RIL, a key customer of Aegis’ high-Margin Liquid Logistics Segment, has been significantly contributing to the company’s overall bottomline.
However, on account of non-renewal of the RIL contract the company’s growth prospect may be adversely impacted.
Notably, the Liquid Logistics Segment had contributed 14% to the company’s overall topline and 45% to operating profits in FY2008.
Hence, a fall in Revenues of this Segment is a major cause for concern as it impacts the company’s profitability. Following this development, we are downgrading our earnings estimates of the division.
The company has failed to achieve its target of setting up 100 Autogas stations by the end of FY2009 and now expects to set up 60 stations. Pertinently, the company was able to add only two gas stations in 3QFY2009.
Moreover, sluggish auto sales coupled with the narrowing price differential between autogas and other auto fuels owing to the ongoing slowdown are expected to impede future growth prospects of this business.
For 9MFY2009, the company reported 21% growth in consolidated revenue to Rs323.6 crore (Rs268.2 crore), which was 12% lower than our estimate of Rs368.5 crore.
During the period, the company registered 17% de-growth in bottomline to Rs22.2 crore (Rs26.6 crore) as against our estimate of Rs39.3 crore.
Hence, we are pruning our topline and bottomline estimates. For FY2009E and FY2010E we estimate topline of Rs415 crore (earlier Rs491 crore) and Rs451 crore (earlier Rs647 crore), respectively.
We are also lowering our bottomline estimates for the afore-mentioned years to Rs26 crore (earlier Rs52 crore) and Rs31 crore (earlier Rs74 crore), respectively.
Aegis expects to improve its business with existing customers (PSU oil companies) and handle new products, especially aviation turbine fuel (ATF).
However, the ongoing slowdown has had a telling effect on most sectors with the manufacturing sector being one of the worst hit. Aegis, which caters to this sector, has also been at the receiving end.
At the CMP, the stock is trading 3.5x FY2010E EPS and 0.5x FY2010E P/BV. Poor revenue visibility and non-enthusing future profitability overweigh its seemingly attractive valuations. Hence, we downgrade the stock from Buy to NEUTRAL.