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Edited Transcript of AEGISCHEM.NSE earnings conference call or presentation 31-Jul-19 9:30am GMT

Q1 2020 Aegis Logistics Ltd Earnings Call

MUMBAI Aug 22, 2019 (Thomson StreetEvents) -- Edited Transcript of Aegis Logistics Ltd earnings conference call or presentation Wednesday, July 31, 2019 at 9:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Anish K. Chandaria

Aegis Logistics Limited - Vice Chairman, CEO & MD

* Murad M. Moledina

Aegis Logistics Limited - CFO

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Conference Call Participants

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* Ankit Gupta;IndiaNivesh Fund Managers;Analyst

* Chirag Vakharia;Budhrani Finance;Analyst

* Lokesh Manik;Vallum Capital Advisors;Research Associate

* Pranav Mehta

Valuequest Investment Advisors Private Limited - Senior Analyst

* Pritesh Chheda;Lucky Investment Managers;Analyst

* Rajesh Kothari

AlfAccurate Advisors Pvt. Ltd - Founder, MD & Director

* Sarfraz Bhimani;Motilal Oswal;Analyst

* Vikram Suryavanshi

PhillipCapital (India) Pvt. Ltd., Research Division - Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, good day, and welcome to the Aegis Logistics Limited Q1 FY '20 Earnings Conference Call. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on the date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict.

(Operator Instructions) Please note that this conference is being recorded. I now hand the conference over to Mr. Anish Chandaria, Vice Chairman and Managing Director, Aegis Logistics Limited. Thank you, and over to you, Mr. Chandaria.

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Anish K. Chandaria, Aegis Logistics Limited - Vice Chairman, CEO & MD [2]

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Thank you. I'll be presenting the quarter 1 results for FY '20. I would describe quarter 1 as an okay set of results to start the year. However, there is lots more to come on profits growth in future quarters this year, and we remain bullish on the rest of the year -- the next 3 quarters where Q1 was an okay set of results. Total revenues for Q1 were INR 1,955 crores versus INR 1,017 crores year earlier, that's a rise of 92% year-on-year. Total EBITDA for Q1 was INR 112.4 crores versus INR 91.1 crores year earlier. That's a rise of 23% year-on-year. Profit before tax was INR 84 crores versus INR 69 crores year earlier. That's a rise of 22%.

Profit after tax was INR 62.3 crores versus INR 59 crores year earlier, that's a rise of 5.3%. And profit after tax after minority interest was INR 57 crores versus INR 51.5 crores year earlier, rise of 10.7%. And I can just highlight that the tax rate was slightly higher -- the effective tax rate was slightly higher at 25% in quarter 1 due to the company opting to avail past MAT credits, minimum alternative tax credits. In future quarters, the next 3 quarters, for example, the effective tax rate will then come down to lower than 20%, which will improve the profit after tax figures during the rest of the year. Obviously, this quarter was affected by the one-off slightly higher tax rate.

Now let's go through the segment results, starting with the Liquid Terminal Division. Revenues for quarter 1 were INR 49.46 crores versus INR 45.5 crores year earlier. That's a rise of 8.7%. EBITDA was INR 32.1 crores versus INR 28.9 crores a year earlier. That's an 11.1% roughly. So I'm pleased to say that as we have discussed in past earnings calls, in this division, both operating profit and revenues are rising again, particularly because of the new Kandla Liquid Terminal and the new Mangalore Terminal, which were commissioned a few months ago, contributing more revenues and profits in this division. And I'm also pleased to announce that the 40,000 kiloliter expansion at Kandla the -- to take our capacity up to 140,000 from current 100,000 kiloliters should be commissioned in quarter 2 of this year. That means in the current quarter, July August, September. And that will start to generate revenues from then in. All tanks are already presold for the 40,000 kiloliters expansion at Kandla, cargos are lined up, and so we expect immediate results from this 40,000 kiloliter expansion in Kandla, which will come into the revenues and profits from quarter 2.

Now as far as Gas Terminal Division is concerned, GTD revenues for quarter 1 were INR 1,905.8 crores versus INR 971.4 crores year earlier. That's a rise of 96%. EBITDA for quarter 1 for the division was INR 80.3 crores versus INR 62.2 crores year earlier. That's a rise of 29% year-over-year, and that remains a healthy rise in operating profits for the Gas Division.

Now as usual, I'll go through the volume analysis -- the underlying sales volume analysis for the Gas Division. LPG throughput volumes in the 3 terminals of Mumbai, Pipa and Haldia together, for quarter 1, were 588,066 metric tons, 5-8-8-0-6-6 metric tons, versus 576,468 metric tons a year earlier, a rise of only 2% year-on-year. And I have to say that there was a very specific reason for this small rise only, which is that one of the customers in Haldia BPCL got stores for 3 months, that means the full 3 months of quarter 1, April, May, June as they were awaiting a permission to renew their contracts. Otherwise, we expected probably around 75,000 metric tons of extra LPG would have been handled at Haldia if it actually happened. So it's a one-off case and I'm very pleased to say that, that has been -- that permission has been received by BPCL in July and now again business has bounced back. So there was a specific approval delay for BPCL cargoes in Haldia, which partly accounted for a slow rise in the -- through proposals. And as I said, we expect to make up this during the rest of the year in accordance with the budget. So although we lost that in -- lost that potential sales volume in Q1 from BPCL, we expect to make that up during the rest of the year in terms of the next 3 quarters.

Now, LPG retail cylinder volumes for the commercial and domestic markets under the Aegis branding, in Q1, the sales volume was 4,537 metric tons versus 3,900 metric tons year earlier. That's another good rise of 16% in sales volume year-on-year. As I said in the last earnings call, there is a big push by the management to increase the number of dealers and distributors for the cylinder business, especially in the South, and now North East India as well. So we expect to see further increases in volumes as per our budget throughout the year.

