Aegis Logistics Limited (AEGISLOG) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Aegis Logistics Limited Q2 FY '21 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 date of this call. These statements are not 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 from Aegis Logistics Limited. Thank you, and over to you, sir.

Yes. Thank you very much. I'll be presenting the quarter 2 results for FY '21. I would say it was a good rise in quarter 2 results as compared to quarter 1 of this financial year, showing a recovery is underway for this year, FY '21. And total revenues for quarter 2 were INR 650.4 crores versus INR 1,817 crores a year earlier, mainly due to less sourcing volumes, less buying of gas for the public safety units, which I will explain a little later. The total EBITDA for the group in quarter 2 was INR 124.8 crores versus INR 118 crores in the previous quarter of this financial year in Q1. So that's a good rise, INR 124.8 crores versus INR 118 crores in the previous quarter. But it compares to INR 132 crores same period year earlier, quarter 2 a year earlier, so INR 124.8 crores EBITDA this year versus INR 132 crores a year earlier. And I can also tell you the 6-month results, so that's quarter 1 plus quarter 2, what we call H1, first half of FY '21 versus the same period last year, H1 of FY '20. And it was a result -- the EBITDA was INR 243 crores in H1 of FY '21 versus INR 245 crores, almost the same in terms of the EBITDA for this period compared to last year despite the coronavirus prices going on. Now I will talk about the normalized pretax profits, which excludes the noncash charge of the employee stock plan of INR 14 crores. That would be a charge that we had to take this quarter, quarter 2 for the ESOP, INR 14 crores. So normalized PBT excluding that noncash charge was INR 101 crores pretax profit versus INR 92 crores in quarter 1, so again, a rise from INR 92 crores to INR 101 crores in this quarter. And it was INR 105 crores a year earlier, so a 4% drop year-on-year, but they rise quarter-to-quarter. And normalized profit after tax for the group as a whole quarter 2 was INR 78.2 crores versus INR 120 crores a year earlier. And normalized profit after tax after minority interest in quarter was INR 70.8 crores versus INR 112.8 crores a year earlier. So an increase in profits in quarter 2 compared to quarter 1, as I said. And I can also report the H1, first half of the year, 6 months of FY '21. The profit before tax -- normalized profit before tax actually was up by 2% versus last year at -- so this year was INR 193 crores pretax profits versus INR 188 crores a year earlier. So we are primed for earnings growth in the second half of the year H2 based on the first half of the year being a little 2% up on last year's pretax results. But that's pretty good, I think that we can even plan for earnings growth in the second half of the year, financial year compared to -- during this coronavirus crisis. Now I'll go through the segment analysis. Again, a strong performance of the Liquid Terminal division. That continues. It was good in quarter 1, and that continues -- that good performance continues in quarter 2. We had revenues in quarter 2 for the division of INR 56.4 crores versus INR 50 crores a year earlier. That's a rise of 13% year-on-year on revenues. And EBITDA for quarter 2 was INR 39.5 crores versus INR 32.8 crores a year earlier. That's a pleasing rise of 20% year-on-year in the EBITDA for the division. So as I said, another good set of results for the Liquid Terminal division, continuing the stable growth seen in the last quarter, despite COVID crisis going on. This, as I explained in the last earnings call, this division has remained stable and rising revenues and profits because of the business model, which is basically storage-based revenues in our terminals in Mumbai, in Haldia, in Kochi, in Mangalore, in Kandla and in Pipa. So we've had good occupancy levels, very high occupancy levels in all the terminals, with the exception of Pipa which remains still at about 25% occupancy. But all the other terminals have been strong, which is good news for distribution. I'm now going through the Gas Terminal division. Revenues were INR 594 crores in quarter 2 versus INR 1,767 crores. As I said, this is primarily because of less