MOSL: AEGIS LOGISTICS (INITIATING COVERAGE): The Giant Kelp-Attractive play on India’s rising LPG consumption

Aegis Logistics (initiating coverage): The Giant Kelp; Attractive play on India’s rising LPG consumption; initiating coverage with Buy

(AGIS IN, Mkt Cap USD1.2b, CMP INR229, TP INR303, 32% Upside, Buy)

Aegis Logistics (AGIS) is India’s leading oil, gas and chemical logistics company. It primarily operates under two businesses: Gas and Liquids. The company operates three gas terminals and six liquid terminals across the country. It is engaged in the handling of oil & LPG products, as well as the sourcing, retailing and distribution of LPG.

• Given the various promising perspectives in AGIS' journey, we liken it to the Giant Kelp - one of the fastest growing organisms in the world and found in the waters of the Americas, South Africa, New Zealand and Southern Australia.
• The company's market cap has already grown ~25x over the last decade. However, we continue believing in AGIS' structural growth story with a clear focus and strong execution in a niche market. Thus, we see further upside potential led by its planned expansions.
• Over FY17-20, we expect AGIS to witness LPG throughput CAGR of 51%, much higher than India's estimated LPG import CAGR of 22%. Gas division EBITDA is expected to grow at 41% CAGR over FY17-20.
• For AGIS, we expect liquids throughput CAGR of 16% over FY17-20. Liquids division EBITDA CAGR is estimated at 22% over the same period.
• EBITDA/EPS is expected to grow at 42%/51% CAGR over FY17-20E. We value AGIS using DCF at INR303/share, implying 32% upside. We initiate coverage with a Buy rating.