Industrial South sales of LPG were also very good in Q1, 26,277 metric tons versus 11,188 metric tons year earlier. That's a rise of 135% year-on-year. New industrial customers were added, for example, in the Haldia North East region, resulting in this big increase in sales.

Autogas sales were 6,422 metric tons versus 6,895 metric tons year earlier. That's a small drop of 7%. There was no particular reason for this except in June some stations held back purchases as the supply prices were going to steeply drop, the LPG prices is going to drop in July. So they waited until July for placing their orders. But obviously, those sales will come into quarter 2. We now have 112 stations operational. And we do, as I said in the last earnings call, expect to add another 6 to 8 stations this year, taking us to about 120 sites. So that business continues to go well, but there was a small issue in June with the prices coming sharply down in July. So some deferment of sales. Sourcing volumes were also very high, 452,471 metric tons in quarter 1 versus 215,849 year earlier, a rise of 109%. Obviously, this reflects the new IOC contracts, which were won by Aegis Group International. They're doing very well with the deliveries to Kandla port and Haldia.

So conclusion for the Gas Division in quarter 1. There was continued growth in the LPG Division as a whole, as far as the EBITDA in quarter 1 was concerned, but some slowdown in Haldia because of the delayed permission for BPCL. But that was a one-off, and we do expect to even stronger sales volumes in the next few quarters in this financial year.

Now I will cover the outlook for the rest of the year, the next 3 quarters of FY '20 and also give an update on the new projects. There are 4 projects I would like to just give an update. First, the 45,000 metric ton fully refrigerated Kandla LPG Terminal project is on schedule, work is in full swing. Of course, this will be a major source of profits growth from next financial year onwards. But the project is on track and going well.

The second project, I've already said, but I'll just repeat 40,000 kiloliter Kandla Liquid Terminal expansion, which will be commissioned in quarter 2 of this current financial year and will add to the profits in -- from quarter 2 onwards.

The Mangalore Liquid Terminal expansion, an additional 50,000 kiloliter, which we are still awaiting the final consent to establish, which means the final construction has not yet started. Any day now we will get that and then that project will start, and we expect completion in the next financial year.

And finally, the major Pipa rail gantry project, the rail connectivity project as well as 2 more spheres that we talked about in the last earnings call. That should be completed by FY '21 next year and generate substantial incremental profits next year.

Now let me talk about the outlook -- the earnings outlook for the rest of this financial year FY '20. As I said at the beginning, quarter 1 was okay results, but we do expect a further jump in earnings in the next 3 quarters, especially due to the new Kandla liquid capacity and the bounce back in LPG throughput volumes in all 3 terminals, especially Haldia, which was static in Q1. And this will certainly drive net profits for the current financial year. And we do continue to work on multiple new projects yet to be announced, but which will impact profits in FY '21 and FY '22. In other words, outlook for the next 3 years, including this year, we expect very good earnings growth in all 3 years. This year, FY '21 and FY '22, with the implementation of all these projects, especially in the areas of new LPG terminal capacity, new evacuation projects in the LPG terminals, including railway connectivity and the retailing of LPG as we build distributors in this distribution network and continued growth in the liquid terminal capacity. So all these things are expected to drive profits, not only in the current financial year, but also the next 2 financial years.

Now I would like to come to one final announcement regarding an employee share purchase plan, or what we call ESPP. And I would like to announce that the -- for the first time in the history of the company, the company is introducing this employee stock purchase plan from quarter 2 of this year. That means July, August, September. The company's management, I think, has overseen a tremendous growth over the last 5 years with results for all to see in great profits growth, sales revenue growth, capacity growth and building the next sets of terminals around the coastline of India. That's the last 5 years, company has done very well. And obviously, there's been a commensurate impact on the market cap of Aegis and dividend growth.

Now for the next 5-year plan, we expect the management to further massively grow the business, particularly in the areas of LPG terminals and the evacuation projects like rail and pipeline connectivity, the retailing of LPG and liquid terminal growth. That's the plan for the next 5 years. And in order to motivate the key senior staff at the level of President designation. So this scheme is available to only President-level management. So in order to motivate these key people to execute the strategy in a time-bar manner, the Board has decided to introduce, for the first time, an employee stock plan. The key features of this plan are 5.6 million new Aegis shares have been granted in FY '20 at face value. The grantees will have to absorb the income tax on these shares. So the cost to hail will be -- at the current tax rates will be INR 87 per share because they have to pay the income tax on these shares upfront. And for the next 2 years, the similar grant of shares will be implemented under the plan. The entire plan has been worked out under the SEBI regulations and has already been approved by the shareholders and the relevant regulatory authorities. And in the next quarter, that is quarter 2, I will be able to give the full detailed numbers once they are worked up for this scheme, and I'll be able to announce that in the next earnings call, the detailed numbers for this scheme. But -- and they're being worked up. But the implementation of this growth plan that I mentioned, the next 5 years. With this employee stock plan, which is there to motivate key management, will result in -- we believe it will result in substantial shareholder value creation in terms of market cap growth, benefiting both the shareholders and the key management personnel, who are delivering this plan because I think the alignment of interest of management and shareholder value, as many companies do, will ensure the delivery and implementation of the growth plan, which will benefit shareholders, but it will also benefit the key management.

Now please note that the promoters are not eligible for this scheme, it is for President-level employees only of Aegis Logistics. This -- so I would like to reiterate that the promoters are not involved in the scheme at all. It is only for key senior President-level staff who are contributing to the implementation of the strategy.

Okay. And with that, I can take questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question is from the line of Rajesh Kothari from AlfAccurate Advisors.

