Aegis Logistics Q4FY18 Concall Summary

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Financial Highlights

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  • Total revenues for the financial year ending 2018 March were Rs. 4,791 crores versus Rs. 3,939 crores in FY17
  • A rise of 22% for consolidated Aegis group revenues seen
  • Total EBITDA for FY18 was Rs. 306 crores versus Rs. 247 crores in FY17, rise of 24% year-on-year. 
  • Profit after tax for the group was Rs. 214 crores versus Rs. 136 crores in FY17, a rise of 57%
  • Earnings per share reached Rs. 6.38 for the year versus Rs. 3.97 in FY17, a rise of 61%
  • Board has approved a Rs. 75 paisa final dividend
  • Total dividend for the year to Rs. 1.25 per share

Business Updates

  • Very strong growth in imports over the next 10 or 15 years
  • Domestic production is operating at full capacity right now
  • All the refineries have the full capacity of LPG right now
  • Domestic production of LPG always will be less expensive than imports
  • Aegis is at the full domestic production of LPG, 
  • There might be some small debottlenecking of refineries, etc. 
  • Already seeing rising imports from the oil companies
  • Trend is clear for rising imports 
  •  Expect to maintain the throughput volumes in Pipavav and Mumbai terminals and more Autogas stations are in the pipeline

Liquid Terminal division

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  • The revenues for the year reached a record Rs. 168 crores versus Rs. 154 crores in FY17. Saw a rise of 9% year-on-year
  • The EBITDA for the year for the division was Rs. 103 crores versus Rs. 91 crores in FY17. A rise of 13% year-on-year
  • Steady overall performance for this division.
  • The future growth will depend on new capacity, in Kandla, Haldia, and Mangalore 

Gas Terminal division

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  • Revenue for the year was Rs. 4,622 crores versus Rs. 3,776 crores in FY17
  • The EBITDA for the division for the year was Rs. 203 crores versus Rs. 156 crores in FY17. A year-on-year rise of 30% in the EBITDA
  • Expect a major boost to the LPG terminal volumes in FY 2019
  • Due to full year operations of the Haldia terminal
  • Haldia terminal was commissioned in Q3 of FY 2018
  • In FY 2019, full year benefit of the Haldia sales volumes will be seen
  • Sales volumes are currently running far above the budget in Haldia. 
  • The one year budget was mentioned to be around 0.5 million tonnes. That would be the full year annualized budget for sales volumes in Haldia. 

LPG volumes

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  • Most important segment in the LPG volumes is the LPG throughput terminal logistics volumes
  • For the year it was 1,742,467 metric tonnes versus in FY17 reached 1,349,899 metric tonnes
  • A rise of 29% in the volumes of LPG handled at the 3 terminals in Mumbai, Haldia and Pipavav
  • LPG sourcing volumes for the year were 1,176,598 metric tonnes versus in FY17 1,043,067 metric tonnes, a rise of 13%
  • The Packed LPG Commercial Cylinder business was 13,504 metric tonnes for the year versus 12,521 metric tonnes in FY17, a rise of 8%
  • Bulk industrial distribution sales of LPG was 40,232 metric tonnes versus 23,539 metric tonnes in FY17, a rise of 71% 
  • Autogas was 24,150 metric tonnes for the year versus 23,217 metric tonnes in FY17, a rise of 4% 
  • Key driver of rising LPG profit in the division was the LPG terminal logistics volumes 

    Autogas Stations

    • All new stations of Autogas are unified petrol, diesel under the Essar brand and Aegis Autogas - Aegis Auto LPG.
    • New stations constructing are selling petrol, diesel under the Essar brand as well as Aegis Autogas. 
    • Dealers are selling 3 products rather than 1
    • Around 11 of the old 107 stations have already been petrol
    • Diesel has already been added and continuing to see each of the current 107 stations more can be petrol and diesel. The main benefit is that getting more traffic in the station
    • Apart from LPG, petrol and diesel vehicles also coming through
    • That is the focus for the future that all new Autogas stations of Aegis are under unified stations
    • In the Essar petrol stations around 5 or 6 of Aegis Autogas pumps have been put
    • A limited amount the main focus will be on our all Autogas network to put Essar branded petrol and diesel

      Top-Line Growth

      • It is misleading because international LPG prices go up and down
      • Focus should be on actual metric tonnes rather than LPG prices because they go up and down
      • In Q1 because of rising oil prices and gas prices a sudden jump is there 

