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Aegis Logistics: Poor show - Views on News from Equitymaster

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Aegis Logistics: Poor show
Jun 3, 2009

Performance summary
  • Net sales marginally decline by 1% YoY during FY09 due to lower volumes and lower gas prices.
  • Subdued growth in the topline and higher costs of operation result in a 3.4% contraction in EBITDA margins.
  • Net profits decline by 30% YoY in FY09. A 20% YoY drop in operating profits and higher depreciation and interest payments cause the damage.


Financial performance snapshot
(Rs m) 4QFY08 4QFY09 Change FY08 FY09 Change
Net sales 1,211 626 -48.3% 3,893 3,862 -0.8%
Expenditure 939 517 -44.9% 3,210 3,316 3.3%
Operating profit (EBITDA) 272 110 -59.8% 683 546 -20.1%
EBITDA margin 22.5% 17.5%   17.5% 14.1%  
Other income (2) 5 -433.3% 23 31 36.0%
Interest 43 24 -45.0% 89 104 16.4%
Depreciation 70 32 -54.5% 120 136 13.2%
Profit before tax/(loss) 158 59 -62.6% 496 337 -32.1%
Tax 40 13 -66.2% 112 69 -37.9%
Profit after tax/(loss) 118 46 -61.3% 384 267 -30.5%
Net margin 9.8% 7.3%   9.9% 6.9%  
No of shares (m)       19.9 19.9  
Diluted EPS (Rs)*         13.4  
P/E (times)         9.4  
*trailing twelve month earnings

What has driven performance in FY09?
  • Aegis Logistics reported a marginal 0.8% YoY decline in FY09 revenues largely on account of lower international gas prices and lower volumes. While the liquid terminal business reported a 3.4% YoY growth in revenues during FY09, the gas terminal business that contributes nearly 80% to the topline reported stagnant growth, thereby arresting the overall topline growth.

  • The public sector throughput sale was on the higher side but the IPCL segment (Reliance plant has low utilization levels. In fact it stopped importing gas for cracker in Nagasoni completely. This resulted in lower volumes for Aegis) caused the damage. Also, propane gas volumes that form part of the industrial gas division were on the lower side as steel customers faced with credit crunch problem did not place orders. Thus, apart from lower international prices, lower volumes arrested topline growth.

  • Crude prices started softening November 2008 onwards with the impact of the credit crisis striking hard around the same time. This impacted its 4QFY09 performance. Topline, during this quarter, reported a decline of 48% YoY on account of lower prices and dried up volumes. The fourth quarter caused much damage to the full year performance.

    Cost break up
    (as a% of sales) 4QFY08 4QFY09 FY08 FY09
    Consumption of raw materials 65.9% 57.7% 68.5% 71.0%
    Staff cost 4.6% 9.5% 3.7% 4.7%
    Other expenditure 7.0% 15.3% 10.3% 10.2%

  • Poor show at the topline level and hike in costs of operation resulted in a 3.4% contraction in EBITDA margins. While the cost of raw materials was lower in 4QFY09, for the full year they were on the higher side. Apart from higher cost of raw materials, higher employee costs also pressurized margins.

  • As far as segmental margins are concerned, the liquid terminal segment witnessed a 2.4% YoY contraction in PBIT margins during FY09. In case of the gas terminal segment, contraction in PBIT margins stood at 3.2% YoY during the same period under consideration. The gas terminal business is far more sensitive to margins than the liquid terminal business.

  • Net profits had come in lower by 30% YoY. This is on the back of 20% YoY fall in operating profits and higher depreciation and interest costs. If one excludes other income that grew by 36% YoY, the fall in bottomline would have been higher at 34% YoY.

What to expect?
At the current price of Rs 126, the stock is trading at 9.4 times its trailing twelve month earnings. Volatile gas prices in the international markets, unstable global economic environment that impacted volumes and sharp fluctuation in rupee against the dollar did impact the company’s performance negatively. The company is present in a niche segment of oil and gas logistics and is a leading player in the third party logistics segment in India. There is enough scope for growth in this space considering the energy needs of the country. With the volatility in fuel prices and currency fluctuations showing signs of moderating and given the opportunities, the company is likely to witness improvement in profitability going forward.

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