MANAGEMENT DISCUSSION & ANALYSIS REPORT Overview During FY15-16, the Indian economy grew at a respectable rate, despite the challenges of a subdued monsoon. The revival of economic growth and a return to market pricing of fuels resulted in an improvement in business sentiment in the oil and gas sector. However, the rapid decline in international oil prices brought about some uncertainty in the fourth quarter in all petroleum and petrochemical products resulting in lower imports during that period. With a more stable oil price, both imports and exports of bulk liquids have subsequently stabilized. The demand for LPG continued to show robust growth and the Group benefitted from the capital investments in new LPG capacity made in the brvious financial year at Pipavav and from operational improvements at the Mumbai LPG terminal. This resulted in an excellent performance in our gas terminal ling business. The Group's performance improved from last year with Profit after Tax rising to Rs. 126.14 Cr. (brvious year Rs. 89 Cr., excluding one time capital gain). The liquid terminal ling business of the Group benefited from full capacity utilization at its facilities in Haldia, high capacity utilisation at the Kochi terminal and better utilisation of the Pipavav liquids terminal. The gas terminalling business performed extremely well with the addition of Indian Oil Corporation as a key customer, with record throughput of LPG at both Pipavav and Mumbai. Sourcing volumes were lower due to delays in the registration of Aegis Group International Pte. Ltd. (AGI) as an approved international vendor. With the rationalization of LPG subsidies resulting in a decrease in the diversion of subsidized LPG to the transport and commercial sector, the volume performance of the gas retail and distribution business improved by 15%, with a commensurate rise in gross margins. With several new projects under implementation, both liquid and gas terminals operating at higher utilization, and several rail and pipeline logistics investments under way, the Group is poised for higher growth in the medium term. Industry Structure and Development The Group is engaged in the terminal ling of oil products, chemicals and liquefied gases, sourcing of LPG and retailing and distribution of LPG. These sectors require specialized infrastructure at key ports such as specialized berths, fire fighting equipment, pipelines, transit storage and handling facilities and above all, safe and environmentally responsible handling practices. The terminal ling, retail and distribution industry in India has many participants, but only a select few possess the necessary technical and safety credentials as well as the infrastructure to benefit from the long-term prospects for an increase in Indian imports and exports of oil products, chemicals and liquefied gases. Fortunately, the Aegis Group is positioned well for this. The oil and gas industry comprises three major components: upstream, midstream and downstream. The upstream segment comprises Exploration and Production (E&P) activities, the midstream segment is involved in storage and transportation of crude oil and gas and the downstream segment is engaged in refining, production of petroleum products and processing, storage, marketing and transportation of the commodities such as crude oil, petroleum products and gas. The Group is engaged in both the midstream and downstream segments. As energy consumption increases in India, growth in demand is likely to require sophisticated and safe logistics services. Deregulation of the oil sector will lead to new entrants in the petroleum retailing and bulk marketing requiring the need for integrated logistics services. The Group also services the terminal ling requirements of bulk liquid chemical importers and exporters through its five bulk liquids terminals. The increasing importance of new private ports such as Pipavav in Gujarat and several new ones along the east coast of India will continue to challenge the dominance of older, less efficient ports. As importers and exporters face ever increasing cost brssures, those ports which have made investments in infrastructure will benefit from the increase in traffic arising from India's imports and exports of oil products, chemicals and liquefied gases. Rs. 102.38 Cr. for the year (brvious year Rs. 97.39 Cr.), a rise of 5.12%. The performance of the Kochi terminal has improved and is expected to perform even better with the coastal movement of petrol and diesel. Future growth in this division will come from the new capacity being built at Haldia with its storage capacity of 60,190 KL increasing to 85,190 KL, from better capacity utilization of the liquid terminal at Pipavav, and from the new 100,000 KL liquid terminal project under implementation at Liquid Logistics Division Liquid terminalling revenues were at an all time high of Rs. 170.60 Cr. (brvious year Rs. 153.40 Cr.) for the year, an increase of 11%. Normalized EBITDA of the division was also at a record of Kandla. The Mumbai terminals benefitted from the commissioning of the second chemical berth at Pir Pau with faster turnaround of vessels. Gas Division Aegis Group captures the complete logistics value chain starting from sourcing, terminal ling to retail distribution of LPG. In 2015-16, the division recorded smaller revenues of Rs. 2042.62 Cr. (brvious year Rs. 3,762.60 Cr.) due to the decline in international LPG prices. Sourcing volumes also declined marginally due to the delay in the registration of AGI as an international vendor, but gas throughput volumes increased significantly at both Mumbai and Pipavav due to the sharp increase in demand for LPG, driven by the increasing penetration into the rural areas. Distribution volumes also improved compared with the brvious year. The normalized EBITDA for the gas division increased to Rs. 121.23 Cr. compared with the brvious year Rs. 84.65 Cr. as the higher throughput volumes resulted in stronger margins. The same applied in the distribution business, with better margins in the second half of the year. The commissioning