AEGISLOG — earnings call

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Prepared remarks

Moderator · Conference Operator

MS. PAYAL DAVE– ORIENT CAPITAL

Ladies and gentlemen, good day and welcome to the Aegis Logistics Limited Q1 FY ’24

Questions and answers

Moderator · Conference Operator

The first question is from the line of Chirag Vekaria from Budhrani Group.

Please go ahead.

Chirag Vekaria

Good afternoon, sir..

Just wanted to understand, in Q4, vis-à-vis this quarter, your volumes are at the higher level, but the profitability is not.

So has any realization got impacted sequentially?

Murad Moledina

No, you may not.

Distribution volumes, depending on the mix, there could be slight variations.

Like in liquid, it depends on the kind of product mix that you do.

Similarly in gas, in distribution, we have Auto LPG packed and bulk.

So this time we have done more of bulk than packed and Auto.

So therefore you would see a slight change in profitability.

Chirag Vekaria

Okay.

But more or less, our realizations and all are intact, right?

Murad Moledina

Absolutely, they are intact.

Chirag Vekaria

And sir, just some word on how the industrial business, the Morbi side is doing?

Murad Moledina

Excellent.

We almost are doing, we have said that we have done better than the previous quarter.

Chirag Vekaria

Better than the previous quarter.

Okay, sir, thank you very much.

Moderator · Conference Operator

The next question is from the line of Dr. Amit Vora from the Homeopathic Clinic.

Please go ahead.

Amit Vora

Good afternoon, everyone.

First of all I would like to thank the management for this excellent set of results.

And also, thankful to the management because I have been investing in Aegis since the year 2000.

It has been a good return from the company.

That is my first time.

And my question is that, sir, you have been giving good dividends, but if you could just consider buyback also, because over the world it has been seen that companies with buyback give better investor results.

Raj Chandaria

Yes, thanks.

Thank you very much.

Dr. Vora?

Thank you so much for your kind words.

And we'll definitely, the Board will definitely -- we consider all options, including buybacks, dividends and so on.

So, we will definitely keep that in mind.

Thank you.

Amit Vora

And one more question is, so June, as you had said in previous meetings, that June quarters are generally lower than other quarters.

So, do we expect the coming quarters better than the June quarters?

Murad Moledina

We always aim and wish and we are quite positive.

Aegis Logistics Limited July 27, 2023

Amit Vora

And one last question, sir, about KGPL deadline, any idea by when it could start?

Kandla- Gorakhpur pipeline?

Murad Moledina

We expect that to commission by end of calendar year ‘24.

But they, of course, say it much earlier.

But we expect that to be commissioned by end of calendar year ‘24.

Amit Vora

Thank you so much.

That was for now.

Thank you once again.

Moderator · Conference Operator

Thank you.

The next question is from the line of Mayank Bajaj from Oculus Capital, please go ahead.

Mayank Bajaj

Good afternoon, sir.

So, in terms of continent, the LPG terminals, can you throw some light on the volumes individually about the terminals?

Can we have some data on that front?

Murad Moledina

We do not give terminal-wise individual volumes.

We only say all aggregated logistics volumes for all the terminals put together.

Mayank Bajaj

Okay, no problems.

Can you get some light in terms of the pricing for all the terminals?

Are they same for all the terminals?

Murad Moledina

Same, same.

Mayank Bajaj

And sir, in terms of Kandla, how are the volumes shaping up?

What is your plan in terms of the 100% capacity utilization?

What is the target that you are looking at in terms of the capacity utilization at Kandla?

Murad Moledina

We always say that LPG terminals are not constructed for a capacity to last for one or two years.

They are constructed with a capacity of throughput so that the customer's growth is taken care of for more than five to seven years.

So, initially, every LPG terminal begins with a 20%, 25% capacity utilization, and then it keeps growing year-on-year.

Similarly, Kandla, our expectations were of 20% capacity utilization to begin with, but it has surprised us and is doing better than that.

Mayank Bajaj

Okay, and any idea on the JNPT terminal?

Are we doing something on that side?

Because since our Bombay port is completely utilized, are we planning something on the JNPT?

Murad Moledina

We have just acquired a land parcel in JNPT and are constructing our storage terminal but that is for liquid cargo.

And the construction is in progress and we have already said that it should be commissioned by FY’24.