      LPG import

      • There are fluctuations from time-to-time in import volumes
      • Do not see that as any major trend, major change in trend
      • The trend is very strong import growth continued for the year because of the penetration of LPG rising in the rural areas under the Ujjwala Scheme, etc. 
      • In Aegis imports Haldia has very strong imports, etc. 
      • When the oil companies schedule their deliveries of LPG imports or domestic production, there are fluctuations with that
      • Expect continued growth, strong growth in imports

      Domestic Production

      • Fluctuates depending on the production schedule
      • Domestic production expansion will be flattish or low single-digit kind of growth
      •  There is limited capacity on domestic production
      • The incremental growth in satisfying the increased LPG demand is going to come from imports
      • Quarter-by-quarter, there are sometimes fluctuations
      • Trend is very strong growth in imports as the Government of India continues to increase penetration particularly in the rural areas of LPG

      LPG prices

      • International LPG prices are rising
      • Impact on demand is not there due to LPG prices rising
      • Even though prices are rising, they are still from a fairly low base
      • Demand continues to be strong and expect that to continue.

      Competition

      • Mundra is active on building an LPG terminal.
      • There is enough imports which are projected to happen in West Coast India
      • Going to continue to build for that

      Liquid profitability

      • Different product mixes, chemicals, depends on trade flows
      • Sometimes the more chemicals are bought which are higher values, sometimes more bulk petroleum
      • Should not think too much into quarter-by-quarter figures of operating profit
      • It remains a steady basis
      • Until new capacity on stream,it is a steady business
      • The terminals of Mumbai, Kochi, Haldia are all full and operating at full capacity
      • Pipavav remains at roughly around 20% capacity utilization, that has not changed
      • It is a steady business and there are fluctuations
      • Focus for the future is bringing the new capacity of 100,000 kiloliters in Kandla
      • There is 25,000 kiloliters in Mangalore and the capacity expansion in Haldia of 35,000 kiloliters
      • Full operation in FY 2019 that will significantly add to revenues and profit
      • Gave Liquid terminal marketing team a very demanding target for the next 2 years in terms of revenues 

      Haldia LPG pipeline

      • Latest information is IOC is making good progress on that pipeline that this is the Paradip to Durgapur pipeline via Haldia, 
      • They are making good progress on that pipeline
      • Achieving 2.5 million metric tonnes is not dependent on that pipeline
      • Aegis can handle 2.5 million tonnes both by road and some other work to be done on future Rail movement of LPG
      • Pipeline will come and that will only enhance evacuation possibility
      • HPCL is building the largest bottling plant in Asia in Panagarh
      • They are actually very close to completing that bottling plant
      • Is great news for our progress towards that 2.5 million tonnes figure
      • Still have to lay pipelines from the Panagarh to Haldia terminal which they have committed
      • They have still not even started working on that
      • Aegis can still move by road LPG to that bottling plan
      • After 6 months of operation in Haldia Aegis is so far above the budget in Haldia
      • It is primarily HPCL and there is also BPCL cargoes which are coming in
      • They have completely stopped transporting any LPG from Vizag all the way to the Northeast
      • BPCL is also bringing good cargoes into Haldia. 
      • Growth in Haldia in this year is going to power Aegis earning overall as we have said but much above budget
      • Current run rate is far above the budget far above
      • Figure will be talking about between 3 years to 5 years from start of operation

      Pipavav Liquid Terminal

      • Focus has now shifted to Rail movement of LPG from Pipavav
      • Have been negotiating with Gujarat Pipavav Port
      • Decided that was the priority rather than Liquid Rail movement
      • There is a lot of scope for increased LPG throughput movement by Rail in Pipavav
      • Once contract agreement is signed with Gujarat Pipavav on LPG Rail movement, will again talk to them about Liquid Rail movement
      • Expansion was completed some quarters ago and it is going very well
      • Maintaining good volumes in Pipavav and utilizing all the tanks that put up to in storage.
      •  Also storing other gases like butylene for Reliance in Pipavav
      • Can add another 2-3, 4 but it is always dependent on when the volumes are there
      • Breakthrough on Rail movement in Pipavav would then determine the future.

