Small Midcap mantra | Aegis Logistics doubles investor wealth in 1 year. Can the rally sustain?

Market Outlook

The stock hit a record high of Rs 374.80 on June 2. It has rallied about 18% in May, 40% in 2021 YTD, and over 100% since June 1, 2020. Read on to know if it is still a buy

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Aegis Logistics hit a fresh 52-week high of Rs 364.70 on June 1 and jumped to a record high of Rs 374.80 on June 2. The company though posted muted results for the March quarter on May 27, analysts tracking the company are upbeat. The stock has rallied about 18 percent in May, 40 percent so far in 2021, and over 100 percent since June 1, 2020.

Aegis Logistics (AGIS) is a leading gas logistics player in India with two main divisions – gas and liquids. While the gas division is its main growth driver, the liquids division provides the company with steady cash flows, said experts who track the company.

Despite muted March quarter results and the impact of lockdowns imposed by various states, Aegis continues to remain a preferred play given the increasing LPG penetration in the country.

The government’s commitment to cleaner fuels, net cash on the company’s balance sheet, strong return on equity (RoE), capacity expansion, and strategic presence at key ports are some of the factors that make the company a preferred bet.

Experts see further upside in the stock towards Rs 450-500 from the current Rs 351 – an upside of another 40 percent.

The company reported a 10 percent QoQ fall in the consolidated net profit to Rs 70 crore for the quarter ended March, compared to Rs 78 crore in the previous quarter, but the number rose over 30 percent on a YoY basis.

The company reported a marginally weak absolute EBIDTA of Rs 128.3 crore (from Rs 135.2 crore yoy). EBIDTA margin was strong during the quarter at 12.7% primarily due to low sourcing volumes and efforts taken by the company to reduce cost.

COVID-19 continued to impact LPG sourcing and LPG terminal segment in the March quarter. Overall, Aegis reported a -18.6% YoY decline in revenue to Rs 1011.2 crore which forced experts to cut the earnings estimates. But they say the long-term story is intact despite near-term headwinds.

“With weak Q4FY21, ongoing second Covid wave, probability of the third wave in H2CY21 and concerns over immediate recovery, we cut FY22 earnings by 2.8%,” Kotak Securities said in a note.

“We continue to believe that Aegis which captures the complete logistics value chain starting from sourcing, terminalling to retail distribution of LPG, would benefit from increasing LPG penetration in the country,” it said.

The brokerage firm maintains an ‘Add’ rating with an increased target of Rs 405 (from Rs 320) at 30x FY23E earnings, based on a strong recovery in FY23 and improved business prospects.

Edelweiss Wealth Research in early May imitated coverage on Aegis Logistics with a ‘Buy’ rating and target price of Rs 416 per share.

“We believe Aegis is a compounding play on the import-led growth in domestic LPG consumption. We expect the company to deliver 32% PAT CAGR over FY21-24E, driven by the completion of major capex and growing market share,” explains the brokerage note.

The brokerage firm remains positive on AGIS due to its (a) net-cash balance sheet, (b) strong RoE generation, (c) LPG throughput capacity increase of 1.9x in 1H22E, and (d) strategic presence at key ports.

Technical Picture:

Technically, the stock has formed a multi-year rounding bottom pattern on the weekly charts between Rs 300 and Rs 160 odd levels. Since March’20 low, the stock has been forming a higher top and high bottom on the weekly chart and post-breakout it is now trading at all-time high levels, noted Ashish Chaturmohta, Head of Derivatives and Technical Analysis, Sanctum Wealth Management.

Volumes have been high indicating buying participation in the stock. The Moving average convergence divergence has also given positive crossover with its average on the weekly chart.

The Stock can be bought at current levels of Rs 360 and on dips to Rs 345 with a stop loss at Rs 325 for a target of Rs 450 and Rs 500 in the coming 6-9 months, said Chaturmohta.

Weekly chart:

Aegis Logistics

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