency comfort. Hence, we recommend our reader-investors to BUY the scrip. 

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