scorecardresearchWhy Nomura sees over 90% upside in this logistic stock

Why Nomura sees over 90% upside in this logistic stock

Updated: 03 Jun 2022, 02:38 PM IST
TL;DR.

The stock, which has declined over 40 percent in the last 1 year and has remained flat in 2022 year-to-date, has retained a 'buy' call from Nomura with a target price of 425.

The stock, which has declined over 40 percent in the last 1 year and has remained flat in 2022 year-to-date, has retained a 'buy' call from Nomura with a target price of  <span class='webrupee'>₹</span>425.

The stock, which has declined over 40 percent in the last 1 year and has remained flat in 2022 year-to-date, has retained a 'buy' call from Nomura with a target price of 425.

Brokerage house Nomura expects Aegis Logistics to jump over 90 percent in the next 12 months. The stock, which has declined over 40 percent in the last 1 year and has remained flat in 2022 year-to-date, has retained a 'buy' call from Nomura with a target price of 425. This implies an upside of as much as 94 percent from the current market price of 219 per share (as of June 2).

According to Nomura, the March quarter LPG volumes improved for this logistics firm materially. Also, the commissioning of 4 million tonne per annum Kandla LPG terminal will drive volume growth in FY23, it added.

Also, Aegis' distribution recovered to near pre-pandemic levels, said Nomura, adding that it remains positive on the name.

"Aegis is a play on liquids and LPG (gas) logistics. Its growth in the LPG business is driven by growth in LPG imports into India, as domestic production remains weak while consumption rises with an increased need for clean cooking fuel and increased affluence," Nomura said.

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For the March quarter, the company reported a 46 percent YoY rise in its net profit at 102 crore. Meanwhile, its revenues jumped 108 percent YoY to 2,104 crore. The firm's gas division Ebitda grew 22 percent YoY to 111 crore, whereas the normalised liquid division Ebidta came in flat at 54 crore.

The company's liquid division accounted for about 33 percent of Ebitda in the March quarter, noted the brokerage, adding that its gas division accounted for the remaining 67 percent Ebitda.

It further highlighted that the company has recently gained new capabilities with its JV with Vopak, which enables the company to increase the products it can handle across liquids and even new gases like ammonia and butadiene.

"Aegis commissioned the Kandla LPG terminal in May, which finally cleared the path for closure of the Vopak deal, albeit with a two-month delay. The Kandla terminal not only is a key volume driver in the near term but can also drive up distribution volumes by 10kt in FY23," said Nomura. It estimates 0.5-0.7 million tonne logistics volume in FY23.

Nomura expects a string of growth project announcements in industrial terminals, new products and further capacity expansions in the following months. Aegis has already decided to progress with five projects under the JV with a planned capex of 1,250 crore and the brokerage believes that the Aegis Vopak JV benefits are not well understood by investors at present.

It further pointed out that Aegis distribution sales have already crossed 50 kt in the March quarter, and a further uptick from the normalisation of autogas sales to pre-pandemic levels, and contribution from the addition of five more LPG bottling plants may achieve a quarterly volume rate of over 40kt.

"Profitability of the distribution segment at 5,000-10,000 per tonne is almost 5-10 times higher than gas logistics. Furthermore, the acquisition of 0.5mntpa of liquids capacity in Kandla will also support strong liquids volume growth," it said.

The brokerage lifted EBITDA estimates for FY23F/24 by 4 percent as it factors in higher liquids from the new acquisition. However, key risks are weakening of domestic LPG demand and failure to ramp up LPG distribution, it added.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.

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First Published: 03 Jun 2022, 02:38 PM IST