sourcing of LPG by the public sector units through our company, AGI in Singapore. EBITDA was INR 85.4 crores for quarter 2 versus INR 99.5 crores a year earlier, a drop of 14% year-on-year, although this INR 85.4 crores EBITDA in quarter 2 was still higher than the INR 78 crores in quarter 1, but still not -- the division has still not recovered completely due to the impact of COVID. And let me now go through the underlying sales volumes by market segments to see exactly what was happening in quarter 2 in the business. So I start normally first with the LPG throughput sales volumes in our 3 LPG terminals in Mumbai, Haldia and Pipa. In quarter 2, it was 722,514 metric tons versus 751,025 metric tons a year earlier. So that's a small drop of 4% year-on-year in the LPG throughput volumes. It's still a rise compared to the quarter 1 figure of 700,349 metric tons. But still, 4% drop year-on-year still roughly at the level of last year as the business recovers. Then we come to the retail segment. First, the industrial sales of LPG in quarter 2 were 23,621 metric tons. That's still a sharp recovery from only 7,414 metric tons in quarter 1. So quarter 1 to repeat was 7,414 metric tons. It was a sharp increase to 23,621 metric tons in quarter 2, which was still down compared to the previous year, pre-COVID, which was 27,790 metric tons. But as the factories and industries came back on stream in quarter 2 July, August, September, that was quite a sharp rise, as I said, in the quarterly volumes of industrial sales. Auto gas was 4,756 metric tons versus 7,369 metric tons year earlier. Obviously, the COVID restrictions were being removed on autorickshaws and taxis throughout quarter 2, but business is still not back to 100% pre-COVID levels. The commercial -- finally, the commercial and domestic segment in terms of retailing was 4,449 -- sorry, 4,499 metric tons versus 6,253 metric tons a year earlier. Again, hotels, restaurants still not recovered completely from COVID, people going to hotels and restaurants in quarter 2. And finally, I did mention about sourcing volumes in quarter 2, 142,911 metric tons versus 541,830 metric tons a year earlier. That is the drop in the PSUs, IOC, HPCL, BPCL dropping their sourcing from the private sector of tenders to that extent. They did more of their own industry cargos during this quarter. But that is a division where we make only $1 or $2 per ton EBITDA margin. So not really affecting EBITDA that much, but it certainly affected the sales, the revenue figures because we pay, more or less, the gas from our Singapore subsidiary. Now let me go through the projects update. Well, not much to say in that all projects are on track, including the Kandla LPG project which we expect to commission in Q4 of this financial year, FY '21. The Mangalore liquid project is also on track for commissioning. That's to say full commissioning of 50,000 kiloliters liquid terminal in Q4 of FY '21. The Haldia liquid project of 12,000 kiloliters also is on track for commissioning, fully commissioning by F quarter 4, Q4 of FY '21. The Pipa railway gantry project, very important project, which I've been talking about for many years is I am pleased to report that we now expect it to be completed next month. That is the month of November. We're obviously at the end of October, so we expect to complete that. And we are now working for the -- in parallel, we're working for the approval of the railways, so that we can start delivering LPG by rail wagons after we complete this project in month of November. That's very important for future throughput volume growth in this financial year in Q3 and Q4 onwards. Now that's the project update. As far as the outlook for the second half of the financial year, H2 of FY '21, as I've said in the previous earnings calls but to repeat, we expect a boost to those LPG throughput volumes of roughly 722,000 tons in this quarter just completed. We expect a boost to LPG throughput volumes in the second half of the year, especially because of 2 projects: the maximizing of throughput through that Uran-Chakan Maharashtra pipeline, LPG pipeline, which has -- was commissioned in June, but it is still not achieve maximum throughput. The -- some technical work is going on to achieve those maximum volumes. We expect that to be completed in this