Mayank Bajaj

Nothing on the LPG side?

Because our…

Murad Moledina

No, we are still not to that.

So, we will see how things are and what kind of opportunities come.

Mayank Bajaj

Okay, okay.

Thank you.

That's it from my side.

Aegis Logistics Limited July 27, 2023

Moderator · Conference Operator

Thank you.

The next question is in the line of Dishant Jain from Quasar Capital.

Please go ahead.

Dishant Jain

Thank you for the opportunity, sir.

I wanted to just get a sense of how do we measure the capacity utilization of both the divisions.

Like, let's say, like last year you did a volume of 33 lakhs metric tons.

And we had a third of a capacity of 96 lakhs metric tons.

So, let's simply do we divide that or is there any other way to sense that?

Murad Moledina

Yes, you divide that.

So that is 33% of the capacity utilization which was there the previous year.

Dishant Jain

Okay, okay.

And those distribution volumes and processing volumes are not included in this utilization, right?

Murad Moledina

If the distribution volumes have come from the terminal which we own, then throughput also would be there for those distribution volumes.

Yes, in fact, we do it only from our terminal, so it is included in that throughput.

The distribution division also uses the throughput.

Dishant Jain

So, basically 33 lakhs plus the 5 lakhs last year divided by 96 lakhs.

Is it correct?

Murad Moledina

You have to take the whole 33 lakhs right?

For the 96 lakhs utilization.

You have used the terminal throughput.

So, the 5 lakhs is included in 33 lakhs?

Dishant Jain

Sorry?

So, the 5 lakhs of distribution volume is included in gas volume of 33 lakhs?

Murad Moledina

Yes, because it is done by our subsidiary, a different company.

Dishant Jain

Okay, okay.

And then, what about the liquid division, like how do we measure it?

Murad Moledina

Liquid division, throughput is not important in liquid division.

So what we always tell people is that the capacity, which is 1.6 million as of now, we normally say that there is a rate of INR 3000 per annum, per CBM of space.

So that is the potential revenue, average rate to be realized.

So, that is the potential revenue.

Now how much you reach near to that is the kind of benchmark we use within our company to determine the utilization.

Dishant Jain

Okay sir, perfect.

And just for the clarification that the whole distribution is with Aegis right and not with under the JV?

Murad Moledina

Yes, this is at the holding company level.

Dishant Jain

Okay, okay.

Thank you so much.

Moderator · Conference Operator

Thank you.

The next question is from the line of Suman Kawatra from Techfin Consultants.

Please go ahead.

Aegis Logistics Limited July 27, 2023

Suman Kawatra

Yes, morning.

Congratulations for the excellent numbers.

Okay, fine.

Now, I think in your presentation you have given 10 points.

We have almost completed your expansion, linkages, everything.

So can we expect a higher growth rate in the coming year?

Raj Chandaria

Yes, so as I mentioned in the last conference call, and I think you're referring to the presentation, the investor presentation from the last conference call.

So the projects that we announced, significant, I think INR1,750 crores worth of projects we have announced are of course now under implementation.

So, the list of 10 items that you saw there are actually already completed.

And of course, they are having an impact on the next couple of years of results.

But the big growth is going to happen because of the INR 1700 crores expansion, INR 1750 crores expansion that is unfolding as we speak over the next 24 months.

Suman Kawatra

Yes.

Okay, okay.

So what kind of growth are we expecting coming here in the next year?

Raj Chandaria

You mean growth in profitability and so on?

Suman Kawatra

Yes, yes,

Murad Moledina

Well, generally speaking, we don't give specific guidance, but -- We have time and again, said on print also that we expect from FY’22 to FY’27, a five year timeframe, we see enough visibility to say that the EPS growth would be at CAGR of 25%.

Moderator · Conference Operator

Thank you.

The next question is from the line of Sagar Sanghvi from ADD Capital, please go ahead.

Sagar Sanghvi

Yes, thanks for the opportunity.

Congrats on very good set of numbers.

Sir, I have very basic question over a long term, if we look at the company.

So, right now we are into liquid and gas.

Any thoughts of entering into complex chemicals, transportation as well as logistics, given your JV partner, Vopak also is into complex chemicals, and within board members a technical director of Vopak sits on your boards, that's it?

Raj Chandaria

Yes, it's a good question.

Thank you so much.

