Romil Singla singla.romil@gmail.

com

2 Jun 2008

AEGIS LOGISTICS LIMITED CMP 240 | HOLD

STOCK UPDATE

We Initiated coverage on the stock on 14 April 2008 (at Rs.207). The company has recently came out its Q4FY08 and FY08 annual results. The annual consolidated results for FY08 include the results of its subsidiaries (75% subsidiary Sealord containers limited and 100% subsidiary Konkan Storage Private Limited), which got operational during the year. In addition, FY08 results also include the results of Hindustan Aegis LPG limited which was merged with the company during FY08.

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Consolidated Results
FY08 FY07

(In Rs. Crores)

% Change

Net Revenues Other income Gross income Increase/decrease in stock Consumption of raw materials Staff cost Other expenditure Total expenditure EBITDA Interest Profit before depreciation & taxes Depreciation Profit before tax Provision for taxation Net profit Paid-up equity capital EPS (in Rs.)

389.26 2.28 391.54 -5.61 272.27 14.39 39.94 320.99 70.55 8.94 61.61 12.02 49.59 11.15 38.44 19.91 19.28

240.38 2.87 243.25 2.01 167.19 8.43 32.84 210.47 32.78 3.24 29.54 3.83 25.71 4.16 21.55 16.31 13.19

61.93 60.96

70.69

115.22 175.92 213.83 92.88 78.37 46.17

Revenues of the company has grown by 61.93% to 389.26 crores as compared to 240.38 crores last year. Both the liquid logistics and gas division have shown very good revenue growth. The topline growth in liquid division was driven by the contribution from Sealord containers and Konkan storage. The topline growth in gas division was driven by increased volume of bulk LPG to the industrial segment as well as higher prices of LPG during the year.

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Employee cost increased sharply by 70.69% to 14.39 crores. This was mainly due to the staff cost of Hindustan Aegis LPG. In addition to this the employee cost of Sealord containers and Konkan storage also attributed to higher overall staff cost. EBITDA grew by 115.22% to 70.55 crores led by overall revenue growth and handsome margin growth in gas division. Interest cost jumped sharply from 3.24 crores to 8.94 crores. This was mainly on account of the debt taken for building the capacities of Sealord containers and Konkan storage. In addition, the outstanding debt of Hindustan Aegis LPG (approx 30.6 crores) which was acquired by the company after the merger has also lead to higher interest cost. Depreciation costs increased from 3.83 crores to 12.02 crores. This was mainly due to the commissioning of new liquid terminal capacities (Sealord containers and Konkan storage terminals) as well as the higher depreciation cost of gas division after the merger of Hindustan Aegis LPG. Profit before tax increased by 92.88% to 49.59 crores. Profit after tax grew by 78.37% to 38.44 crores. The higher tax rate was due to higher percentage of profits from gas division which has higher net tax rate than the logistics division. Earnings per share (EPS) grew by 46.17% from 13.19 to Rs.19.28. The equity capital of the company expanded from 16.31 crores to 19.91 after merger of Hindustan Aegis LPG. The company also incurred one off cost of 3.8 crores during FY08. This includes Rs. 3 crores of acquisition cost (for Hindustan Aegis LPG and Konkan Storage) and other provisions of 80 lacs related to AS-15 and mark-to-market losses. These items are one off in nature; otherwise the profits of the company would have been higher by the same amount.

Segment-Wise Performance
Liquid Logistics
The revenues of liquid division grew by 39.97% to 68.32 crores. The growth was primarily driven by the contribution from Sealord containers and Konkan storage, Kochi. The PBIT of logistics division increased by 27.60% to 34.03 crores. The PBIT margins of this division were at 50% in FY08 as compared to 55% last year. The drop in margin is due to higher depreciation cost of the new facilities as well as lower realizations of the new facilities as compared to the main site at Trombey. Trombey is premium facility for liquid logistics and hence realization are higher. The current rates for Kochi facility are about 50% of the rates for Trombey facility.

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FY08

FY07

% Change

SEGMENT REVENUE Liquid Terminal Division Gas Terminal Division Total

68.32 320.94 389.26

48.81 191.57 240.38

39.97 67.53 61.94

SEGMENT RESULTS :-PBIT Liquid Terminal Division Gas Terminal Division Sub. Total Less : Interest Other un-allocable expenditure PROFIT BEFORE TAX

34.03 34.47 68.50

26.67 9.98 36.65

27.60 245.39 86.90

8.94 9.97 49.59

3.24 7.70 25.71

175.93 29.48 92.88

The increased utilization of new facilities will help in handling of higher volume of liquid next year. However since the realization in new facilities is lower than Trombey facility, hence the overall revenue will not be directly proportional to the volume handled. In FY09, the management expects 10-12% increase in revenue in this segment. The margins in logistics division are expected to be in the same range (~50%) next year. No new facility is expected to come up during FY09. However the management indicated that they are getting requirements of higher volumes from their key customer in Mumbai region. The company is expected to come up with its third facility at Mumbai in FY10. The planned expansion of Haldia facility is also expected to come up in FY10.

Gas Division
The revenues of gas division grew by 67.53% to 320.94 crores. The growth was driven by both higher volumes of gas handled as well as higher prices of LPG during the year. The total volume of the gas handled by the company increased by 33% to 162000 tons during the year. The volume growth was driven by higher volume of bulk LPG and propane to industrial segment during the year. PBIT margins of this division were at 10.7% in FY08 as compared to 5% last year. The through-put business remained largely stable during the year. The management expects the volume growth in gas division in FY09 to driven mainly by throughput activities of the company. The margins in the gas division are expected to remain volatile in the range of around 7-10%. Auto LPG progress Auto LPG still contributes small portion of the revenues of gas division. The company has around 40 auto LPG stations operational by May 2008. The management expects to scale up the number of stations to

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around 100 stations by March 2009. However the management has revised down the expected volume of gas per station for FY09 to 400 MT as compared to their earlier estimate of 600 MT per station. This is due to two reasons. First being the recent spurt in international oil and gas prices, which has caused the increase in retail auto LPG prices sold by the company, but as the retail price of petrol in India (which is controlled by the government) has not gone up, the cost differential between the auto LPG and petrol has decreased. (Currently the differential has come down to 30% as compared to 40% last year). The second issue is that with higher market prices of gas, the illegal diversion of subsidized domestic LPG for auto vehicles has increased. Both these factors are expected to put pressure on the volume of Auto LPG sold by the company.

RECOMMENDATION
The company has shown excellent growth in FY08 and is expected to grow at good pace over the medium term. Though in FY09, the company may not be able to deliver high profit growth due to low prevailing rates at its Kochi facility and the lower than expected volume growth in auto gas business, the stock is still expected to deliver good returns over the medium term. We recommend a HOLD at current price (CMP 240) on the stock with medium term horizon.

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DISCLAIMER
This report is based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness guaranteed. The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment objectives, financial positions and needs of specific recipient. The author and his family members may hold positions in the abovementioned companies from time to time. The views expressed may change. The author does not accept any liability arising out of use of the above information/ article. The recipient should independently evaluate the investment risks.

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