Monthly consumption of liquefied petroleum gas (LPG) has been relatively muted since June. In fact, LPG consumption declined on a year-on-year basis for November by about 8%, the first decrease in this financial year.

This can prove to be a worrying trend for Aegis Logistics Ltd, which provides port logistics solutions in the oil and gas sector. The company is engaged in gas sourcing, offers terminal (storage and allied services) and distribution services with a big focus on LPG.

Lower LPG demand increases the risk of slowdown in LPG imports especially with steady domestic LPG production (+7.3% year-on-year during April-October 2018), pointed out analysts from SBICAP Securities in a report on 19 December. Needless to say, any potential slowdown in LPG imports increases the risk to the earnings visibility of Aegis’ LPG terminal and sourcing businesses. According to SBICAP Securities, the segments contribute about 60% of financial year 2019 estimated earnings before interest, tax, depreciation and amortization (Ebitda).

Intense competition may be another worry for investors. According to Petroleum Planning and Analysis Cell, annual LPG import for the financial year 2018 was pegged at about 11.4 million tonne and is expected to rise by FY2028 to only around 16 million tonnes, far lower than newly announced capacity additions, informs SBICAP Securities.

Some of these factors seem to be in Aegis’ share price. After all, the stock has underperformed the Nifty 500 index by a big margin so far this year, falling by about 30%, while the broad market has been flat. The weakness in the mid-cap sector may also have weighed on sentiments for the stock, say analysts. Consolidated net profit has increased by about 14% for the six months ended September over the same period last year. That’s not too bad.

In its September quarter earnings conference call, the management said it won a large 1.5 million tonne LPG sourcing agreement with Indian Oil Corp. Ltd for 2019. This should have a favourable impact. The company is now waiting for tenders from Hindustan Petroleum Corp. Ltd and Bharat Petroleum Corp. Ltd.

What of the shares then? Well, there’s a silver lining in this considering valuations are not too demanding.

Aegis Logistics’ shares trade at about 20 times estimated earnings for the next financial year, based on Bloomberg data.