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Aegis Logistics: Costs play spoilsport - Views on News from Equitymaster
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Aegis Logistics: Costs play spoilsport
Aug 4, 2008

Performance summary
  • Standalone topline grows by 42% YoY for the full year, led mainly by the gas terminal business.
  • Operating margins have shrunk 210 basis points whereas EBIT margins have come in lower by 280 basis points, led by margin contraction of gas terminal business (before unallocable expenses).
  • Net profits have grown by 6% YoY, lower than the 20% growth in EBITDA, owing to greater than proportionate rise in depreciation, interest expense and tax outgo.


(Rs m) 1QFY08 1QFY09 Change
Net sales 771 1,096 42.2%
Expenditure 671 977 45.6%
Operating profit (EBDITA) 100 119 19.5%
EBDITA margin (%) 12.9% 10.9%  
Other income 5 5 4.0%
Depreciation 10 23 123.8%
EBIT 90 96 7.7%
EBIT margin (%) 11.6% 8.8%  
Interest (net) 4 6 41.0%
Profit before tax 91 96 6.1%
Tax 17 18 7.6%
Profit after tax/(loss) 74 78 5.7%
Net profit margin (%) 9.6% 7.1%  
No. of shares (m) 16.3 19.9  
Diluted earnings per share (Rs)   19.8  
Price to earnings ratio (x)   8.4  

What has driven performance in 1QFY09?
  • The robust topline growth of 42% YoY during the quarter has been led by the gas terminal business, which managed to grow its revenues by 50% YoY. However, it should be remembered that the numbers are not exactly comparable as figures for the current quarter also include the business from ‘Hindustan Aegis LPG Ltd’, which was previously under the same management and has been made a part of the company recently. The liquid terminal business, where the company provides logistics to importers and exporters of liquid oil, chemicals and petroleum products has managed a marginal growth of 1%, thus pulling down the overall topline growth to 42% YoY.

    Segmental break up…
    Segment 1QFY08 1QFY09 % change
    Liquid terminal      
    Revenues 126 127 0.5%
    PBIT 64 66 3.9%
    PBIT margin 50.4% 52.1%  
    Gas terminal      
    Revenues 645 969 50.3%
    PBIT 56 73 29.2%
    PBIT margin 8.7% 7.5%  

  • As far as EBIT margins are concerned, overall EBIT margins have fallen by a significant 280 basis points, led by fall in margins of the gas terminal business. It should be noted that in this segment, the company generates revenues both from throughput as well as trading. During the quarter, since the company handled larger volumes of the throughput business, which is low margin in nature, overall segmental margins were negatively impacted. Margins were also impacted due to forex hedging related hit as the company had to pay a higher premium for the same. EBIT margins for the liquid terminal business remained buoyant, expanding by 170 basis points and helped give some respectability to the overall EBIT margins.

  • Interest expenses have come in higher by a significant 41%, seemingly led by expansion in the liquid terminal business. Higher taxes on the other hand are a result of greater contribution from the auto gas business, where tax rates are higher than the company’s other businesses. Furthermore, depreciation charges have also come in significantly higher, seemingly on the back of demerger of ‘Hindustan Aegis’ into the company. Consequently, growth at the operating level has not percolated down fully to the bottomline level, leading the latter to grow at a lower rate of 6% YoY for the quarter.

What to expect?
At the current price of Rs 168, the stock is trading at 5 times our estimated FY10 earnings of the company. While the topline growth has been enthusing, higher energy prices and sharp fluctuation in rupee against the dollar has not enabled the company to translate the same buoyancy in bottomline. However, we would like to wait for one more quarter before we take a relook at the medium term prospects of the company.

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