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Aegis Logistics: The margin squeeze - Views on News from Equitymaster

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Aegis Logistics: The margin squeeze

Nov 6, 2008

Performance summary
  • Standalone topline grows by 40% YoY for the quarter, led mainly by the gas terminal business.
  • Operating margins shrink by 4.1% during the quarter led by margin contraction of gas terminal business.
  • Net profits have fallen by 16% YoY during the quarter, higher than the 2% decline in EBITDA. This is owing to contraction in margins and greater than proportionate rise in depreciation and interest expense.

(Rs m) 2QFY08 2QFY09 Change 1HFY08 1HFY09 Change
Net sales 902 1,264 40.1% 1,676 2,361 40.9%
Expenditure 779 1,143 46.8% 1,450 2,120 46.2%
Operating profit (EBDITA) 124 121 -2.1% 227 241 6.4%
EBDITA margin (%) 13.7% 9.6%   13.5% 10.2%  
Other income 5 6 27.7% 6 9 42.2%
Interest (net) (4) 6   0 11  
Depreciation 10 22 113.6% 20 45 118.6%
Profit before tax 122 99 -19.0% 213 195 -8.3%
Extraordinary income/(expense) - -   - -  
Tax 26 19 -29.9% 43 37 -15.2%
Profit after tax/(loss) 95 80 -16.0% 169 158 -6.6%
Net profit margin (%) 10.6% 6.3%   10.1% 6.7%  
No. of shares (m) 16.3 19.9   16.3 19.9  
Diluted earnings per share (Rs)*         19.0  
Price to earnings ratio (x)*         4.1  

What has driven performance in 2QFY09?
  • The robust topline growth of 40% YoY during the quarter has been once again led by the gas terminal business, which managed to grow by 48% 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 3%, thus pulling down the overall topline growth to 40% YoY.

    segmental break up
    (Rs m) 2QFY08 2QFY09 Change
    Purchase of traded goods 658 1,019 54.9%
    % sales 72.9% 80.6%  
    Staff cost 27 30 13.9%
    % sales 2.9% 2.4%  
    Other expenditure 95 95 -0.1%
    % sales 10.5% 7.5%  

  • As far as segmental margins are concerned, the same for both the segments have taken a hit in excess of 200 basis points (2%). However, they have had greater impact on the performance of the gas terminal segment, as it is far more sensitive to margins than the liquid 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.

  • Higher depreciation charges and higher interest expenses have further pulled down the profit figures for the company with the bottomline witnessing a 16% decline during the quarter on a YoY basis. Higher depreciation could be the result of the acquisition of the LPG terminal of Hindustan Aegis LPG Ltd.

What to expect?
At the current price of Rs 77, the stock is trading at an attractive multiple of 2.3 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. Out of the two factors, energy prices have cooled off considerably and given the turmoil in the developed markets, are unlikely to retrace their all time highs any time soon, a big positive for Aegis Logistics. With currency fluctuations also showing signs of moderating, the odds that the company would return to its previous profitability levels are on the higher side. We remain positive on the stock and maintain our target price.

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Mar 22, 2019 (Close)


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