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Rajesh Kothari, AlfAccurate Advisors Pvt. Ltd - Founder, MD & Director [2]

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I have 3 questions. First question is, even if I adjust for the BPCL loss of 75,000 then the adjusted number comes to roughly 663,000 compared to fourth quarter of 710,000. So I'm just trying to understand the ramp-up from the customer perspective, is it in line with your estimates? Because I understand there can be seasonality in the volumes. So if you can give some color on how do you see next 9 months from the production perspective? That is question number one.

Question number two is, if I look at your revenue -- of course, one needs to look at EBITDA per ton, but the gap between your revenue and EBITDA this time is in the too high division. So any insights from that perspective?

And the third question is with reference to the liquid division, which I'll ask later on. First one, take an answer for division number one.

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Anish K. Chandaria, Aegis Logistics Limited - Vice Chairman, CEO & MD [3]

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Yes. So the first question was LPG throughput volume seasonality and all that. So yes, I already said about the one-off issue regarding BPCL and Haldia, which has been rectified. Things do fluctuate from time to time. But basically, as we see the next 9 months, quarter 2, of course, we have good visibility because we're already in July and Q3 also, we have good visibility. So generally speaking, Indian LPG demand in India is growing around 7% this year -- this financial year, that is the expectation of the oil companies. And we are actually seeing a really good bounce back in quarter 2 and quarter 3 in all 3 terminals, Pipa, Bombay and Haldia. So I think we're going to see good results in terms of LPG throughput volumes, which will be much better than Q1. So that's basically the scenario.

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Rajesh Kothari, AlfAccurate Advisors Pvt. Ltd - Founder, MD & Director [4]

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No sir my question is with reference to -- even if I adjust BPCL. So 588,000 plus 75,000, I get 663,000 compared to the 710,000.

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Anish K. Chandaria, Aegis Logistics Limited - Vice Chairman, CEO & MD [5]

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So what I was saying was that Q1, apart from the BPCL thing, they both -- their other customers also was a little less growth than maybe normal. There was a general election in May, there are fluctuations. So they bought more inventory, and then they run down the stock. So there are a few adjustments like that, apart from the BPCL. But I think the general trend, which is what you really care about rather than 1 month here or there. The general spend is for a good growth in the next 9 months, 3 quarters. That's what this ...

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Rajesh Kothari, AlfAccurate Advisors Pvt. Ltd - Founder, MD & Director [6]

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So ramp-up is in line with your estimate. This is what you are trying to say that ramp-up is in line with your estimate.

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Anish K. Chandaria, Aegis Logistics Limited - Vice Chairman, CEO & MD [7]

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We may expect to hit the budget, even though the Q1 was a little below budget, but we expect to make it up in the next 3 quarters. And that's already what we're seeing in quarter 2. So no reasons for anything but optimism, let me say, on that front. As far as the EBITDA and sales revenue all that is concerned, as you rightly said, you can't -- you have to be very careful with the sales revenue figure, I don't have the EBITDA because this year, we are selling like double the -- it's not only the LPG price because we are selling double the sourcing volume in terms of metric tons. I think this year, we probably will be -- end up 2 million tons. And you like -- there's 1 million ton. So it's not only the sales revenues are much higher because we have got those new IOC contracts compared to last year. So therefore, the EBITDA on that, if you take it as a potential that will look lower, but that's not because we -- markets are lower, it's just because the enormous doubling of the top line in terms of volume as well as prices. So as I always say, just look at the EBITDA figure per ton rather than compare it with sales revenue, that's the nature of our business.

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Rajesh Kothari, AlfAccurate Advisors Pvt. Ltd - Founder, MD & Director [8]

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Sure. And my third question was the LPG volume significantly increased. You mentioned some reason, which I didn't get. What is the reason for significant volume growth on LPG side?

I'm talking about the division 2, the liquid division, the LPG volume distribution hypothesis.

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Anish K. Chandaria, Aegis Logistics Limited - Vice Chairman, CEO & MD [9]

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Full year industrial distribution?

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Rajesh Kothari, AlfAccurate Advisors Pvt. Ltd - Founder, MD & Director [10]

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Yes.

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Anish K. Chandaria, Aegis Logistics Limited - Vice Chairman, CEO & MD [11]

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We just added more customers. Obviously, there are more customers that have been won, particularly in Haldia, new customers. So as we add more customers, the volumes have increased, because now not only industrial customers in Gujrat, Maharashtra, but now obviously in Northeast region as well. So that's good. And wherever we are able to service more industrial customers with bulk LPG, obviously, we see. So there was a sharp price in the year-on-year industrial sales. I think I had mentioned it was 135% increase in the bulk sales of LPG through industry in quarter 1 compared to last year because new customers were added. And it's looking positive for the future. We are negotiating for all the time for new customers in Haldia. So things are going on, on that front. So we expect that to continue to do well.

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Rajesh Kothari, AlfAccurate Advisors Pvt. Ltd - Founder, MD & Director [12]

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If I can squeeze in my last question. How do you see the liquid division performance going forward? Do you see the ramp-up in your second quarter once this terminal comes into play? Do you see significant increase in your liquidity, which was not doing that great in last year or couple of years?

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Anish K. Chandaria, Aegis Logistics Limited - Vice Chairman, CEO & MD [13]

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Yes. I really do because of particularly the addition of this new capacity in Kandla and the Mangalore port as we said. The margin, the volumes in Kandla are really good, healthy. Also some new capacity that we commissioned in Haldia. So all of this should come through not only in quarter 2, quarter 3, quarter 4 also, the expansion, 40,000 kiloliters in Kandla, which is -- so as I said, the sign that things are very healthy is that this new 40,000 kiloliters in Kandla has already been presold with chemicals and petrochemicals. So I think we are actually going to see a good growth in Liquid Terminal Division. Revenues and profits already grown -- 11% EBITDA growth in Q1, but we're going to see further increase in the next 3 quarters as a result of all this new production. But we won't stop there. Obviously, we are constructing the next project, 50,000 kiloliters. So the idea for Liquid Terminal Division is not only this year's earnings growth, but in the next couple of years as well that we expect to see further increases in profit and revenues.