        Mumbai Terminal 

        • The throughput volumes cannot increase beyond 1.1 million tonnes
        • Everything is on road transport except for the Reliance contract on propane which goes to the pipeline because there is only road tankers can be handled on a daily basis
        • That is the current run rate that doing right now in FY 2019
        • Chakan pipeline is completed to Poona can start moving products in that 1.2 million tonne capacity pipeline
        • That is the only way the company can raise the throughput in Bombay (Mumbai) towards 1.4 million tonnes
        • Completed interconnection of 2.8 kilometers in December 2016

        Timeline On The New Terminal In The West Coast

        • There is no timeline
        • Going for meetings and negotiations on deals are happening
        • Take time because these are very-very large projects deal 

          Demand CAGR

          • Expect to be somewhere between 6% to 8% demand growth
          • Areas like Northeast, it is going to be higher because the penetration is lower
          • Being governed by how fast the public sector companies IOC, HPCL, BPCL are building out that rural penetration distribution network in the Ujjwala Scheme
          • They are growing as fast as possible 

          Aegis Logistics Market Share for Imports

          • That is a dramatic increase being talked about for the last few years which is expected to be 25% to 30% market share
          • Not only the new Haldia terminal but perhaps the next couple of deals
          • Dramatic increase from currently around 15% of handling of LPG imports to around 25% to 30% 
          • It depends on building that terminal capacity the extra terminal capacity

          Tax Rate

          • All Indian Accounting Standards has been implemented as of this year
          • Target an effective tax rate of around 20% to 22% for next financial year
          • Pretax profit irrespective of the increase in the effective tax rate will be growing well
          • Rising post-tax profit in the current year even though there is an increase in the effective tax rate.

          Future Outlook 

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          • The growth in revenues and profits will come from the major capacity increases in the following 3 projects.
          • • Kandla   
            • First, the 100,000-kiloliter project in Kandla. 
            • Project was completed in Q4 of FY 2018
            • Project is complete, waiting for the final permission to fully start the operations.
          • •  Mangalore Port   
            • The second project is a 25,000-kiloliter project in Mangalore Port. 
            • Project should be completed in Q1 of FY 2019 and then, the final permission to start operations
          • •    Haldia
            • The third project the 35,000-kiloliter expansion in Haldia
            • Expected to complete project in the first-half of FY 2019
            • Q4FY18 was much better than Q3FY18 for Haldia port
            • Current run rate, is far above 40,000 tonnes to 50,000 tonnes per month budget
            • Budget was 0.5 million tonnes for the first full year operation
            •  3 years to 5 years is a realistic time frame to achieve 2 mn to 2.5 mn 
          • There was very good throughput in all the terminals as far as Haldia, Bombay (Mumbai), and Pipavav
          • Expect that resulting in 29% growth in overall LPG volumes in those 3 terminals
          • Will maintain the full kind of full results in Pipavav and Mumbai going ahead
          • Can increase throughput further is that Uran pipeline connection
          • Waiting for HPCL to finish their Chakan project, might be the end of calendar year 2018 to complete that project
          • Connected into that Uran pipeline some time ago but they are not using that
          • Road evacuation from the Mumbai terminal for the LPG
          • Expect greater volumes in Mumbai
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          • Growth in FY19
            • Lot of it depends on Haldia volumes
            • Bombay (Mumbai) and Pipavav to continue the current run rate which is
            • Going to be the major incremental volume growth on last year’s 1.74 million tonnes
            • The growth rate depends on whether the customers tender and whether they on their own requirements and whether they import themselves or whether they tender more
            • The company makes $3 to $4 per tonnes in Singapore
            • If IOC, HPCL, BPCL, want to bring product then bidding would be done
            • If they find that they can import themselves through the national oil companies of Saudi Aramco and others, cannot force them to come up with them
            • Main focus is how much LPG can be handled in terminal
            • FY 2019 will see continued strong growth in imports for India as a whole and in Aegis terminal
          • Scenario by FY 2020
            • The gap is rising between domestic production and domestic consumption, which means more imports
            • Gap is going to be increasing because domestic production is stagnant
            • More imports mean more terminals
            • Indian Oil is trying to build 1 terminal in Kochi, which is a 30,000 terminal
            • Got into some problems with National Green Tribunal
            • BPCL is trying to construct 1 more terminal in Haldia a 30,000 tonnes terminal which is under construction
            • Apart from those 2 public sector projects, only Aegis is building LPG terminals
            • Currently planning another 2 LPG terminals in collaboration with the public sector
            • Bulk of the incremental import capacity is going to come from either public sector or Aegis
            • India should then be able to handle the imports by FY20

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