This article discusses the long-term prospects for Aegis Logistics (Aegis), which, in my opinion, has the potential to be a multibagger in the long-term. The key things I would look into are the key business areas for Aegis and their prospects and the financial performance of the company in the past.
Aegis is a downstrean logistics group providing services to the oil and gas industry. The services include sourcing of product, storage and port operations, road and pipeline movement arrangement and shipping and integrated supply chain management.
Therefore, the primary customers of the company are related to the oil gas and chemical industry.
Discussed below is a summery of the different divisions of the company and its prospects.
Liquid Logistics - Aegis has developed tank farms for handling all kinds of liquid POL, petrochemicals and chemical products. The current tank location is is Mumbai (2) and Kochi. The total capacity at Mumbai is 2,40,000 KL, while the capacity at Kochi is 55,000 KL. Aegis provides 3PL (third party logistics) services to the oil and petrochemical industry through these terminals. Three PSU's among others are recipients of the service.
Very clearly, as economic aactivity in the country gets robust, the oil and petrochemical industry will witness stronger growth. Aegis is all set to benefit from the coming growth with terminals at strategic locations. Further, Aegis is in the process of building another tank terminal in the Haldia port. Once this is complete, revenue will get a further boost.
Other factors such as deregulation of the oil sector and India's port based storage capacity being lower as per global standards is also positive for the division in long-term.
Gas Logistics - The Aegis Group is the single largest importer of LPG in the private sector. Aegis has a refrigerated LPG import, storage and distribution terminal in Mumbai with 2 tanks of 10,500 MT each.
Aegis has also acquired the entire LPG business and assets of Shell in India. The assets include a 2,700 MT pressurized LPG storage terminal at Pipavav Port, LPG bottling plant at Kheda and three contracted LPG bottling plants in Maharashtra.
Aegis has expanded the LPG storage capacity at Kheda from 60 MT to 360 MT. Further, Aegis is in the process of planning a 500,000 KL liquid terminal at Pipavav. This acquisition and initiatives would boost revenue growth going forward.
Auto LPG retailing - On the back of spiraling oil prices, Aegis auto LPG retailing business has a good future. Aegis has developed a good network of auto LPG stations in India under the brand name of Aegis Autogas. The network is operational in nine states - Maharashtra, Goa, Gujarat, Andhra Pradesh, Karnataka, Tamil Nadu, Kerela, Madhya Pradesh and Rajasthan.
With plans to gradually venture into other states, visibility and revenue growth for Aegis Autogas would come gradually.
Further, Aegis is also into the supply of LPG cylinders for industrial, commercial and domestic use under the brand name of Aegis Puregas.
Services - Aegis has also made a foray in the services segment by providing service to the oil companies and industrial consumers of petroleum products. The services would be on build own operate, build own operate transfer and operation and maintenance model. Aegis is already providing operations and maintenance service to ONGC and BPCL.
Marine Products Division - Very recently (January 2012), Aegis announced the launch of the marine product division. The division aims to provide bunker fuels, marine lubricants and technical services to the marine industry. With the rationalization of the duty structure in the bunker market, Aegis is expected to grow well in this division going forward.
Financial Highlights - Aegis has witnessed steady growth in key financial metrics. Aegis has paid dividend on a consistent basis and also issued bonus shares. Some of the key consolidated numbers for the group are shown in charts below.
Steady EBITDA growth
Dividend per share
Earnings per share
Low Debt to Equity gives financial flexibility
Robust return on net worth
Note: EPS and DPS for 2010-11 are on diluted basis post bonus issue. Return on net worth for 2010-11 is on expanded capital.
Conclusion - In my personal opinion, the stock is a multibagger for long-term with a potential to give above average returns when compared to the index. Aegis is in a good business, which has promising long-term prospects. Further, I see the management moving in the right direction in terms of expansion and new business areas foray. All this should translate into robust revenue growth in the foreseeable future.
Aegis is currently trading at 11 times financial year 2010-11 EPS. I would personally look to consider exposure to the stock on any correction. One should remember that the markets have gone up by over 20% in the last 2 months. Therefore, a correction can happen relatively soon.
Disclosure : I have some stocks of Aegis in my portfolio for long-term. I would look to add fresh positions on any correction in the stock.
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