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Operator [14]

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(Operator Instructions) The next question is from the line of Pritesh Chheda from Lucky Investment Managers.

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Pritesh Chheda;Lucky Investment Managers;Analyst, [15]

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Sir, just a clarification. The EBITDA growth that we see in the LPG division, despite a 2% growth in sourcing. So is it that the bulk of that EBITDA growth is on account of sourcing volumes and not because the throughput growth is just 2%? So if you could just give some more highlight on how the EBITDA growth rate comes through.

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Anish K. Chandaria, Aegis Logistics Limited - Vice Chairman, CEO & MD [16]

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Yes. So thank you, it's a good question. I'm glad you raised it. The EBITDA growth for the division as a whole was 29%. So that's pretty respectable. Despite the 2% rise on -- in the LPG throughput volumes because of Haldia and some other factors that I mentioned. So you're absolutely right. However, the reason for that was particularly the LPG retail division has done very well. Actually that is a main contributor this quarter for the rise in the EBITDA that the LPG retailing in the cylinders, in the industrial distribution and the Autogas has actually powered the 29% rise in EBITDA. It wasn't the throughput volumes this time. It was the retail division. And yes -- and obviously sourcing, which is $2 to $3 per ton on margin sourcing of work also with 109% increase in metric tons. But if you look at the actual breakup, it is the retailing of LPG, which has been really far in the EBITDA this year. And you know what? When the LPG throughput volumes do bounce back, as I said, will bounce back in quarter 2 and quarter 3 and quarter 4, the retailing LPG is still going strong. So hopefully, we'll see all cylinders firing, and the sourcing continues to do well. So we'll see all cylinders firing in the next 3 quarters, not just the retail.

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Pritesh Chheda;Lucky Investment Managers;Analyst, [17]

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And how much do we make on the throughput? So if you make on sourcing $2 to $3, throughput is how much per ton?

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Anish K. Chandaria, Aegis Logistics Limited - Vice Chairman, CEO & MD [18]

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Yes. So we normally say that, obviously, different pricing for different customers. But you can take an EBITDA roughly of INR 1,000 per ton weighted average for the throughput volumes.

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Pritesh Chheda;Lucky Investment Managers;Analyst, [19]

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INR 1,000 per ton?

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Anish K. Chandaria, Aegis Logistics Limited - Vice Chairman, CEO & MD [20]

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Yes.

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Pritesh Chheda;Lucky Investment Managers;Analyst, [21]

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It's about $15?

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Anish K. Chandaria, Aegis Logistics Limited - Vice Chairman, CEO & MD [22]

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Yes. And as far as the -- I can quote again, as far as the retailing margins, they're much higher, roughly between INR 2,000 and INR 3,000 a ton for the cylinder business, paying for the Bulk Industrial business. And maybe around INR 6,000 to INR 7,000 a ton on the Autogas business. So higher volumes, and obviously, more volumes, higher margins -- sorry, and more volumes you get obviously close to the bottom line.

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Pritesh Chheda;Lucky Investment Managers;Analyst, [23]

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Okay. And you said $0.5, $2 to $3 in case of sourcing -- in case of...

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Anish K. Chandaria, Aegis Logistics Limited - Vice Chairman, CEO & MD [24]

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Yes, which is in our Singapore subsidiary. Roughly it's around -- depending on which contract, but let's say an average of USD 2 to USD 3 per ton is what we -- and as I said, we are selling double the volumes this year compared to last year. So you can make the math very easily, 2 million tons is what we've been trying to sell annualized this year in Asia, it is true for international. Multiply it by that $2 to $3, it will give you the profit.

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Pritesh Chheda;Lucky Investment Managers;Analyst, [25]

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And this is our gross level, right? These are gross profit?

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Anish K. Chandaria, Aegis Logistics Limited - Vice Chairman, CEO & MD [26]

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Gross Profit, but very little as there's just some employee costs and rent cost of our office in Singapore. So mostly the EBITDA will -- and there'll be some tax, but the EBITDA will be like 95% on this because very few fixed cost except from employees and rent cost. And of course, the tax in Singapore is 17%, much lower than India.

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Pritesh Chheda;Lucky Investment Managers;Analyst, [27]

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So it is gross profits for all, right? It's for throughput also, these are gross profit level numbers, which you've...

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Anish K. Chandaria, Aegis Logistics Limited - Vice Chairman, CEO & MD [28]

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The EBITDA, what we call EBITDA.

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Pritesh Chheda;Lucky Investment Managers;Analyst, [29]

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Okay. EBITDA numbers. Perfect.

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Anish K. Chandaria, Aegis Logistics Limited - Vice Chairman, CEO & MD [30]

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Yes. EBITDA.

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Operator [31]

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(Operator Instructions) The next question is from the line of Lokesh Manik from Vallum Capital Advisors.

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Lokesh Manik;Vallum Capital Advisors;Research Associate, [32]

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Just a couple of questions. One is a clarification for the results for this quarter. We have not included any changes arising from Ind AS that has been accounted for in the retained earnings on the equity side. Am I correct on that?

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Anish K. Chandaria, Aegis Logistics Limited - Vice Chairman, CEO & MD [33]

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Changes -- changes in what? Yes, I'll -- Yes, we have and I'll hand it over to the CFO, first thing.

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Murad M. Moledina, Aegis Logistics Limited - CFO [34]

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So we have adopted the Ind AS 116 from 1st April, that is what we have said. And -- but it's for a very marginal impact as it's not big.