But I just wanted to remind everybody that Aegis Logistics, with or without Vopak has been handling a complex chemicals for really for the – for at least the last 25 years.

And in fact, the exchange of information about how to handle complex chemicals is both ways.

We have taught Vopak a few things and Vopak has taught us a few things.

So, we do in fact handle very interesting products.

Of course, they are -- we have to be very careful about how we handle them and so on.

So we do handle them in liquid side and indeed in the gas side as you know LPG is not something that one takes lightly in terms of safety and so on.

So, we are definitely in that business already.

So, thanks for your suggestion, but we already do that and we'll continue to do that.

Aegis Logistics Limited July 27, 2023

Sagar Sanghvi

Sir, any new products into the pipeline that you're looking for which are not currently transported at your terminals?

Raj Chandaria

Yes, there is a continuous stream of new products that are coming in, especially as a result of the fallout from the disaffection with the Chinese policy on COVID and also the way things are going with the Chinese economy and so on.

We've seen a number of customers who are bringing new products into India and exporting new products out of India.

So, definitely that's happening on a daily basis.

Sagar Sanghvi

So, how do you see margin panning out for that new products?

What percentage of the business within liquid would be a high margin kind of business?

Raj Chandaria

There is a constant -- we do handle of course vegetable oils as well, edible oils, that is a significant part of our business.

So, we handle petrol, diesel and the more complex products.

So, it's quite a mix.

It's a mix in terms of both in terms of the ports, for example, in Mumbai, since we are situated next to the two oil refineries, we handle a lot of petrol and diesel in Mumbai.

In Haldia, we handle a lot of, we don't handle petrol and diesel at all at the moment, but we handle a lot of vegetable oils and other more complex chemicals.

In Kandla, we handle no petrol or diesel, but we handle a wide range of complex products as well as vegetable oil.

So, the margin mix varies on a quarter-to-quarter basis depending on what products people are bringing in to which terminal.

Sagar Sanghvi

Okay.

And sir last question on Haldia terminal.

So, sir a couple of quarters back we had a volume loss because one of the customer-- anchor customer went to their own terminal.

How do we see Haldia panning right now?

Are the volumes back to normalized level?

Murad Moledina

Now they are back to normal and we’ll have a natural growth as we have always said, 7% to 10% year-on-year.

So, that's what it is.

We are back to normal throughput volumes at Haldia.

Sagar Sanghvi

Okay perfect.

Thank you thanks a lot, sir.

Moderator · Conference Operator

Thank you.

The next question is from the line of Dixit Doshi from Whitestone Financial Advisors.

Please go ahead.

Dixit Doshi

Yes, thanks for the opportunity.

Two, three questions.

Firstly, can you just highlight a bit on what led to such a high growth in the distribution segment over last 12 months?

Murad Moledina

Yes, distribution, bulk distribution in the year FY’23, we have pushed for LPG / propane as an industrial – alternative industrial fuel.

And there has been quite acceptance, especially industrial clusters to name more Morbi, where we have LPG as a fuel is competing well.

So, that has led to a focus and push on distributing LPG as an industrial fuel in addition to a fuel for cooking purpose.

Aegis Logistics Limited July 27, 2023 So, that has seen a big ramp up as far as distribution volumes are concerned.

This is I think the fourth quarter that we have done well and growing quarter-on-quarter.

So, it establishes our faith and our view that LPG propane is definitely a very competitive alternate fuel for industrial use also.

Dixit Doshi

Now, so basically just to understand, so in distribution segment we have industrial, commercial and auto gas.

So, is it fair to assume that most of the growth is led by industrial because of this Morbi thing and maybe normal high teen or teen kind of growth in auto gas and commercial household?

Murad Moledina

Even packed cylinders, because packed cylinders are also going for industrial use.

So, the customers who do not have storage facilities, small units -- because that is the reason we have packed cylinders of varying sizes, from 2 kg all the way to 450 kg.

So, different class of customers would want different sizes of packed cylinders.

So, that segment is also growing.

Auto LPG is where we need to now push.

We have, of course, started with universal stations where we are also dispensing petrol and diesel.

Those volumes are not recorded here you see, but they do generate margins because it's a universal station.

Though, we not distribute, we distribute under a marketing arrangement with Nayara petrol and diesel, but we do get our share of margin by distributing petrol and diesel.