quarter 3, probably by the end of November in that quarter. So once that is there, then at the moment, we expect quite higher boost to volumes, throughput volumes in our Mumbai terminal because of the use of that pipeline combined with continued LPG tanker road movement. And so that's going to boost throughput volumes in the second half of this financial year significantly from our Mumbai terminal. And also the Pipa railway gantry, which I just mentioned that once that is commissioned we expect to complete that project in November next month. And we expect that to also boost Pipa throughput volumes in the second half of the financial year. So we do expect a boost to the kind of run rate of 722,000 tons in the throughput volumes per quarter in the second half of this financial year. And I do want to reemphasize that 80% of the EBITDA of the gas division is based on this metric, which is the throughput volumes, throughput sales volumes through the terminal. So if we -- if I say that we're going to be at a boost in the second half of the financial year from these terminals, that obviously means a boost to overall Aegis Group profits from that, from that. And neither the Uran-Chakan pipeline or the Pipa railway are dependent on COVID. Coronavirus does not affect those. These projects, these 2 projects are within our control, and we expect to complete them in the time frame that I mentioned. So that's positive, and we expect that to help the bottom line of Aegis Group in the second half of the year. The retail LPG segment, first signs of recovery already seen in quarter 2 in all the segments, whether it was auto gas, whether it was the industrial distribution, whether it was the commercial and hotel segment. They are not yet, we have not yet gone back to pre-COVID sales levels. So -- but we expect as the restrictions have been by and large removed throughout the country, the COVID restrictions, there should be more sales in auto gas. There should be more sales in hotels and restaurants. But it will be gradual. It will be a gradual recovery. I don't think we should expect everything will go back to normal immediately because still people are reluctant to go to hotels and restaurants. But I think we are seeing the first signs of recovery in sales service, which is good for the bottom line as well for the second half of the financial year. But whether -- how soon it will bounce back to pre-COVID level, that remains to be seen. I think final 2 points I'd like to say is that Aegis remains committed to the execution of our strategy, which is first, completing the necklace of LPG terminals with the various connectivity projects like railway connectivity and pipeline interconnections. We remain committed to that medium-term strategy of completing that necklace of terminals. And we also are committed to building a national retail LPG distribution network with the Aegis brand presence in auto gas, the commercial, industrial and domestic market segments. So that's our medium-term plan, which I have laid out many times of building that national retail LPG distribution network with the Aegis brand. That continues at pace despite the coronavirus. We have, I think, put the foot on the accelerator actually in terms of building that presence in 20 states. We currently -- we have a footprint of 7, 8 states, but we are expanding to 20 states, which is almost a national presence. And I think we remain committed to executing that plan, and it's going at pace. And I think one day where coronavirus restrictions are completely gone and everyone has confidence, this will pay off over the coming years. So we remain committed on both fronts on building that necklace of LPG terminals and building that national LPG distribution network retailing. We remain committed to building that out throughout this difficult crisis. And finally, I'd like to report on the legal front that the National Green Tribunal case, we found out last Tuesday that the Supreme Court has admitted our appeal and granted a stay on that NGT order of 13th of August. So now there is nothing further to do with NGT. But the Supreme Court, after the hearing on Tuesday, has admitted our appeal and seen fit to grant a stay on that NGT order of 13th August. Okay. That completes my presentation. With that, I can take questions.