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Lokesh Manik;Vallum Capital Advisors;Research Associate, [35]

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But we have not seen any impact in this quarter's results on the income statement.

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Murad M. Moledina, Aegis Logistics Limited - CFO [36]

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(inaudible) more or so, the very margin.

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Lokesh Manik;Vallum Capital Advisors;Research Associate, [37]

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Okay, okay, okay. Sir, and my next question was -- in about FY '16, we saw good utilization in Pipavav Liquid Terminal, mainly due to import of ethanol from Brazil. So now that the policy in India has changed regarding ethanol, are you seeing any impact out there for...

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Anish K. Chandaria, Aegis Logistics Limited - Vice Chairman, CEO & MD [38]

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No we're not seeing any Pipa push. I think you asked me this yesterday in the AGM. I would have said it. No, no changes in ethanol right now. Look our marketing people all the time are pursuing various customers and all that. But really, no change at the moment as far as Pipavav is concerned. It continues to operate around 25% to 30% capacity utilization. No major change expected right now.

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Lokesh Manik;Vallum Capital Advisors;Research Associate, [39]

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Okay. And sir, in the sourcing business, like you just mentioned that our commission is about $2 to $3. Is this fixed in nature or you just wanted the trading commission that we earn and you need the fact that, that's driven?

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Anish K. Chandaria, Aegis Logistics Limited - Vice Chairman, CEO & MD [40]

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No. You know when they welcome, we pay tender. So it's fixed for the whole year because once you won the tenders, that's a contract, which is in-built that commission. And by trading -- so that is fixed for the term of that contract.

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Lokesh Manik;Vallum Capital Advisors;Research Associate, [41]

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Alright. So it is basically -- sir, the purchase cost, are we insulated from it as such?

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Anish K. Chandaria, Aegis Logistics Limited - Vice Chairman, CEO & MD [42]

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Yes, we are. Because we just make our -- we park it on organic. We just include that markup, so we're insulated from the ups and downs of the international gas prices. We just make our $2 to $3 per ton as a markup.

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Operator [43]

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(Operator Instructions) The next question is from the line of Chirag Vakharia from Budhrani Finance.

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Chirag Vakharia;Budhrani Finance;Analyst, [44]

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Sir, the 1.2 million ton contract, is it for year or is it spread over 2 years? How is it?

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Anish K. Chandaria, Aegis Logistics Limited - Vice Chairman, CEO & MD [45]

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The 1 million -- it's actually 1 million tons is for IOC Kandla, which is for calendar year 2019. And there's an additional second contract for 0.5 million tons, which is to Haldia and NOL IOC. So all of them are calendar year 2019. And then there are some other contracts, which were -- which are -- could be fourth quarter or whatever. So that's why it comes to 2 million tons. But those major ones from IOC are spread over 12 months of 2019.

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Chirag Vakharia;Budhrani Finance;Analyst, [46]

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And you don't remember, second IOCL was 1 million ton and the other one was?

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Anish K. Chandaria, Aegis Logistics Limited - Vice Chairman, CEO & MD [47]

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That's the second one of IOCL of 0.5 million ton. So Haldia and all, which is East India. So a total of IOC for 2019 is 1.5 million tons.

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Chirag Vakharia;Budhrani Finance;Analyst, [48]

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And Anish, business contracts are in pipeline or how is it?

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Anish K. Chandaria, Aegis Logistics Limited - Vice Chairman, CEO & MD [49]

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Not right now, but there are others, which are more spot in excess. So that and other Aegis is on retail execution. So when you add it all up, it comes to about 2 million is what we projected here, of which majority is 1.5 million of IOC, but that goes on. Our marketing team has always tried to see whether -- so those are not those annual contracts, there may be more spot tenders.

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Operator [50]

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The next question is from the line of Pritesh Chheda from Lucky Investment Managers.

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Pritesh Chheda;Lucky Investment Managers;Analyst, [51]

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Sir, some guidelines on the improvement in profitability and ROC (sic) [ROIC] in the liquids business, if you could throw light as to when should it happen?

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Anish K. Chandaria, Aegis Logistics Limited - Vice Chairman, CEO & MD [52]

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Yes. So I think we have discussed with you and I discussed this before. So I'm just going to reiterate what I said in the previous meetings, that the improvements in profitability in this liquid terminal business comes particularly from 2 things. One is an increase in capacity, like what we have done in Kandla and Mangalore, et cetera, but also from markets. And margins -- that do depend on a few things, for example, which products we handle. So the more products we handle, which are, let's say, high-value chemicals and petrochemicals, those are generally higher margin than if you do bulk petroleum or, let's say, edible oils. So often when we start terminals, just to get revenues in, we will start with the lower value products. And then we are markedly or slowly buildup the customer base towards chemicals and petrochemicals. That's exactly what happened in Kandla. I can -- so, let's say, we commission Kandla in October of 2018. First, the first quarter that's in October, November, December, we had some -- we had lower revenues and lower margins. Although we achieved full occupancy by December. So that's over. But I saw in quarter 4 of last financial year, that is January, February, March 2019 and now even more so in April, May, June, which is quarter 1 now, that they have got many more higher margins because they've got many more chemical customers, et cetera. So we expect that process to continue going forward in Kandla. For example, the next 40,000 kiloliters is, as far as I recall from the briefing they gave me last week, is all chemicals customers already, because we've already commissioned Kandla. So In other words, there is going to be better profitability we forecast in the Liquid Terminal Division, both from new capacity coming on stream but higher margins in places like Kandla, but also Mangalore. Right now, we have started the first 25,000 in Mangalore is particularly servicing customers like Nayara Energy with all the spirits, that is petrol and diesel, that's how we started the first thing, which is, let's say, slightly bulk cargoes but slightly lower margin. But now the next 50,000, which we are going to construct, there are many more chemical customers in that. So margins improve and profitability will improve from the capacity that we've filled up. Haldia also, our business is strong in terms of petrochemicals over there. So I think we will see that coming to the bottom line as far as Liquid Terminals Division profitability is concerned, not only in the -- in this current financial year, but the next 1 or 2 years that we forecast.