So, that segment also, if you do not really focus on the volumes it is contributing quite a bit and we are pushing for more and more of these and also trying to push volumes.

But yes, you are right industrial bulk distribution is the major growth if we really count the metric tons.

Dixit Doshi

And do you see this scenario sustainable because I understand that most of this shift was happened due to the sharp increase in the natural gas prices?

Murad Moledina

Natural gas prices are the lowest today.

They just this about the abnormal pricing of natural gas was six months or nine months back, but they are now at its really lowest level.

For example, Morbi natural gas is being sold at only INR 38 SCM.

In spite of that LPG propane is 20% to 25% cheaper today also.

So, the prices apart, calorific value of propane is or to say the other way around natural gas calorific value is only 75% of propane.

So, that itself gives it an edge.

And also natural gas is to import is far more difficult than to import LPG or propane.

Also the macro scenario globally is far more soft as far as LPG and propane is concerned because all those developed countries want more natural gas than propane because they have severe winter and they need tons of gas to -- as a fuel.

So, therefore, if you look at all of these factors we feel LPG propane is here to stay as an alternative competitive fuel for industrial use.

Also the fact, that India is still heavily dependent on solid and liquid fuel for industrial use like coal, briquettes, furnace oil, diesel, kerosene.

We will definitely see a transition.

At what speed is of course a question mark, but that transition will bring in more and more demand of gas, natural gas as well as LPG, maybe going forward ammonia and hydrogen.

So it's a transition from dirty fuel to clean fuel which has started, will not stop, it's just how much and how soon Aegis Logistics Limited July 27, 2023 would be the question mark.

So, we are very bullish as far as LPG and propane is concerned, that it will definitely grow at a very good growth rate.

Dixit Doshi

Are we considering any options in the hydrogen distribution side?

Murad Moledina

No, never say no to anything and we definitely have a very good partner in Vopak who has done a lot of work in many other products like ammonia, like natural gas, like renewable energy, like hydrogen, etcetera, etcetera.

So, we are always discussing opportunities, but they have to be sound economics-wise.

And there is always the question of timing them well.

So definitely, work is there to see if any opportunity of those sorts can be executed in India.

And would throw profits more and more for the company.

Raj Chandaria

I think, if I can just add there to what Murad said, look, we are constantly looking at new opportunities along with Vopak, especially on the gas side because we have really emerged as a very strong company in handling LPG, which is, of course, a gas.

And, I think the only thing I would caution is that many companies make big announcements.

Our strategy is to only make the announcement when we are absolutely clear that the return on capital employed is sufficient to justify the investment.

And then we will definitely make announcements.

So yes, I think that's all on the.

Murad Moledina

Yes, so again to put it, new product knowledge, management bandwidth, technical expertise, money, those are not the constraints.

It's what will work at what time in India.

That's the question to look at.

So, no other constraints, but so we constantly like Mr. Raj said, looking at opportunities with our partner to do more and more infrastructure work on logistics in India.

Dixit Doshi

Okay, two book keeping questions.

Firstly, I have one old number where our EBITDA per ton in the throughput was around 1,100 and auto gas 10,000 and industrial and cylinder around INR3,000 to INR4,000.

Is it more or less same currently?

Murad Moledina

Yes.

Dixit Doshi

Okay, it's more or less same.

Okay, and last question.

So over next 24 months, many capacities are going to come up.

So, let's say by next two years this 1.6 million ton in liquid and 96 lakh ton in gas, this capacity will go up to which level?

Murad Moledina

Yes, so we have announced Mangalore project which we say at the capacity to throughput 4 million.

And Pipavav we have announced gradually 48,000 metric tons.

Again taking the capacity of Pipavav to 4 million so that is an addition of 2.6 and 4, 6.6 to 9.6.

That is where the gas capacity will go.

As far as liquid is concerned, 1.6 million we are adding 0.3 million as of now.

That would take us to 1.9 million.

Aegis Logistics Limited July 27, 2023

Yes.

I think that’s it, 1.6 million in liquid with 0.3 under construction would take it to 1.9 million.

So, that’s about the capacities.

Moderator · Conference Operator

Mr. Doshi may I request you to join the queue for any follow-ups?

The next question is from the line of -- Jolyon Chuan Yang Loo from Amiral Justian PTE Limited.

Please go ahead.

