Ammonia Terminal Expansions And Liquids Capacity Growth Will Propel Revenue And Profitability

Key Takeaways

• Expansion in liquids and LPG storage capacity is expected to boost revenue through higher throughput and improved operational efficiency.
  
• Developing ammonia terminals and an Aegis Vopak IPO aim to leverage growth opportunities, reduce debt, and enhance profitability.
  
• Heavy investment in projects and reliance on new ventures may risk margins and earnings, with regulatory delays and market uncertainty posing additional challenges.

Catalysts

Operates as an oil, gas, and chemical logistics company primarily in India.

• Expansion of the Liquids business through new capacities at JNPT and additional land in Mumbai is expected to increase revenue significantly by providing higher storage capacity and facilitating increased volume throughput.
  
• The ongoing LPG storage capacity expansion at New Mangalore and Pipavav is poised to enhance revenues and potentially improve net margins through greater economies of scale and operational efficiency.
  
• The development of an ammonia terminal at Pipavav, with plans for more terminals, aligns with a strategy to tap into the growing demand for ammonia in India, which could substantially boost revenue, leveraging higher throughput rates than LPG.
  
• The anticipated IPO of Aegis Vopak Terminals Limited is intended to reduce debt and free up funds for further investments, potentially leading to higher net margins and earnings through reduced interest expenses and more efficient capital allocation.
  
• The company aims for a 25% CAGR over the next three years, driven by the commissioning of new projects and improved utilization of existing assets, signaling expected growth in revenue and profitability.

Aegis Logistics Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Aegis Logistics's revenue will grow by 18.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 8.3% today to 8.9% in 3 years time.
• Analysts expect earnings to reach ₹10.5 billion (and earnings per share of ₹27.17) by about January 2028, up from ₹5.8 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting ₹11.6 billion in earnings, and the most bearish expecting ₹8.2 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 47.0x on those 2028 earnings, down from 49.0x today. This future PE is greater than the current PE for the IN Oil and Gas industry at 11.0x.
• Analysts expect the number of shares outstanding to grow by 3.33% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 14.25%, as per the Simply Wall St company report.

Aegis Logistics Future Earnings Per Share Growth

Risks

• The company is investing heavily in capital expenditures, with a total CapEx program of ₹4,500 crores by FY '27. Such large expenditures may impact net margins and earnings if the anticipated revenues from new projects don't materialize or are delayed.
  
• The ammonia terminal development, while promising, requires multiple regulatory approvals, posing potential delays or investment risks that could affect revenue projections.
  
• The LPG distribution volumes experienced a decrease from the previous year, indicating potential challenges in maintaining revenue growth in this division.
  
• A significant portion of Aegis Logistics' expansion relies on new business ventures like ammonia storage, whose market adoption and profitability are uncertain, potentially impacting future earnings if these markets do not grow as projected.
  
• The upcoming IPO of Aegis Vopak Terminals Limited may alter the company's financial structure, and any dilution could affect current shareholder value and earnings per share.

Valuation

• The analysts have a consensus price target of ₹856.8 for Aegis Logistics based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₹1050.0, and the most bearish reporting a price target of just ₹600.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹117.8 billion, earnings will come to ₹10.5 billion, and it would be trading on a PE ratio of 47.0x, assuming you use a discount rate of 14.2%.
• Given the current share price of ₹814.45, the analyst's price target of ₹856.8 is 4.9% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.