Aegis Logistics: Solid franchise, set to scale up fast!

28 Mar 2024 , 12:43 PM

Aegis Logistics (Aegis) is a formidable player in liquid/gas cargo logistics with 1.9mKL/9.6MMT capacity at 7 key locations. Through FY26, analysts of IIFL Capital Services see its volumes registering 17-35% p.a. growth; leading to 19% p.a. PAT growth, supported by attractive cashflows and return ratios. Induction of strategic partner (Vopak, global leader in liquid/gas logistics), has de-risked the model, further boosting competitive advantage. Valuations are attractive; initiate with BUY.

Scaling up a proven revenue model:

Aegis specialises in liquid and gas cargo storage/logistics. Its USP is to set up storage terminals at competitive rates, strategic locations, and offer quality services at competitive rates. The company has consistently earned 60-90% Ebitda margins (liquid/ gas storage business), with high OCF/Ebitda and attractive ROCE (13-24%). Through FY14-24, it has invested >Rs25bn in the business to set up 1.4mn KL/8.9MMT liquid/gas handling terminals, and registered 23%/25% p.a. Ebitda/PAT growth. Runway for growth in the liquid / gas logistics is strong, given the pick-up in economic growth, focus on offering clean energy solutions, etc. Aegis has plans to scale up liquid/gas handling capacity by 83%/104% through FY26, by investing ~Rs45bn. Induction of Vopak as 49% strategic partner at its key locations, is a step to de-risk operations, and bring in global expertise.

Volume-driven PAT growth:

Through FY24-26, analysts of IIFL Capital Services forecast Aegis’ Ebitda/PAT to register 28%/19% p.a. growth, on -1) 35%/43%/ 17% p.a. increase in liquid/gas capacity/gas distribution volumes 2) stable per unit matrix for each of the segments; such assumptions have upside, given the diversification in cryogenic terminals, which typically have higher margins. Analysts of IIFL Capital Services see liquid/gas handling /gas distribution share in Ebitda at 35%/48%/17% respectively by FY26 vs 35%/43%/21% in FY23. OCF and ROCE should also average at Rs6-12bn/16-18% respectively, which seem attractive, on the back of superior asset turns. Overall earnings growth is sensitive to completion of the upcoming facilities at Haldia, Mangalore, and upcoming liquid terminals; which are likely to commission in FY26; time overrun in projects is a key risk for earnings.

Initiate coverage; BUY:

At CMP, the stock trades at 19x FY26 P/E, 1SD below decade average. Even otherwise, strong earnings growth, improving cashflows and return ratios warrant re-rating of stock over next 12-18m. Analysts of IIFL Capital Services initiate with BUY. Delay in project completion is one of the key risks.