Jolyon Chuan Yang Loo

Hi, so I just wanted to ask, I was looking at Vopak like a estimates for the JV and I think on the other side they are indicating a 6% revenue growth over five years whereas we are guiding for a 25% CAGR over the next four five years instead.

So, could you explain to me the difference in assumptions?

Why are we so different versus their customers?

Murad Moledina

Yes.

We have businesses, other than what businesses, we have joint venture with Vopak.

So, it is not only exclusively joint venture with Vopak, that is Aegis.

Aegis has got distribution business, it has got Mumbai storage facilities which is outside the JV, so therefore we expect a growth in EPS at 25%.

Jolyon Chuan Yang Loo

Okay, so would you disagree with their numbers?

Because I mean, do still base their numbers on the JV that we are doing a lot of capex on.

And a lot of the capacity that's coming online would be in the JV as well.

So, do you disagree with that 6% number?

Murad Moledina

We have no idea how this 6% has come, so we are in no position to comment on that.

However, what we can tell you is that it's a little bit of a complicated thing because this is consolidation accounting of a subsidiary of 51%.

So, all inter-company transactions are eliminated.

And there is a matter called minority interest also, the working of which we have to do as per the Indian accounting standard which has been prescribed.

So, all of this put together, what I can say is that we see visibility for our growth in EPS, 25% CAGR from FY’22 to FY’27.

And we have already delivered in FY’23, not 25% but 29% growth.

So, we are very hopeful of achieving what we have aimed at, which is 25% CAGR growth in EPS year-on-year from FY’22 to FY’27.

Jolyon Chuan Yang Loo

Okay, great.

So, I have just one more question.

So, could you comment on the impact of the upcoming supply from, especially from our clients, so specifically I think IOC is going to commission one in Paradip, HPCL in Mangalore, and I think further on, I think Kandla, IOC has also announced a big expansion to their 0.6 million to 2.5 million LPG import capacity.

So, could you comment on all these expansion plans on how that might affect our own LPG terminals?

Thank you.

Murad Moledina

Yes, as far as IOC expansion in Kandla, I don't know how many years more it is going to take.

So, we believe that Kandla has got origin or two pipeline grid paths through Kandla.

One is Jamnagar-Loni pipeline, which has just upgraded its capacity from around 2 million to 3.5 million.

And then Kandla-Gorakhpur pipeline, which is being set up with a capacity of 8.25 million tons, out of which 1.5 is out of Pipavav, and I think Dahej is something around that.

But all the balance is going to come from Kandla.

Aegis Logistics Limited July 27, 2023 So, we see enough demand coming on in the ensuing years to take care of the capacities which I don't know when but may come up in Kandla.

We are equipped to handle the growth with a 4 million capacity of which already 25% is utilized as far as Kandla is concerned.

As far as Mangalore, HPCL, I don't think anything HPCL Mangalore.

It's under construction.

So, we still don't know how much time it will take.

Paradip, IOC, we believe, will have no effect on Haldia because we have an anchor customer called HPCL and not IOC using exclusively our terminal at Haldia.

So, Paradip, IOC will not affect as such the LPG through putting which we do from our Haldia terminal.

Jolyon Chuan Yang Loo

Maybe just one last upcoming supply, how about Adani's, Dhamra on the East Coast of India?

How is that going to affect us?

Murad Moledina

Again, East Coast, Haldia, we are exclusive arrangement with HPCL and we will not be affected.

Jolyon Chuan Yang Loo

Okay, thank you so much, sir.

Thank you.

Moderator · Conference Operator

Thank you.

The next question is on the line of Harsh Shah from Dalal & Broacha Stock Broking.

Please go ahead.

Harsh Shah

Yes, thanks for the opportunity.

Couple of questions from my end.

Firstly, when I look at the segmented information that you have given, I see that in the unallocable part, close to INR500 odd crores have been added.

So, could you give some color on that?

Murad Moledina

Sorry, where have we added INR500 crores?

Harsh Shah

So, it is in the unallocable, the capital employed part in the unallocable segment.

Murad Moledina

Yes, yes, that is cash and bank balance, don't worry.

That is the cash surplus yet to be invested into the segment infrastructure asset.

Harsh Shah

Okay, and the INR 1750 crores of capex that you have stocked, is it in the JV or on the console level?

Murad Moledina

It will be at the JV level now.