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Pritesh Chheda;Lucky Investment Managers;Analyst, [53]

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You're hinting that new capacity, which will come will be where on your cargo on your liquids will be handled, which will drive up your profitability?

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Anish K. Chandaria, Aegis Logistics Limited - Vice Chairman, CEO & MD [54]

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Yes. I said -- newer liquids meaning more and more chemicals in the traffic. Now, Bombay, which is obviously in our oldest terminal, this terminal in Bombay where actually is most, I think, 70% is chemicals and petrochemicals currently. So that's, obviously, very high profitability. So it's a question of other terminals like Kandla, like Mangalore, like Haldia particularly. Therefore, how can we also, in those terminals, shift more to those higher value, higher margin product. And that's happening. No one expect that to happen within 3 months, it takes a period of time. But that's how we squeeze out more profitability from these terminals. And that's happening. And I'm pleased to say that you could see some evidence of that already in Q1.

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Pritesh Chheda;Lucky Investment Managers;Analyst, [55]

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Sir, I'm just reiterating, it will happen on incremental capacity and incremental volumes. It will not happen in terms of existing volumes getting replaced with higher value-added chemicals?

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Anish K. Chandaria, Aegis Logistics Limited - Vice Chairman, CEO & MD [56]

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No actually, it's the latter. It is a combination of both. It will be existing capacity will be also moving towards the higher value as well as the new capacity. As these terminals get settled and as the customers can be persuaded that this terminal is a good one, et cetera. That's what -- we'll have nice flow marketing.

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Pritesh Chheda;Lucky Investment Managers;Analyst, [57]

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So what would be out and out ROC (sic) [ROIC] target on this business and year in which you'd achieve that ROC (sic) ROIC target.

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Anish K. Chandaria, Aegis Logistics Limited - Vice Chairman, CEO & MD [58]

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Well, I'm glad you asked that because we -- I have the financing to give you that data in case it came up. So I think it's safe to say, the CFO's here with me, so he can confirm what I said. But basically our budget and target is around 20% ROIC for this Liquid Terminal Business. We are a little bit below that right now. I think it's currently, they showed me the figures, it's about 16%. So we are a little bit below that. And that first half it is -- they seek to get to 20%. I believe the chances are good that this year we -- it seems to go well, as I said, that this year, we will actually hit that or close to 20%. So let's at least get back to that, which is the budget for this year. And then let's see if we can improve a little bit in future years. But that's where we are.

And there is one thing, which I'm going to bring up right now, which we discovered is to complicate things a little bit more. Sometimes when analysts work out the capital employed in this business, they have, by mistake, included a revaluation that we have done, for example, with the refill land in Mumbai. Now that's just an accounting entry, so revaluation of that land because that land was already valued at historic cost at 4 lakh in the balance sheet. So that land in Bombay, which my father decides to buy. And I think the revaluation is something like INR 300 crores. So I don't think it's fair to say that is the capital employed, because the land is still the same -- we did not deploy additional cash in terms of valuation, we should probably exclude that, not probably should exclude that INR 300 crores, but that's just the valuation exercise. That is a fair reflection of the true profitability on capital, our return on invested capital in this business.

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Pritesh Chheda;Lucky Investment Managers;Analyst, [59]

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So this happened in FY '18, this revaluation?

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Anish K. Chandaria, Aegis Logistics Limited - Vice Chairman, CEO & MD [60]

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Yes, FY '18. I had actually forgotten about this. But that is when I did this exercise with the finance team, they pointed it out that. So you should exclude that INR 300 crores in any normal calculation of return on invested capital. Because what most people would like to know is that, okay, if I've invested, if I had capital expenditure of INR 100 crores then what is the return on that? Yes, that's the confusion. But obviously, that should not included a land valuation. That has nothing to do with actual capital employed.

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Operator [61]

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The next question is from the line of Pranav Mehta from Valuequest Investment Advisors.

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Pranav Mehta, Valuequest Investment Advisors Private Limited - Senior Analyst [62]

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Couple of questions. Firstly, if you can provide an update on this condition of the Uran-Chakan pipeline and what are the time lines as of now? And so far, specifically for Mumbai in the past also, like, we have carried out few debottlenecking projects to increase our throughput. So is there a similar plan on the (inaudible) as of now? And second question is on those employee stock purchase plan. If you can just help us understand what kind of impact it will have on our P&L this year and going forward?

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Anish K. Chandaria, Aegis Logistics Limited - Vice Chairman, CEO & MD [63]

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Yes. So as far as the Uran-Chakan line is concerned, the latest information from HPCL is that they are gradually making progress on completing the last 25 kilometers, which is left of that line, were there were some arguments with the villagers and all that, but they are making progress. And I am only reporting what we've been told by HPCL, the current expectation and that may change. I am just reporting what HPCL has told us is October, November, December they think that they'll be able to complete this Uran-Chakan pipeline, which means it will be in 2020, when there will -- it will have an impact in terms of the incremental volumes as far as Aegis is concerned. So that's the current expectation. You can ask me if we have news of course I'll give you further update, but that's what they are told. Now regarding -- also regarding this Uran part of it, let me tell you, which I think is significant. But even before the Chakan line is completed, the -- at the operating level of HPCL there has been now serious discussions for the last few weeks with us that they would -- they may like to start moving LPG through -- at least up to Uran in the next coming weeks even before Chakan itself. Now that's good. That may not mean immediate incremental volumes because, obviously, they'll shift some of the road traffic into the pipeline.

