Aegis Vopak Terminals IPO5 min read

Aegis Vopak Terminals IPO5 min read

Aegis Vopak Terminals is coming up with an IPO. The company is planning to raise about Rs 2,800 crore through the IPO. The offering is fresh issue of equity shares of 11.91 crore shares.

Aegis Vopak IPO is a book-built issue worth ₹2,500 crores . The entire issue is of fresh Equity shares. The entire proceeds will go to the company and will be used for purposes of its business. The company is promoted by Aegis Logistics which is an existing listed company and Vopack India B.V. Vopak was incorporated as a private company, limited by shares under the laws of the Netherlands on January 27, 2017, having its registered office at Westerlaan 10, 3016 CK Rotterdam, The Netherlands. The corporate identification number of Vopak is 67930492.

About the Company

The company operate a strategic network of 20 state-of-the-art tank terminals located at India’s major ports, Including the nation’s largest integrated Bulk Liquid and LPG Terminals in Pipavav, Kandla and Mangalore (upcoming).

Objects of the offer

The Company proposes to utilise the Net Proceeds towards funding the following objects:

1. Repayment/ pre-payment, in full or part, of certain borrowings availed by the Company.
2. Funding of a contracted acquisition of a LPG terminal at Mangalore.
3. General corporate purposes.

Company justification for the pricing

1. Market Leadership and Strategic Infrastructure
   AVTL is India’s largest third-party operator of tank storage terminals for liquefied petroleum gas (LPG) and liquid products, holding approximately 12.23% of the national LPG static capacity and 26.64% of third-party liquid storage capacity as of June 30, 2024. Its extensive network of 18 terminals across key ports on both the east and west coasts of India provides a significant competitive edge.
2. Robust Financial Performance
   The company has demonstrated strong financial growth, with revenue increasing from ₹353.33 crore in FY23 to ₹561.76 crore in FY24, and net profit rising from a loss of ₹0.08 crore to a profit of ₹86.5 crore in the same period. This turnaround underscores AVTL’s operational efficiency and market demand for its services.
3. Debt Reduction and Expansion Plans
   AVTL plans to utilize ₹2,027.2 crore of the IPO proceeds to repay existing debt and ₹671.3 crore for capital expenditure, including the acquisition of a cryogenic LPG terminal in Mangalore. Reducing debt will strengthen the balance sheet, while strategic investments will support future growth.
4. Strong Promoter Backing
   The joint venture between Aegis Logistics and Royal Vopak brings together extensive experience in logistics and global tank storage operations. This partnership enhances AVTL’s credibility and operational capabilities.
5. Favorable Market Conditions
   A prior private placement in 2024 yielded a net gain of €13 million, indicating investor confidence and supporting the valuation set for the IPO. Additionally, the IPO is managed by reputable book-running lead managers, further bolstering investor trust.

Financial Snapshot As per company documents

Risk Factors

1. High Customer Concentration
   AVTL’s revenue is heavily dependent on a limited number of clients. In FY2023 and FY2024, the top 10 customers contributed approximately 42% and 44.5% of the company’s revenue, respectively. This concentration poses a risk; any loss or reduction in business from these key clients could adversely affect the company’s financial performance
2. Geographical Concentration
   The majority of AVTL’s terminals are located along India’s west coast. In FY2023 and FY2024, over 91% of the company’s revenue was generated from operations in this region. This geographical concentration makes the company vulnerable to regional disruptions, such as natural disasters or regulatory changes, which could impact operations and revenue
3. Dependence on the Oil and Gas Sector
   A significant portion of AVTL’s revenue comes from the oil and gas industry. In FY2023 and FY2024, customers from this sector accounted for approximately 36% and 38% of the company’s revenue, respectively. Fluctuations in the oil and gas industry, including changes in energy policies, subsidies, and pricing mechanisms, could negatively impact AVTL’s business.
4. High Debt Levels
   As of June 2024, AVTL had total borrowings of ₹2,584 crore. The company plans to use a significant portion of the IPO proceeds (₹2,027.2 crore) to repay debt. While this strategy aims to strengthen the balance sheet, the current high debt levels pose financial risks, especially if the IPO does not raise the anticipated funds.
5. Regulatory and Policy Risks
   AVTL operates in a highly regulated environment. Changes in government policies related to energy, environmental regulations, or port operations could impact the company’s operations and profitability. Additionally, the company’s reliance on government subsidies and pricing mechanisms for LPG could affect margins if policies change unfavorably.

Investment Rationale

A portion of issue proceeds will go towards payment of debt which could improve the quality of its financials.
Energy demand over the past five years has outpaced previous five-year period India’s primary energy supply in 2023 was 39.0 exajoules. The energy requirement grew at a 3.6% CAGR during 2018-2023, compared with global growth of 1.4%. The energy requirement was fuelled by broad-based economic growth and manufacturing.

A growing economy has a voracious appetite for petroleum products. As the demand for fossil fuels. Aegis Vopak could be a good long-term bet as it is part of core growth industry.
Analysis by Manish Shah SEBI Registered RIA. Regn Number. INA000016180

Source: DRHP