Aegis Logistics: Business Analysis

Aegis Logistics Limited is a leading oil, gas, and chemical third-party logistics company. It operates a network of bulk liquid handling terminals, liquefied petroleum gas (LPG) terminals, filling plants, pipelines, and gas stations to deliver products and services for its client base which includes many leading industrial companies in India as well as individual retail customers who are served at Aegis Autogas stations. Aegis also operates internationally through its sourcing and trading subsidiaries located in Singapore.

Aegis Logistics Limited is a leading oil, gas, and chemical third-party logistics company. It operates a network of bulk liquid handling terminals, liquefied petroleum gas (LPG) terminals, filling plants, pipelines, and gas stations to deliver products and services for its client base which includes many leading industrial companies in India as well as individual retail customers who are served at Aegis Autogas stations. Aegis also operates internationally through its sourcing and trading subsidiaries located in Singapore.

Gas Logistics

Aegis Logistics is a leading company in the sourcing, shipping, and distribution of LP gases (LPG and propane) into India. The services offered by the company include complete supply chain management from product planning, sourcing, and shipping, through to receipt, storage, and dispatch by pipeline and tankers to the point of consumption.

Aegis delivers both pressurized and refrigerated cargoes to several major ports on the coastline of India, including at its own LPG terminals in Mumbai and Pipavav.

The company also markets LPG and propane in bulk to industrial clients in western India. Aegis offers clean and economical energy solutions to companies for their various processes and applications, including providing cost-effective and turnkey installations on a BOOM/BOOT basis

Liquid Logistics

Aegis Logistics owns and operates a network of shore-based tank farm installations for the receipt and handling of bulk liquids. These terminals are located in Mumbai, Kochi, Pipavav and Haldia, and are connected by pipelines to various berths for handling the export and import of hazardous chemicals, petroleum products, and petrochemicals.

Facilities are offered on a long term contract or spot contract basis, and other services such as customs bonding, inventory management, just in time delivery, and on site product quality testing are also available.

Detailed Overview of Gas Logistics

Aegis is present across the complete logistics value chain starting from sourcing, terminalling to distribution of LPG. The three activities under the Gas Logistics segment are sourcing, logistics (terminalling/throughput), and distribution.

Sourcing - Aegis provides LPG sourcing facilities for its terminal customers, which are generally OMCs through its Singapore-based subsidiary. Aegis entered into a JV with Itochu Corporation in 2014 after offering a 40% stake in its Singapore subsidiary to improve Aegis's sourcing capabilities. Itochu Corporation is a leading Japanese trading firm with a presence in over 63 countries.

Sourcing accounts for a bulk of Aegis’s revenues but since it is purely a trading business, its contribution to EBITDA is the least. Aegis earns between USD2-5/t depending on the volumes sourced. A major tender with significantly large volumes tends to deliver lower margins as the company needs to be competitive globally in securing such volumes. Its clientele includes India’s major oil refineries like BPCL, HPCL, IOC and Reliance.

Terminalling - Aegis is a leading third-party LPG terminal operator in India and offers handling/ terminalling services for LPG imports.  Once the LPG reaches the destined ports, Aegis provides storage and handling services, thereby earning storage fees and throughput charges. Apart from self-sourced LPG, Aegis also handles LPG sourced by other players/clients.

Aegis provides terminalling facility through its LPG terminals. These are strategically located at key ports and ensure good volume traffic with robust evacuation. Currently, Aegis has gas storage terminals at Mumbai, Pipavav, Haldia, and Kandla.

Mumbai terminal: Aegis has a static capacity of 20,000MT with two refrigerated storage tanks of 10,000MT each. The terminal’s throughput capacity stands at 1.5 MMTPA. All 3 PSU OMCs bring in volumes at this terminal to be fed to their respective bottling plants in Uran/Chakan. Road transportation was the only evacuation mode at the terminal, but BPCL along with HPCL has recently commissioned 164km Uran-Chakan pipeline which is expected to feed the bottling plants of BPCL at Uran, HPCL at Chakan and IOCL at Chakan.

Pipavav Terminal: Pipavav LPG terminal currently has a static capacity of 22,000 MT and throughput capacity of 1.4 MMTPA. All 3 PSU OMCs are the customers. Evacuation is done through railway gantry and lorry-filling bays. Railway gantry commissioned in Dec 2020 for an outlay of 75 crores increased the throughput capacity increased from 1.4mt to 1.6mt.

Haldia Terminal: Haldia terminal has a static capacity of 25,000MTPA, throughput capacity of 2.5MMTPA and was commissioned in Sep’17. HPCL serves as an anchor customer at the terminal. This is the only terminal where Aegis has an anchor customer. HPCL has commissioned one of the largest bottling plants in Asia at Panagarh and Haldia terminal feeds LPG to this plant. Evacuation is done through Paradip-Haldia-Durgapur pipeline, 24 carousel bottling plant, lorry-filling bays.

Kandla Terminal: Kandla terminal is expected to be commissioned during 2022. The terminal will have two refrigerated tanks of 22,500MT of static capacity each and provide 4MMTPA throughput at full utilization. The project will be the 4th LPG Terminal in the Group’s portfolio as well as being the largest. This terminal will mainly cater to LPG volumes to be distributed to bottling plants in North India. Evacuation will be done through Jamnagar-Loni pipeline and proposed Kandla-Gorakhpur pipeline in the future.

The mode of evacuation of gas from the terminals is crucial as transporting gas through roads is the most expensive way of evacuation while pipelines are the cheapest means. Railways is another feasible option.