Harsh Shah

Okay.

And I believe we have been talking a lot about the industrial LPG part.

So, what kind of volumes are we doing in industrial LPG?

Murad Moledina

Bulk industrial LPG we did around 144,000 tons in this quarter versus previous quarter 116,000 tons and last year quarter 73,000 tons.

Aegis Logistics Limited July 27, 2023

Harsh Shah

So, what I want to ask is say in in the next three to five years, how big can this segment, the industrial LPG can go?

So, in terms of -- can it go three to five times in terms of volume in industrial LPG?

Murad Moledina

We wish it does, but we always say that 20% to30% growth year-on-year we expect.

Harsh Shah

And if you could -- so I believe you said that the LPG in the Morbi division is close to 20% to 25% cheaper.

So, is it after considering the Calorific value, considering that it has higher Calorific value?

Murad Moledina

Yes, of course because you should know -- we should at the end of the day the rates are compared versus the energy which they deliver or which they have so it is always energy-based rates which are compared.

Harsh Shah

Okay and one last question so when I look at the Q1 FY’23 import figures of LPG versus this Q1 of FY’24 LPG import, I see a bit of a dip in the total LPG that is being imported.

Any particular reason you would like to attribute?

Murad Moledina

What is your data source?

Harsh Shah

So I have taken from a government website.

Murad Moledina

So, in the government website there will be an asterisk and a fine print which says probably that private importers might not have been accounted for.

So, you please look at this split, whether it is only national oil companies import data which is there or all the import data because we don't believe there has been a decline at least in the ports at which we operate.

Harsh Shah

Okay, yes, no issue.

That is on my side.

Moderator · Conference Operator

Thank you.

The next question is a follow-up question from the line of Dr. Amit Vora from The Homeopathic Clinic.

Please go ahead.

Amit Vora

Thank you so much for giving me an opportunity second time.

Sir, this INR 1,750 crore, what is the ROCE that you expect?

Murad Moledina

Our hurdle rate is always 15%.

Amit Vora

15% okay.

And out of this capacity utilization of 16 million -- 1.6 million ton in liquids, what is the capacity are we using currently?

What is the capacity utilization?

Murad Moledina

All our facilities at all ports except Pipavav liquid is utilized 100% plus.

Amit Vora

100% plus.

And last question sir, apart from Morbi, any other areas you are working on for distribution business?

Murad Moledina

Yes, we are doing distribution from Haldia, Mumbai, Kandla, wherever we have.

Industrial?

Aegis Logistics Limited July 27, 2023

Amit Vora

Industrial?

Murad Moledina

Yes, yes, industrial, of course.

Amit Vora

Okay, thank you so much, sir.

Moderator · Conference Operator

Thank you.

The next question is from the line of Lavanya Tottala from UBS.

Please go ahead.

Lavanya Tottala

Hello.

Hi, sir.

Thanks for the opportunity.

I joined a bit late.

I'm not sure if it was answered already.

So, there was slight moderation in gas segment margins.

I just wanted to check if margins of gas distribution has softened in this quarter?

Murad Moledina

No, it has not.

And I had explained it earlier that it is the mix now between bulk distribution packed and Auto LPG which will show slight variations.

This time bulk distribution has been quite -- it is 30% more than the previous quarter and almost 100% over the previous year Q1. So, that is the lowest margin of the three distribution sub-segments.

Lavanya Tottala

Okay.

So going ahead, industrial or the bulk will be one of the growth driver.

So, is there potential for the softness of those margins or it's likely to sustain at this quarter level?

Murad Moledina

I think given the mix pattern, Auto-LPG will always grow slowly, but packed is expected to improve.

So, margins I think will stabilize going forward.

Also the fact that it would also depend on the cost of imports, how the prices of LPG behave.

That may also be one of the…

Lavanya Tottala

Okay, with the calorific value, I think L-propane is still more beneficial than LPG, but just for SEM basis, it's now broadly comparable, right?

Murad Moledina

Oh yes, you can say that.

Lavanya Tottala

Yes, got it, thank you, thank you so much.

Moderator · Conference Operator

Thank you.

The next question is from the line of Saurabh Shroff from QRC Investment.

Please go ahead.

Saurabh Shroff

Yes, hi.

Congratulations, gentlemen.

Just quickly on the distribution side, so we've obviously seen fantastic growth here over the last six quarters.