[Operator Instructions] The first question is from the line of Jiten Doshi from ENAM Asset Management.

I have 2 questions. One is that we are building huge capacity. We are building [ using ] about 3.6 million or so. We are now going to build much beyond 9.6. So is this too long term? Or when do you really think we'll utilize all this capacity? And secondly, I think your blended margins, the minute your retail opens up, will do far better. What are you expecting the blended margins to look like in the second half?

Yes. So on the capacity issue, you're absolutely right that we are building a huge amount of capacity once we take into account the new capacity coming on stream in Kandla, which is going to add 4 million tons. So I think we are obviously basing our projections on certain forecasts of how much each of these terminals will do. So let me go through very quickly. As far as Mumbai is concerned, what is absolutely critical to raise our capacity and our sales volumes is the full use of that Uran-Chakan pipeline. As I said, we are now pretty confident that, that will be realized from next month onwards, November. So I said potentially that could raise our throughput on an annual basis, annualized basis by 0.5 million tons a year, okay. And so obviously, you can work that out, divide it by 12, it would -- If you divide by 12, that means potentially another 48 -- 40,000 tons a month from Mumbai based from that pipeline. So that's -- we are confident in that. Pipa railway gantry, again I've said in our earnings calls as well as in our investor presentation that once that railway gantry is completed, which is November, we believe that, that could raise potentially throughput volumes by another something like 0.5 million tons annualized amount as well, which means potentially another 40,000 tons a month. So that's 40,000 of addition in Mumbai potentially from this pipeline and potentially another 40,000 from -- a month from Pipa railway gantry. And then as far as the Kandla LPG terminal is concerned, which will come in -- really be commissioned in Q4, so that will be in FY '22. We are budgeting for 1 million tons in the first year. That is what we are basically saying, so another 80,000 tons a month. So that's how we intend to build up over the second half of this financial year with Pipa and Mumbai addition to throughput and then FY '22 addition of Kandla. In terms of growing more in Kandla, I think we have a capacity of 4 million tons in Kandla. So if I'm saying 1 million tons, how soon could we build that up to that 4 million tons? I think probably at the moment, our planning is something around 5 to 6 years, so from FY '22, 5 to 6 years to kind of build up that. And that's based on understanding of the requirements of the 3 oil companies, IOC, HPCL, BPCL, their requirements in that territory. Which is not just Gujarat, it's the territory of Uttar Pradesh, Delhi, Punjab, the north as well as Rajasthan as well as Gujarat. So I think -- so I don't think we expect to achieve 9.6 million tons of throughput volumes from our current run rate of around 3.5 million tons.

But like you said, there has to be one year, because this is an abnormal year, there has to be one year where it spikes up. So basically, if you just go by this run rate, you should be able to add at least another 2 million, 2.5 million next year, right?

Yes. So I think I gave the arithmetic...

I think if you do the 3.5 this year, then you should be at 6 million next year, logically because all your capacities are coming on stream.

Yes. I gave the arithmetic that I think we can add extra 80,000 tons a month. Let's take that as another 1 million tons from Mumbai and Pipa. That will be there, so that's certain. And then the additional 1 million tons from Kandla, so I think that answers the question. So another 2 million tons by FY '22 is what we're...

And where do you sort of hope to close this year? At least about 3.8 or 4 million this year?

It's obviously very difficult to give exact sales volume targets because it depends on when that railway gantry is given permission, it depends on. So it's difficult because with projects and you have to get permission, so I don't know exactly. But once we are able to commission the railway gantry in Pipa and once we're able to commission fully maximize this, and what I can say for sure that [ what makes it ] , then obviously we can get those figures. But I think we will have a better idea by the next earnings call in end of January when we will know for sure that those 2 projects are commissioned. So Kandla and Pipa...

You're going to be debt-free by March 22, including utilizing -- I mean, building up all this capacity. You should be debt-free again by March 22. Am I correct?

Well, we've still got some capital expenditures. So we will take decisions on whether to actually pay off that debt or we'll have surplus cash. But yes, I mean, we will be -- net debt, I think, because we've got that surplus cash, we would be in a very strong position.

So you're building a business. If I just go by the logic and arithmetic, you're building a business that can throw INR 2,000 crores cash a year whenever it reaches the capacity. And this is a question I've been asking you for the last 1 or 2 years. So what next is there on the drawing board? Because the kind of cash flows that you'll earn from this business will be crazy. So is there any -- I mean is the team looking at the next leg of growth beyond this?

Yes, look at my answer from the last earnings call. I think this is the same repeat. I'm not going to mention the same thing. I said, yes, we are building a business which is going to throw off a lot of cash. And obviously, we -- I said last time that we are envisaging building up that for future projects, which might not only be LPG, it might be other gas storage project. That's what we are looking at. Nothing to announce on that at the moment, but for...

Sure. Your shareholders will be a smiling a lot in F '22, I assume?

I hope so. This year has been tough for everyone because of coronavirus, but I -- whatever happens with coronavirus, we expect FY '22 to be better, much better than FY '21...

Sure. Wishing you all the best.

Thank you. And you had a second question, which I'll just quickly answer about margin. Yes, you're absolutely right that as the retail business, retail LPG business, which had much higher margins, particularly auto gas and the commercial sectors as they recover due to the less restrictions, yes, the margins should improve. And we've -- the first half of this year, we have had the worst sales figures for retail for a long, long time because of coronavirus restrictions. So yes naturally, but we'll start seeing some evidence of that, I think, in the second half of the financial year...