LPG Distribution

Aegis also has presence in the LPG distribution space. It serves three category of customers – industrial clients through bulk sales, retail/commercial clients through LPG cylinders, and road transport through Autogas stations.

Industrial: The company sells bulk LPG to sectors like steel, auto, ceramics, and specialty applications. Some of its key clients include Tata Steel, Mahindra & Mahindra, Piaggio, FIAT, Eicher, and Owens Corning, and its margin ranges between INR2,500-4,000/t. It also provides installation services to industrial clients on a Build-Own-Operate-Maintain/Transfer (BOOM/BOOT) basis.

Retail/Commercial: The company sells LPG cylinders under the ‘Puregas’ brand. It has a network of 202 commercial distributors across 100 cities in 12 states. The margins earned in this segment range between INR2,500-4,000/t. Commercial cylinders are offered in 17kg, 21kg and 33kg sizes, mainly used by the hotel and restaurant industry. For small usage, it offers 2kg and 4kg cylinders under the ‘Chotta Cikander’ brand, apart from the usual 12kg under the ‘Puregas’ brand.

Autogas: The company has a network of 131 Autogas stations across 10 states currently to cater to the transport segment. It plans to take the total network to 200 in the near future. This segment has margins of 8,000-10,000/t.

Play on Rising LPG Consumption

India's LPG consumption has grown at a CAGR of 7% over the last deade while domestic production grew by only 2% during the period. DUe to such a wide disparity between domestic demand and domestic production, the share of imported LPG in total consumption has structurally increased from 12% in 2000-01 to 57% in 2020-21. Due to a major chunk of LPG sourced is being used for domestic cooking purposes, LPG demand has largely been stable over the years.

LPG Consumption is Heavily Dependent on Imports

Liquid Logistics

Aegis owns and operates a network of shore-based tank farm installations for the receipt and handling of bulk liquids. The company has liquid terminals in Mumbai, Kochi, Pipavav, Kandla, Mangalore and Haldia, which are connected by pipelines to various berths for handling exports and imports of hazardous chemicals, petroleum products, and petrochemicals. It serves clients such as BPCL, HPCL, Reliance Industries, Caltex, Supreme Industries, Jubilant Lifesciences, Bombay Dyeing, and Laxmi Organics. Facilities are offered on a long-term contract or spot contract basis, and other services such as customs bonding, inventory management, just-in-time delivery, and on-site product quality testing are also provided.

JV with Vopak

Aegis is forming a JV with Royal Vopak N.V. (Netherlands) which will be known as Aegis Vopak Terminals Limited (AVTL).

Vopak is the world’s leading independent tank storage company storing oil, chemicals, gases, biofuels and edible oils. In the proposed JV, Aegis will hold 51%, whereas Vopak will hold remaining 49%.

As part of the deal, Vopak's existing terminal entity in Kandla will become a wholly-owned subsidiary of AVTL. Aegis’ network of terminal assets at five different locations in Kandla, Pipavav, Mangalore, Kochi and Haldia covering the west and east coast of India will be added to the JV asset base.

The Hindustan Aegis LPG Ltd entity, in which Vopak will acquire a 24% shareholding is currently a JV between Aegis and Itochu. After the transaction, Aegis will own 51% and Itochu will continue to hold 25%. Aegis will continue to retain 100% ownership of its Mumbai Liquid and LPG terminals and its LPG retailing business and would receive Rs.2,766 crore pre-tax consideration for its stake in the JV and the Haldia terminal. Furthermore, 75% of the proceeds would be given at the time of closure of the deal, whereas balance 25% would be paid over a span of three years.

The JV will invest in expansion of dedicated industrial liquid terminals, multi-modal LPG transportation, and inland LPG logistics. Aegis also plans to enter into the logistics of complicated industrial products (butadiene, ammonia, etc.) and move beyond storage into areas like organizing infrastructure for industrial complexes. The company will benefit from Vopak’s know-how for handling of oil, gas and chemicals.

Financials

Aegis earns revenues as sourcing commission for LPG sourcing, throughput fees for terminalling and retail and distribution margin for gas distribution. Under the liquid division, it earns throughput fees, handling and value addition charge for liquid logistics. 

Gas logistics is the largest division of Aegis however the revenue from this division is lumpy as a bulk of it depend on volumes sourced by its clients which is lumpy in nature and has diminished during the FY21 and FY22. From a profitability perspective, terminalling, retailing and distribution are the key driver for Aegis under gas logistics. 

At any point of time, the gast sourced by the customers of the company could be very high but Aegis will only earn a minuscule trading spread on that thus, the EBITDA contribution of sourcing would be very less while revenue contribution migh appear very high. 

Gas division segment EBITDA breakup %

Aegis has consistently delivered double digit ROE and ROCE excpet for FY20 when it dipped to single digits. 

The company's fixed asset turnover used to be in 3-4x range but has dipped below 2x in FY21 and FY22 due to volatile nature of sales. The company's working deteriorated heavily in FY22 with receivable days increasing from 9 in FY21 to 22 in FY22. Similarly, its inventory days which used be stable at 2 days increased to 6 days in FY21 and 9 days in FY22. 

Valuation

On EV/EBITDA basis, Aegis is currently trading at 19x EBITDA close to its 5 year median EV/EBITDA of 20x. The company has tailwinds of tiles players in Morbi shifting to LPG from natural gas which has been one of the reasons stock has been rising relentlessly.

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