But it's a good sign that, obviously, they're getting gearing up for the extension of Chakan. And we can say that Indian Oil as well has expressed strong and keen interest on using this pipeline, especially when the Chakan is ready. So I think that's just a little signal there. They appear to be gearing up to use this pipeline. And -- but I think you -- as far as analysts are concerned, you should probably expect impact on the Aegis Mumbai terminal, terminal volumes and revenues, incremental volumes and revenues from next year onwards, rather than this year because it will take some time. But that's good because once it's done, then we do expect to see significant growth in volumes in Bombay.

As far as the ESPP is concerned, employee stock purchase plan impact on P&L, I did say that we will be able to give you all the detailed numbers in quarter 2., they are just -- if the scheme has just been approved in early July. And so we'll be able to work those numbers out and give that to you in the next earnings call after quarter 2. But I should hasten to tell you that it's a noncash accounting entry. So this will not have an impact on cash flow. The company's profitability will continue to be the company's profitability, it's a noncash item. So when we announced the impact in quarter 2, you'll see, just bear in mind the noncash accounting entry in the P&L, but it will be disclosed in the -- once we work up the figures in quarter 2.

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Pranav Mehta, Valuequest Investment Advisors Private Limited - Senior Analyst [64]

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And so your comments on that question on debottlenecking projects in Mumbai?

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Anish K. Chandaria, Aegis Logistics Limited - Vice Chairman, CEO & MD [65]

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Yes. We have completed all the debottlenecking projects in Mumbai long ago. So there is nothing more to be done. As soon as this pipeline is ready, we are ready to ramp it up, and we are -- So all detailed bottlenecking projects from our end has been ready and are absolutely waiting for this pipeline to be done. And as I said it, every extra ton of LPG that is handled by the Mumbai terminal goes straight to the bottom line because there's very little additional cost involved in that. So that's why that will be highly profitable once it is ready. And as I said, HPCL has already given signals that they want to start using the line up to Uran, which is a good news.

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Operator [66]

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The next question is from the line of Vikram Suryavanshi from PhillipCapital.

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Vikram Suryavanshi, PhillipCapital (India) Pvt. Ltd., Research Division - Analyst [67]

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I joined the call a little bit later. Can you explain what was the volume in the referred LP (sic) [LPG] cylinder for this quarter?

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Anish K. Chandaria, Aegis Logistics Limited - Vice Chairman, CEO & MD [68]

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Yes, sure. The LPG cylinder volumes, per cylinder for the commercial and domestic market was 4,537 metric tons versus 3,900 metric tons a year earlier, rise of 16%.

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Vikram Suryavanshi, PhillipCapital (India) Pvt. Ltd., Research Division - Analyst [69]

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And at our gas and industrial bulk?

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Anish K. Chandaria, Aegis Logistics Limited - Vice Chairman, CEO & MD [70]

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Yes. Industrial bulk sales was 26,277 metric tons versus 11,188 metric tons year earlier. That's a rise of 135% year-on-year.

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Vikram Suryavanshi, PhillipCapital (India) Pvt. Ltd., Research Division - Analyst [71]

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For referred, yes.

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Anish K. Chandaria, Aegis Logistics Limited - Vice Chairman, CEO & MD [72]

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Yes, mostly. By the way I should tell all of you, most of these figures are in the investor presentation that SGA introduced along with that. But I agree, that they don't give the breakup with -- between all the 3. So I can tell you that what this data states is qualitative. But anyway Autogas sales was 6,422 metric tons versus 6,895 metric tons year earlier.

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Operator [73]

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The next question is from the line of Ankit Gupta from IndiaNivesh Fund Managers.

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Ankit Gupta;IndiaNivesh Fund Managers;Analyst, [74]

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So my question is regarding diversification of our risk-based CNG. Can you please throw some light. I think last con call also this question was raised, but I still have some doubt.

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Anish K. Chandaria, Aegis Logistics Limited - Vice Chairman, CEO & MD [75]

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I'm sure you will have doubts. Anyway, yes, okay. So it comes up a lot. So I have a very practiced faster (inaudible). Now I'm going to start by discussing something else, which was news to me. Would you believe that our retail team has now made a survey of all the CNG prices in all the major territories in India. And except for the cities of Mumbai and Delhi, would you believe that Auto LPG, Autogas, is currently cheaper than CNG the first time. And I noticed because 10 years ago, when we tested -- 12 years ago, 13 years ago, when we started the Auto LPG business, CNG, which was much more subsidized in those days, had not gone through even market determined pricing for the imported LNG.

In those days, CNG used to be 50% cheaper than Auto LPG. So it is a very significant thing that because of the new pricing regime for natural gas, which is a mix of the subsidized domestic APM gas and the imported LNG thing, there's a mix depending on how much availability of domestic gas. Even though that is still subsidized. But for the first time because this proportion of domestic gas is going down and the proportion of imported LNG is going up, which obviously is more expensive. For the first time in, I have seen that, except for the 2 cities of Bombay and Delhi, in every other market, whether it was Gujarat and Ahmedabad or whether it is in -- wherever CNG is available, the Auto LPG is actually cheaper than CNG as long as it continue. So that's one thing.

Now I think your question is also related to the competition between piped natural gas or -- not CNG was really more to do with transportation. So that's the thing. Now piped natural gas versus LPG for cooking and heating. So what I -- my answer to that is that today piped natural gas is a very, very small percentage of the use in terms of households. So today, LPG is obviously a -- become a very high percentage of the households in India, 240 million households. If you'll look at government statistics, it might even be somewhere between 85% to 90% of households out already using LPG for cooking fuel, whereas piped natural gas is not more than about 2% today.

