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Key beneficiary of increasing LPG penetration in India
Aegis Logistics (AGIS IN) is a key beneficiary of the government’s thrust on increasing penetration of LPG in India. We recently met AGIS’ management; key highlights from the meeting:
Beneficiary of LPG import growth
* LPG demand in India is expected to increase from ~23mmt in FY19 to ~40mmt in FY35 (a conservative estimate) due to (a) increased LPG penetration in the country, (b) rise in average consumption per household, and (c) growing urbanization.
* AGIS handled ~2.52mmt (19%) of the total ~13.2mmt (FY19) LPG imports in India. LPG imports are expected to see CAGR of ~6-7% over FY20-35.
* The company plans to increase its market share to ~33% by creating a network of terminals; these will focus on (a) congestion free ports with increase in throughput (turns), (b) possibility of anchoring Very Large Gas Carriers (VLGCs), and (c) adequate storage capacity and proper evacuation facility.
The art of business integration
* The Gas business currently contributes ~75% to the total EBITDA; gas business mix — ~80% terminalling, 13% distribution and ~7% sourcing.
* The company follows a simple distribution process by ordering against the tenders won and charging a fixed fee as commission.
* AGIS, through its efficient evacuation infrastructure, has the capability to handle ~75 turns at Kandla (~1.4mmt throughput in FY19), ~50 turns at Mumbai (~1-1.1mmt of throughput in FY19) and ~100 turns at Haldia (~1mmt of throughput in FY19).
* The Liquids business has attained 100% utilization at all terminals, except Pipavav (30-40% currently).
* The company enjoys EBITDA margin of ~65%, generating an IRR of ~20-25%. Such high IRR for liquids is sufficed by AGIS’ lower handling loss of ~0.05% as against industry norm of ~0.5%.
* AGIS operates ~135 commercial LPG distributors across the country. The focus on the retail segment has increased, leading to introduction of campaigns like Chota Cycander with 2/4/12 kg cylinder, targeting migrant laborers and students with 5,000 local kirana shops.
* These cylinders are available without KYC and paperwork in Mumbai, Bangalore, Surat, Ahmedabad, Hyderabad, and two more cities.
* The company also operates ~113 auto gas stations across seven states.
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