I'm sure the product, once your mix changes, you can hit INR 2,000 crores of EBITDA every year. I mean that's the kind of potential that you are building. And we can clearly see it. The whole thing is about execution, and I hope the market is there, that we quickly capitalize.

Yes, exactly. I think that's a fair statement, yes.

The next question is from the line of Shaleen Kumar from UBS.

So I understand you had guided in your last quarter that this quarter is going to be soft. And now you're guiding that we will see some boost in your second half. See the second half is generally strong. I'm talking about LPG terminalling. So for example, your previous year second half had almost 1.7 million tons of LPG terminalled. So any sense that -- you don't want to give an exact number, but can we see a positive growth on a year-on-year basis?

Yes. I think that's exactly what I'm guiding, that you're right that seasonally, for example quarter 3 which is Diwali time and all that, and I know that this is not a normal Diwali with coronavirus. But seasonally, it's true that the second half is better than the first half, anyway. But I'm saying in addition to that seasonal impact, there is these 2 projects, which you know. And I have talked to you about it many times: the Uran-Chakan pipeline maximization as well as the Pipa railway gantry, which is why we feel subject to the uncertainty of the precise date when we can commission both those fully. But as I said, it looks like the month of November. And subject to that, we will see a boost to the throughput volumes in Mumbai and Pipa. And that I think will come through in the profit figures because it obviously goes straight to the bottom line as we can do that. So in other words, not only will demand be stronger in the second half of the financial year, the LPG demand in India because of seasonal factors, but also these 2 projects which are coming on stream in November will -- both factors will boost throughput volumes. And therefore, that will have a significant impact on profits in the second half of the financial year. And hopefully, you'll see the results coming through in quarter 3 when we announce them in end of January.

Any risk for these 2 projects of -- to commission on time? Like is there anything that they can be delayed?

At the moment, we are very close. So the risk is only a little bit on time because -- not because of mechanical completion for example in Pipa, but how long it takes to get the railway commissioned to start...

Did we have a bad experience with...

We do, we do. But because we've got the permission to kind of establish the railway gantry from the railways, our consultants are working along with the Gujarat Pipa Port. So -- but I have learned, and you know exactly for me, to give a definite date is very tricky with getting permissions. But at the moment, what I can say is that it appears to be on track in terms of the mechanical work for the railway gantry in Pipa, obviously the on-the-ground network. And in parallel with help of the Gujarat Pipa Port people, APM, we think that we will get the permission from the railway. So that is there, but until it's done, it's not done, okay? That's the uncertainty. And similarly, as far as the Uran-Chakan pipeline, there we don't need any permission, but it's just completion of some technical work. And our project people feel reasonably certain that, that will be completed in November. And the discussions, the commercial discussions for example with HPCL suggest that they can ramp up their throughput to that pipeline to maximum levels. So that's as certain as I can get that in November, both these projects should be completed and commissioned. If something goes wrong with the railway permission, then obviously I will update. But at the moment, we -- that's the clearest guidance I can give, that November it appears to be both these things will happen.

Yes. And nothing from HPCL, right? It's from our side, the project [ work you're ] talking about?

There's a little bit of work in the HPCL refinery. That's a technical work regarding their infrastructure there, and a little bit of work at our side. So I think -- none of those are showstoppers, I think. They are in the final stages. So again I have to stick to what I've been told by our project people. There should be no difficulty on that front in the month of November.

Yes. Okay. And 1 million tons in FY '22 from Kandla is a very strong guidance. I mean so effectively, we should be able to complete Kandla by -- before the end of this financial year, right? Because there will be some [ teething ] issue actually that we have seen in [ Haldia. The first month, first 1 to 2 months, are generally weak. ] So...

Yes. So we expect to commission in last quarter. That's on track. Obviously, every week we monitor those things. But at the moment, that's the expectation. All procurement is on schedule. The contractors are on schedule. So we track it week by week. So at the moment, we -- which means commissioning will happen in the quarter 1 of FY '22, so completion is quarter 4 of FY '21. And then we -- that's our budget, which I repeated 1 million tons in the first year. And we -- of course a very crucial part of that, which I have said several times, I'll repeat is in terms of that commissioning is also laying the pipeline interconnection to that existing GAIL Loni pipeline, the Jamnagar-Loni pipeline, which is why where we do have the in-principle agreement with GAIL already, which I have mentioned one year ago. So at the moment, that is the plan. If there's any change, of course I will update, but we seem to be on track on that front. So it's for that reason that we are budgeting about 1 million tons. The completion of the terminal plus the pipeline interconnection into that...