My question really is that what have we done different?

Because we had these terminals before, so it's just been a question of renewed focus after the JV and bandwidth getting freed up and who are the main competitors here that we are either taking shares from or are we just driving more adoption?

Murad Moledina

This is regarding distribution you're saying, right?

Saurabh Shroff

Yes.

Murad Moledina

Yes, so distribution Morbi happened.

So, it's all a question of timing.

We could get off on our Kandla terminal commission, I think sometime in March.

And during the same time, I think Aegis Logistics Limited July 27, 2023 NGT had advised the Morbi industrial cluster not to use dirty fuel anymore.

So, it was a question of an alternative fuel.

And because we commissioned our Kandla terminal during that time, we were in a position to supply an alternative, competitive, environment-friendly, clean fuel called propane at a price which was competitive with natural gas which was another fuel which was available for use by the industrial cluster.

So, similarly now our focus at different locations has been to identify industries where propane or LPG can work and can compete as an alternative clean fuel available for use by industries.

Saurabh Shroff

So, is this almost a business development kind of an activity and not just a distribution or logistics activity?

Is that the right way to think about this?

Murad Moledina

Yes, we call it distribution.

Saurabh Shroff

I think there is -- what I mean is that do you have to sort of educate people that listen, there is this -- that there is this gas available, it is cleaner, it's probably more efficient calorific wise.

So, what is sort of driving it is what I'm trying to understand.

One is NGT, which is an external factor to us, but sort of internally, what is it that we are driving?

Raj Chandaria

Yes, I would -- if I can just add there, I think you're right, there is definitely an element of business development in this, because traditionally in India, LPG has been seen as a fuel for domestic cooking with some use in the commercial hotels and restaurants and so on.

And it was always for many years was a scarce commodity and so on.

Gradually as the industry has developed over the last 10-15 years with the entrance of private players and so on, there has definitely been an element of user education, to convert people from dirty fuels to cleaner fuels.

And also the understanding that between natural gas and propane or LPG, there's not that much difference.

Both are gases, both have calorific values, both have many of the same characteristics.

And with some small modifications one can interchange between the two fuels.

Indeed even if one wants to use natural gas you can always have propane as a backup fuel or you can have propane and have natural gas as a backup fuel, whatever -- and so on.

So, there is definitely an element of business development in this.

But many of the customers are pretty savvy themselves.

And when they made the calculations, the economics was definitely immediately visible.

Plus the fact that when we opened up the new Kandla terminal, we actually had capacity.

We have never had any capacity in Mumbai.

We've never had any capacity in Haldia to -- because we were so busy with the through putting business.

Murad Moledina

So.

Yes, and also to just add here that the laws are now more sensitive to environment.

And they are tightening.

And for example, if now you go to renew your consent to operate, they will definitely ask you about alternative green fuel to be used in the unit.

So, those all factors, the fact that environment sensitivity has become more acute and authorities have become more strict, as well as the availability and the capacity which we have now, much more.

We never had four terminals with 9.6 million tons capacity, right?

Aegis Logistics Limited July 27, 2023 So, that all put together probably and the business development which you say -- I call it awareness.

Yes, those all factors put together is leading to this growth.

Saurabh Shroff

And on my second question, this 9.6 million capacity that we now have and you mentioned that obviously these terminals have 20-30 year lives and are not built for 12-24 months.

So, is it safe to assume that over a period of five to six years, you have enough visibility that Kandla sort of gets to, close to 100% or absolutely optimal utilization?

Because the reason why I ask this that obviously the job we've done in Mumbai is just fabulous.

I mean, in terms of what we've achieved there in terms of static versus throughput.

So I don't want to use that as a benchmark but in general is that the sort of visibility that five- six years is the right time to sort of think that this 9.6 is fully utilized?

Murad Moledina

Maybe you should stretch it a little more but yes that is what we work towards to utilize as much as possible, our terminal that is what the capacities have been created for.

And we believe this transition from dirty fuel to clean fuel will certainly help in achieving those throughput utilizations at the earliest.

Raj Chandaria

And I think the other factor to take into account is that both Kandla and Pipavav are going to be connected to two of the largest LPG pipeline systems that India is building and they're specifically chosen for that purpose.

So, even if those pipelines get delayed by a year, we are not constructing them because the government companies which are constructing them.

