Name	Reco Date	Reco price	Target	Prospero Rating	Report Date*
Aegis Logistics	21Mar2014	Rs. 160	Rs. 240	6 / 10	21Mar2014

A) Company background:

Aegis is India’s leading oil, gas, and chemical logistics company. It is the only pan-Indian player in liquid logistics and has a 20% market share in LPG imports in the country.

Its liquid logistics business involves the storage of bulk liquids while the gas business involves sourcing of LPG and selling it through the industrial, commercial and retail channels. It operates a pan-India network of liquid handling terminals, LPG handling terminals, filling plants, pipelines, and gas stations to deliver products and services. Its client base includes many leading industrial companies in India.

B) Investments arguments:

Liquid logistics - an expanding annuity business: Aegis logistics owns storage tanks at various ports and provides storage & handling facilities for more than 60 products in the oil, petroleum and chemicals sectors. Its clients include large players like HPCL and BPCL, small & medium sized traders and corporates. Aegis charges its clients in the range of INR130 to INR270 per KL per month, depending on the location and the product. Given that Aegis has strategic presence at important ports, it enjoys high levels of utilization of its tanks. Excluding fresh capex, expenses are limited and cashflows are consistent.

Capex plans to ensure steady growth in liquid logistics: Building new storage capacities is an important contributor to revenue growth from this division. Aegis logistics can double the capacities at Kochi and Haldia and can quadruple the capacities at Pipavav over next few years. The company plans to add an additional capacity of 500,000KL at Pipavav over FY16-20 at the cost of INR500cr. The company could also look at acquiring some facility in Tamil Nadu to augment its pan-India network.

Gas handling business - a capital light business: The gas division has two main businesses - gas distribution and gas logistics. The primary difference between them is that LPG is taken on books of Aegis Logistics in the gas distribution business where as it’s just a service provider in case of gas logistics business.

· Gas distribution business: This business involves souring of LPG and distributing it to retail, commercial and industrial customers through autogas stations, cylinders and tankers respectively.

· Gas logistics business: Aegis has LPG storage facilities at Trombay and Pipavav which are rented to industrial / bulk LPG importers for a fee.

Being a capex light business, the gas business held a lot of promise for Aegis. The growth rates in this division were much higher than the liquid logistics division, where growth is constrained by the storage capacities. Now that the option losses are behind, the company can return to a higher growth rate. This division requires minimal debt and working capital.

Option losses come to an end, valuations attractive: Approximately 40% of Aegis Logistics profitability comes from its liquid logistics division, where it is a dominant player. We value this division at ~10x earnings or Rs300cr. The gas division is a capex light division, capable of growing at faster rates. Excluding the option losses, this division posted earnings of ~INR50cr for FY13. We value this division too at 10x trailing earnings, giving it a market capitalization of INR500cr. Thus, the total market capitalization of the company should be INR800cr, which translates to a per share price of INR239.

C) Financials:

*Report Date may sometimes be different from Recommended Date.

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