Neutral Aegis Logistics; target of Rs 375: Motilal Oswal

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Motilal Oswal's research report on Aegis Logistics

AGIS has established a JV – Aegis Vopak Terminals (AVTL). Both LPG and liquid storage terminals at Kandla and Pipavav, and liquid storage terminals at Mangalore, Kochi, and Haldia have been brought under AVTL. AGIS will hold 51% stake in AVTL, with the balance held by Vopak. AVTL will also hold the existing 250,000kl liquid terminal of Vopak at Kandla. AGIS, via its wholly owned subsidiary – Aegis Gas (AGL), used to hold 75% stake in the Haldia LPG terminal. It is divesting 24% to Vopak (separate from AVTL). Mumbai LPG/liquid storage terminal, gas retailing, and marine fuels remain with AGIS. It has also retained the LPG sourcing business. The partnership certainly opens up a host of new opportunities for the company. The increased demand for storage facilities in India, due to rise in the production of chemicals and petrochemicals, is expected to result in a demand for additional storage facilities. The deal is expected to be completed by early 2022.

Outlook

The company is trading at 20x FY22E EV/EBITDA. We value the company using DCF and arrive at a TP of INR375. However, a stretched balance sheet due to INR25-45b capex and change of focus away from LPG is likely to raise uncertainty over earnings. We downgrade the stock to Neutral.

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