Can their strategy ensure sustainable growth for long-term success?

Speculators are often drawn to organizations with a history of failure and no revenues or profits because of the excitement of investing in potentially profitable businesses.

But the fact is that if a company incurs annual losses over an extended period of time, investors will typically recoup their share of the losses. Companies operating at a loss have not yet proven their value through profits and may soon cease receiving external capital.

Even in today’s difficult time investing in technology stocks, many investors stick to a more traditional approach: buying shares of successful companies like Aegis Logistics. This is not to claim that the business offers the best investment opportunity, but business success largely depends on profitability.

At the corona lows of 2020, the company had a 190% return. However, the stock has been very volatile over the past year, returning only 20%. So, should we take this integration as an opportunity and invest in the long term? So, let’s learn about Aegis Logistics’ business and future.

Aegis Logistics Company Overview

Aegis Logistics is the leading private sector company in LPG importing and handling in India and is leading the country in integrated oil, gas and chemical logistics. The company is located in major ports of India and employs a necklace of state-of-the-art liquid and gas terminals with a static capacity of 1,14,000 MT for LPG and 15,70,000 KL for chemical and POL storage.

Headquartered in Mumbai, Aegis Group was founded in 1956. Aegis Logistics is a well-known liquefied petroleum gas (LPG) parallel marketing company with a strong presence in India.

The company has a large network of distributors providing LPG cylinders and appliances to residential, commercial and industrial customers. There are also many retail stores selling auto gas.

To help major companies transition from alternative fuels to LPG and optimize their economic benefits, Aegis also provides LPG installation and fuel-to-fuel services.

Business areas of Aegis Logistics

The company has two main business segments: Liquid Logistics Division and Gas Division.

Liquid Logistics Division

Liquid Terminaling revenue grew by about 54.80 per cent to ₹417.97 crore from ₹270.01 crore in the previous year. The segment’s EBITDA also increased, reaching ₹271.50 crore from ₹195.59 crore. This segment accounted for the highest percentage of overall revenue.

Increased product mix and production capacity in Mangalore, Kandla and Haldia led to an increase in EBITDA performance of 38.81%. Future capacity increase at Haldia, Kandla, Mangalore and Kochi along with increased capacity utilization and better mix of products processed at these ports will boost the growth of this segment. The Mumbai terminal is still operating at full capacity.

Gas Division

Aegis Group encompasses the entire logistics value chain from LPG distribution to sourcing and terminaling. Due to increased volumes and prices, the department’s revenue for FY 2022-2023 was ₹8,209.25 crore as compared to ₹4,360.97 crore in the previous year.

EBITDA of the gas segment increased to ₹526.23 crore from ₹389.32 crore in the previous year primarily as a result of increased terminaling and distribution volumes. This segment accounted for nearly 95% of total revenue.

Distribution of LPG and propane across all channels in bulk and packaged cylinders remained a priority in fiscal year 2022-2023. The integrated logistics services provided by Aegis Group allow the company to gain market share and realize its goals for a more sustainable future, while ongoing developments indicate a growing demand for LPG.

Aegis Logistics’ financial status

In FY 2023, Aegis Logistics saw significant growth in its revenue, surging 86.3% to reach ₹8,627.21 crore compared to ₹4,630.98 crore in FY 2022. After analyzing four years from 2020 to 2023, the company recorded its revenue at a compound annual growth rate (CAGR) of 6.3%.

At the same time, there has been a notable increase in net profit, with a 33% increase from ₹384.94 crore in fiscal 2022 to ₹510.7 crore in fiscal 2023. Cumulative net profit over the four years from fiscal 2020 to fiscal 2023 recorded a CAGR of 56.21%.

In FY23, Aegis Logistics maintained favorable financial metrics with return on equity (ROE) of 17.88% and return on equity (ROCE) of 17.08%.

Aegis Logistics’ future plans

Better economics with LPG

According to the Kelkar Committee report, the industrial sector mainly relies on imported LNG, which costs INR 45.6 per scm, while domestically produced natural gas is mainly utilized as PNG for domestic use and CNG for automobiles. It is more expensive when compared to propane LPG which costs INR 42.2 per square metre.

Additionally, the calorific value of natural gas is 10,000 Kcal/scm, while the calorific value of propane is 12,467 Kcal/scm. Propane uses less energy density to generate the same amount of heat and has a higher calorific value. Therefore, propane is cheaper than natural gas at INR 3.38 per million calories compared to INR 4.56 per million calories for natural gas.

Aegis Logistics is forming a joint venture (JV) with Itochu Corporation, a Japanese multinational company, to secure LPG gas at a lower cost. This allows AEGIS to offer more competitive propane LPG rates in the industrial gas market.

New reservoir for green ammonia

Aegis Logistics and Royal Vopak NV, a Dutch multinational specializing in the storage and management of a variety of products including chemicals, oil, gas, biofuels and vegetable oils, have formed a 51:49 joint venture, Aegis Vopak Terminals. Ltd(AVTL).

The joint venture oversees 11 terminals across five important Indian ports on the eastern and western coastlines. With a total capacity of over 960,000 m3, AVTL is becoming a significant player in the independent LPG and chemical tank storage market in India.

The company’s next phase of growth includes investing INR 1,000 crore to build a plant in Odisha capable of storing 80,000 tonnes of green ammonia.

Strong expansion plans

The company has several port construction projects coming up that will strengthen its Liquids segment capabilities. Kandla Port, with a handling capacity of 35,000 KL, is scheduled to be commissioned in the fourth quarter of fiscal 2024.

The company expects the 110,000 KL capacity JNPT port to be commissioned in phases and be fully operational by June 2024. The 76,000 KL capacity Mangalore Port is also expected to be partially operational by the end of FY24 and the balance in Q1 2025.

conclusion

After understanding Aegis Logistics’ financial position, growth drivers, and future expansion plans, the company appears to be well positioned for long-term growth. Strong profitability, expanded production capacity, and focus on the high-potential LPG market have enabled Aegis to continue its upward trend.

However, recent volatility requires investors to evaluate whether current valuations are too high relative to future optimism. What do you think? Do you think Aegis’ growth story is still intact and now is the time to buy?

Written by Narine Surya

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