Now going forward in the future, if you look at government policy, they have -- even Modi government too has made it clear that they want to achieve Universal LPG, that means every household in India to have access to LPG cylinders within the next 2 or 3 years. By the way, they've also said every household, even in the rural areas to have access to clean water, also to have electricity, et cetera, and cooking gas LPG is part of it.

So that is clear government policy, which we are seeing that even in this second Modi government, they are absolutely ramping up their efforts, which, and you know the issues of this year to make sure that LPG is -- goes into every household in every village and every town. Therefore these problems, with piped natural gas, why we feel very strongly that it is not going to be a major cooking fuel in India. It's commercially unviable to lay a pipeline to every village because you need to carry natural gas pipeline, unlike LPG ,which can be carried in cylinders. It's commercially unviable to lay a pipeline to every village. I don't think I need to explain that and I can you want to. It's also unviable -- commercially unviable, and I'll explain why in one second, to lay a pipeline even in a big city like Bombay or major metros because, ultimately, you have to spend all the money to dig up the road, lay the pipeline, and then go into every apartment block and do that. Now the capital's cost roadmap can only be justified if the amount of cooking gas in terms of natural gas will justify the capital expenditure on the pipeline. Are you with me on that?

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Ankit Gupta;IndiaNivesh Fund Managers;Analyst, [76]

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Yes, definitely.

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Anish K. Chandaria, Aegis Logistics Limited - Vice Chairman, CEO & MD [77]

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Okay. So the big issue, as we've done a lot of work on this, the big issue is the amount of cooking that people do using natural gas is simply that amount of fuel, which, let's say, you cook breakfast in over half an hour or 20 minutes in the morning, and then you cook dinner at night, 1 hour, 1.5 hour. The amount of fuel that they use simply, arithmetically cannot justify the capital expenditure for laying all those pipelines. I'm not even talking about cross-country pipelines through a village, I'm even talking about laying it to every apartment block. And so that's the problem. Now why is it that in Europe, people can justify a national gas grid? It's because most people in Europe use natural gas for central heating, because it's a cold climate. And because 24 hours or 12 hours a day, they have the heating on. That's what justifies putting that expenditure. But if you have only for cooking, it doesn't justify. So that is the central truth why -- as pretty much the whole LPG world knows, that LPG will be the main cooking fuel in India, a huge country like India and not natural gas, because the economics just doesn't work for the end pipeline. So you're going to hear a lot of hype about citywide gas distribution and all the rest of it, my advice is to ignore it. And don't invest in those stocks, better to invest in me.

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Operator [78]

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The next question is from the line of Sarfraz Bhimani from Motilal Oswal.

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Sarfraz Bhimani;Motilal Oswal;Analyst, [79]

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Just a couple of questions in line of Ind AS again. So here the depreciation and interest cost grew by 30% Y-o-Y and 20% Q-o-Q. So is it good to say this is in line with the Ind AS adjustment that we have done?

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Anish K. Chandaria, Aegis Logistics Limited - Vice Chairman, CEO & MD [80]

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Yes.

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Sarfraz Bhimani;Motilal Oswal;Analyst, [81]

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And secondly, in the annual report for FY '19, the (inaudible) around 17% of the other income -- sorry, other expenses. But then the total expenditure for the quarter grew 6% Q-on-Q. So any light there? And why the other income so higher on 70% Q-o-Q?

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Anish K. Chandaria, Aegis Logistics Limited - Vice Chairman, CEO & MD [82]

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Yes. So I'll hand it over to the CFO to discuss the (inaudible) depreciation, lease expenditure treatment and other income.

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Murad M. Moledina, Aegis Logistics Limited - CFO [83]

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Yes, so you are right. The depreciation and the expenditure increases on account of the implementation of Ind AS 116. As far as your other expenses increase, you will have to see it (inaudible) Y-o-Y but if you see Q-o-Q reduction, so there is an improvement. So there are much more units now operating than which were in the last year's Q1. So we compare the expenses Y -- Q-o-Q rather than Y-o-Y in that kind of an increase.

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Sarfraz Bhimani;Motilal Oswal;Analyst, [84]

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Okay. And the other income, jump in other income is led by?

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Murad M. Moledina, Aegis Logistics Limited - CFO [85]

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(inaudible) significant. If we even out sometimes, you get kind of in or some kind of one-off entries would come. I do not have (inaudible) but we can see you off-line. But it will get evened out as the year (inaudible) .

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Operator [86]

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The next question is from the line of Lokesh Manik from Vallum Capital Advisors.

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Lokesh Manik;Vallum Capital Advisors;Research Associate, [87]

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Yes, actually, my question has been answered satisfactorily by you, because regarding LPG versus pipe natural gas. Just one more thing on that front. If you could share any industry data or a thumb rule, which can just give us some quant idea in terms of the difference between the costing of laying the pipeline versus the benefit of LPG.

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Anish K. Chandaria, Aegis Logistics Limited - Vice Chairman, CEO & MD [88]

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So you have to go and ask your friends in the pipe natural gas industry, not me. I don't have those figures. Please go to pipe natural gas industry people. I am only involved in the LPG business.

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Operator [89]

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Ladies and gentlemen, that was the last question for today. I would like to hand the conference over to Mr. Anish Chandaria for closing comments.

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Anish K. Chandaria, Aegis Logistics Limited - Vice Chairman, CEO & MD [90]

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Yes. Thank you for good set of questions today. I just said, we are bullish about Aegis' earnings this year, in FY '20. Q1 was okay, but I think there will be a good bump back in, particularly, in the LPG volumes, throughput volumes and in the liquid terminals division, continued growth and profitability, which will reflect into Q2 and Q3, et cetera. So I think we remain bullish. It was a little slow start to the year for the big projects. But in no way does that shake our belief that this is going to be a good year for Aegis as far as FY '20. Thank you very much.

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Operator [91]

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Thank you. On behalf of Aegis Logistics Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.