So, we know that sometimes, delays do happen in government organizations.

But given that caveat, these two terminals are extremely well positioned.

If you look at our investor presentation, there is a nice diagram of how they are connected and to what, so on.

Murad Moledina

So, the fact that these refineries, which have been producing LPG, would now look to use LPG not for cooking gas, but for their pet chem.

So, that would actually reduce the production even more because obviously, pet-chem, they would get a higher value realization.

For example, if you look at Bina Refinery or you look at Bathinda HPCL Refinery, HPCL Refinery has already started their pet-chem, Bina is working towards.

So, by the time Kandla-Gorakhpur works, probably Bina would have started their pet-chem and start using the LPG for pet-chem, leading to the replacement sort of, replacing the LPG which was eager to be produced, now being used to pet-chem, would then -- be serviced by the ports from terminals like ours.

Saurabh Shroff

And finally on these new cryogenic terminals that we are adding, what is -- is the reason just the fact that the vessels now are sort of have moved in that direction?

And secondly, is the cost of building them out significantly different?

Raj Chandaria

Yes, so cryogenic terminals is the way to go, generally speaking, because most of the gas in the world is now transported, with big ships, which are all cryogenic.

And it's a lot safer as well than having a pressurized facility.

Not to say that pressurized does not have a place, but generally Aegis Logistics Limited July 27, 2023 speaking, very few pressurized new terminals are being built.

So, cryogenic terminals definitely are the way to go.

And what was your second question?

Saurabh Shroff

Is the cost to build them significantly higher than a sort of pressurized terminal?

Raj Chandaria

Yes, the absolute capital cost in total is definitely higher because obviously there's a lot more engineering and safety and so on involved with when you're dealing with negative 40 centigrade type of cryogenic facilities.

The absolute, but if you ultimately look on a per ton basis in terms of the type of throughput that one can do, I think cryogenic is still wins out.

Saurabh Shroff

So, it is end up being sort of accretive net-net after the initially higher capex?

Raj Chandaria

Yes, correct.

Murad Moledina

And also to add to your earlier question when you said Morbi, Morbi is just an example.

Morbi was very price sensitive.

But it has to follow.

The whole country -- so many small and medium scale units, using dirty solid and liquid fuels, like even wood briquettes.

So, those all have to go and the clean gases have to then be – then replace them.

So I think, yes, huge potential.

Saurabh Shroff

And other than us and then oil companies -- so who are sort of the main players in this business?

Raj Chandaria

Who are the what?

Saurabh Shroff

The main competitors in this, it's the –

Raj Chandaria

So, there are two foreign companies which are operating in India.

One is called SHV Energy, which is a Dutch-based company, which is one of the world leaders in LPG.

And they've been – we, of course, do business with them.

We supply them.

We buy from them.

We sell to them and so on.

But they are an active player.

And then there's a French company called Total, which operates basically in Southern India, in Bangalore in that area, because they have a small terminal in Bangalore.

So, they are definitely operating this space as well.

Reliance Industries, in a small way, they are also in the business.

And then there are a couple of small private players who at the moment don't have terminals, but they buy from terminal, they buy their gas from other terminals.

Saurabh Shroff

Okay, thank you so much, gentlemen.

And all the best, looking forward to you.

Moderator · Conference Operator

Thank you.

Ladies and gentlemen, that will be our last question for today.

I now hand the conference back to Mr. Raj Chandaria for closing comments.

Thank you, and over to you, sir.

Raj Chandaria

Yes, thanks very much.

Some very insightful questions and I'm really, really pleased to have an opportunity to answer all of them, I hope, to your satisfaction.

As I said in the conference call, the long-term prognosis for the company is very healthy with all the growth projects that we Aegis Logistics Limited July 27, 2023 have identified.

You know, while definitely quarter-to-quarter is important, but I do want to emphasize that really, I think the company is in a really strong position both financially and operationally and from a business strategy perspective.

And we continue to execute really well on the ground.

So, I'm really proud of the team that is delivering on a day-to-day basis.

Thank you very much.

We'll look forward to communicating with you again at the end of the next quarter.

Moderator · Conference Operator

Thank you very much.

Ladies and gentlemen, on behalf of Aegis Logistics Limited, that concludes this conference.

Thank you all for joining us.

And you may now disconnect your lines.

Thank you.