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Modest performance; outlook intact

* Aegis Logistics (AGIS) reported an in-line EBITDA of INR1.46b (INR1.5b est.; +39% YoY, +2% QoQ) after adjusting for a one-time expenditure of INR621m towards business transfer expenses in 1QFY23. Robust performance in liquid division continued to offset modest gas business division.

* While gas business was softer in 1QFY23 due to gradual opening up of the economy with clogged ports impacting throughput volumes adversely, pentup demand for auto LPG and cylinders (from hotels/restaurants) could be seen in 2HFY23E with softer volumes in 2QFY23E led by shutdown of industries in the Morbi region.

* AGIS reported good traction from all the three OMCs at its Mumbai and Pipavav LPG terminals. Additional jetty connectivity and construction are underway at Pipavav/Kandla terminals, with likely commissioning by 2QFY23

* The company planned a capex program of INR25-45b for the JV over the next five years, starting FY23. It would be funded via internal accruals, debt, and some cash injection by both the shareholders. Such a high and ambitious capex would burden AGIS’ Balance Sheet, with the focus shifting away from the LPG business, which in our view may increase uncertaint

* Factoring in the same, we forecast FY23/24 gas logistics sales volumes at 3.5/3.6mmt and marginally tweaked our EBITDA assumptions by -6%/ +2% for FY23/24, respectively.

* We remain concerned on growth as the Gas Logistics business (especially from the Pipavav and Kandla LPG terminals) is being moved to the JV. We maintain our Neutral rating with a TP of INR264

Largely in-line EBITDA; modest performance overall

* AGIS’ revenue came in line at INR22.3b (+2% est; +230% YoY, +6% QoQ).

* EBITDA too was largely in line at INR1.46b (INR1.5b est.; +39% YoY, +2% QoQ) after adjusting for a one-time expenditure of INR621m towards business transfer expenses.

* Reported PAT was broadly in line with expectation at INR1.03b (+7% est; +55% YoY) in 1QFY23

Segment wise:

* Liquid terminal business revenue stood at INR0.8b (+22% YoY, +12% QoQ) while EBITDA was at INR0.55b (+12% YoY).

* Gas terminal division revenue stood at INR21.5b (+252% YoY due to lower base, +6% QoQ) while EBITDA came in at INR1.0b (+68% YoY, -2% QoQ) in 1QFY23

Valuation and view – maintain Neutral

* We remain positive on LPG consumption and the import story of India (as consumption per LPG connection rises in poor households, given the govt.’s continued impetus) and repose our faith in AGIS’ Retailing and Distribution business. It currently has 135 LPG stations and plans to add 30 more stations (in the 14 states where it is present currently) over the next two years.

* We expect strong free cash flow generation of ~INR10.1b in FY23-24 combined.

* Capex of INR12.5b has been announced under the JV. AGIS trades at 14.4x FY24E EPS and 10.4x FY24E EV/EBITDA. We value the stock using DCF methodology to arrive at our fair value of INR264. Maintain Neutral.

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