of an additional 2700 MT of LPG storage capacity at Pipavav in March 2016 and the operational debottlenecking at the Mumbai LPG terminal will help to boost LPG throughput in 2016-17. New Developments Aegis Group is implementing a fully refrigerated LPG terminal, along with associated infrastructure at its facilities at Haldia Dock Complex, West Bengal. The unit will have a static storage capacity of 25,000 MT with a throughput capacity of 1,500,000 MT per annum. The terminal construction is underway with all the requisite environmental permits secured and is expected to be commissioned in mid 2017. The Group has been allotted 20 acres of land at Kandla Port will build a new 100,000 KL liquids terminal as a gateway to the north of India. This will mark the fifth port in the necklace of terminals around the coastline of India. Land has also been secured at New Mangalore port in expectation of further opportunities. The retail and distribution business has entered into an understanding with Essar Oil to offer petrol and diesel at Aegis branded auto gas outlets which should result in a more diversified and robust revenue stream for the current and future Aegis dealer network. Opportunities & Threats The Indian economy is a net importer of almost all forms of energy. This fact, coupled with the country's growing energy demand, has intensified the need for actively seeking private participation in the energy chain to bring in the required investment and technologies. There is therefore a huge potential for the expansion of pipelines, transportation and infrastructure. LPG demand continues to rise at the rate of 6-7% per annum due to the rural penetration of LPG on a pan-India basis and the full impact of expected policy reforms curbing illegal diversion of cooking gas and deregulation of diesel and petrol prices. Additional infrastructure for handling of LPG needs to be built and Aegis intends to participate in this process. The main threat and opportunity to the LPG industry arise from changes in government policy with regards to subsidized pricing of LPG and its substitutes. The main threat to the port based liquid terminal ling business arises from changes to government policies on coastal regulations and inadequate port infrastructure. Future Business Outlook Terminal ling and handling of liquids and gases is the main expertise of the Aegis Group and provides an important and stable source of Group profits by way of terminal ling fees. This pattern is expected to continue in the future. With several projects planned in both Liquid and LPG terminals, the future business outlook is positive. Internal Controls Systems and Adequacy The Company has a proper and adequate system of internal controls to ensure that all the assets are safeguarded, protected against loss from unauthorized use or disposition and that transactions are authorized, recorded and reported correctly. The company conducts audits of various departments based on an annual audit plan through an independent internal auditor and reports significant observations along with 'Action Taken Reports' to the Audit Committee from time to time. The views of the statutory auditors are also considered to ascertain the adequacy of the internal control system. The Company regularly updates its risk management policy to protect the property, earnings and personnel of the Company against losses and legal liabilities that might be incurred due to various risks. Occupational Health, Safety and Environment The emphasis on OHSE continues at all of the operations of the Group throughout India. The Company is committed to the best standards in safety and continuously monitors matters related to this. In addition to monthly reviews by the management, the Company has formed a high-level committee comprising of five directors and other Company executives, wherein matters concerning the subject are discussed. Safety drills are regularly carried out at all the Group's main facilities. Human Resources Development Aegis Group employs over 500 people. As the Company is growing fast, the emphasis is now on competence development of young managers and recruitment of middle management in specific areas to take care of the future growth envisaged in the business. Risks and Concerns Inordinate delays in renewing licenses and permits take a significant amount of time and resources which could be deployed more productively. Project timelines could be extended due to the lengthy and complex process for securing environmental permits. Corporate Social Responsibility Aegis Group sponsors ANaRDe Foundation, a government accredited NGO. Acting through this Foundation, Aegis has continued to work actively in the area of rural development and poverty alleviation. The Foundation has been engaged in a focused initiative for the benefit of rural communities in India, including rural housing and sanitation, water resource management and financial inclusion. The Group contributes over Rs. 2.2 Crores per annum to ANarDe Foundation in order to fulfill its corporate social responsibility. Forward Looking Statements This report contains forward looking statements, which may be identified by their use of words like 'plans, 'expects', 'will', 'anticipates', 'believes', 'intends', 'projects', 'estimates' or other words of similar meaning. All statements that address expectations or projections about the future, including but not limited to statements about the Company's strategy for growth, product development, market position, expenditures and financial results, are forward looking statements. Forward looking statements are based on certain assumptions and expectations of future events. The Company cannot guarantee that these assumptions and expectations are accurate or will be realised. The Company's actual results, performance or achievements could thus differ materially from those projected in any such forward looking statements. The Company assumes no responsibility to publicly amend, modify or revise any forward looking statements, on the basis of any subsequent developments, information or events |
