BUY Aegis Logistics: AnandRathi Institutional Research

Aegis Logistics - Lower LPG prices slash sales; expansion to help; retaining a Buy with a target price of Rs 135

Aegis Logistics' Q3 FY16 sales plunged by a steep 44.6% yoy to Rs. 5.3bn due to lower international LPG prices; margins were up 480bps to 8.4%. Adj. PAT shot up 60.9% to Rs. 299m. Higher utilisation would lead to operating leverage, which could improve margins further. Strong cash-flow generation would fund capex.

Lower LPG prices curtail revenue. In Q3 FY16 Aegis's sales were Rs. 5.3bn (down 44.6% yoy) much lower than we estimated. This stemmed from the steep plunge in international LPG prices. The gas division sales were down 47% yoy, while the liquid-terminal business went up 8% yoy. The company expects volumes to grow ~15% in FY16.

EBITDA margin jumps 480bps. The EBITDA margin for 3Q moved up 480bps yoy to 8.4% led by a sharp drop in the price of imported LPG cost. We believe the margins would remain like this on account of lower prices and might also improve as management is targeting more revenue from the high-margin throughput business.

Profit zooms 60.9% yoy. Profit came at Rs. 299m (up 60.9% yoy, on an adjusted basis) on account of the healthy margins and decreasing tax rate. The quarter's tax rate shrank substantially, by 1,865bps yoy to 9%. For 9M, profit stepped up 26.6% yoy to Rs. 818m.

Business outlook. With over 2x capacity increases in both liquids and gas storage and handling terminals over 3-5 years, Aegis is poised to benefit from swelling volumes. Higher utilisation at Haldia and expanded capacity at Pipavav would drive growth. The Kandla port has allotted Aegis 30 acres, on which we expect it to build a 100,000kl liquids terminal by FY17.

Valuation. Aegis has strategically located terminals for 504,000kl of liquids and 25,400 tonnes of gas, with throughput capacity of 0.9m tonnes of LPG. It owns and operates gas tanks at its terminals in Mumbai and Pipavav, along with a jetty pipeline. The stock trades at PE and EV/EBITDA of respectively 14.5x and 9x FY18e. We value it at 20x FY18e EPS. Risks. Currency fluctuation; higher interest rates.

Shares of AEGIS LOGISTICS LTD. was last trading in BSE at Rs.94.4 as compared to the previous close of Rs. 95.4. The total number of shares traded during the day was 19269 in over 315 trades.

The stock hit an intraday high of Rs. 98 and intraday low of 93.15. The net turnover during the day was Rs. 1834832.

Source : Equity Bulls

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