Both will be ready by fourth quarter? Is that the understanding, right?

Yes, that's the understanding. Both the pipeline expansion as well as the terminal should be completed by fourth quarter of this financial year, so that we can fully operate from the quarter 1 of FY '22.

Who are likely to be [ the anchor customer ] to begin with? In case of Haldia, we had anchor customer. But here, we don't have anchor customer. So what are you -- [indiscernible]

All 3, we are talking to all 3, IOC, HPCL, BPCL. So -- And so I think it could be all 3, it could be 1 or 2, whatever, but we are in conversation with all 3. The way these companies operate sometimes is they like to see one of them, one of them take the first cargo. So I don't know exactly which one it will be. But clearly, IOC already operates in Kandla, so they're already bringing ships to Kandla themselves. So it might be logical...

[ Why would they do that through ] our terminal? Sorry. [indiscernible]

Because if they're bringing -- if their -- if their terminal is full, then obviously they could do, what we've been talking with them is they can drop off with our terminal, which is 45,000 tons, the excess quantity in the ship. That's essentially what we talked with them.

The next question is from the line of Rajesh Kothari from AlfAccurate Advisors.

First of all, great set of numbers. I think I must compliment management for doing a great job in getting the required [ CapEx ] online, probably from November as you mentioned. My question is just like gas divisions, can you also give a little bit more insights into how do you see the growth in liquid division over next 2 to 3 years?

Yes, sure. So we've been very happy with all the capacity expansion we've already done in the Liquid Terminal division. And if -- I'm just going to refer to our slide in -- if you don't have it in front of you in our investor presentation, Page 29 shows you the buildup of capacity in our Liquid Terminal division. And you can see that the results so far of the expansion we've done in Kandla of the 140,000 kiloliters, the expansion plan in Haldia, et cetera. That's all paid off well, which has resulted in this 20% rise in our EBITDA year-on-year in quarter 2, which continues, okay. And as I mentioned in the earlier part of the presentation, you see in yellow, we have the following expansion coming, 50,000 kiloliters in Mangalore. We have 12,000 in Haldia, and we're working on 20,000 more in Kochi. I'm very pleased to say that both the Mangalore 50,000 kiloliters is already presold and the 12,000 in Haldia is also presold. So that indicates that once those 2 projects are completed by quarter 4 of this financial year FY '21, they will start to generate revenues immediately after that. In FY '22, we'll get the full benefit of that expansion. So once that is over, we will have expanded to 811,000 kiloliters in this necklace of terminals. And what I have mentioned before, but let me repeat, is that we have further land available in Kandla, which could -- we have not taken a decision to do that expansion, but we could build another 100,000 kiloliters on that land in Kandla of liquid capacity. We have further land available in Haldia to build more over there, which we could do as well. Now I'm not going to say exactly when we will decide to build that extra capacity in Kandla of 100,000 and when we could build more capacity in Haldia. By the way the capacity in Haldia would be, I think, another 20,000 to 30,000 kiloliters, something like that. So basically, another hundred and -- possibly another 130,000 kiloliters we could build between Kandla and Haldia, to take that to around just short of 1 million kiloliters. It would be around -- over 900,000 -- 930,000, 940,000 kiloliters possibly that we could build. That is probably fair to forecast that we would do that in the next 3 years or so, but no decision has been taken on that expansion. Obviously, it is subject to demand being sufficient over there. But that's about it. At the moment, we don't expect any further growth in capacity beyond that 130,000 over the next 3 years. So I think it's more steady growth in the Liquid Terminal division, subject to demand being -- probably at the moment, we are not actively looking at any other greenfield sites, any other ports beyond the ones that are listed here. So it's more never say never. And potential of acquisitions also with certain distressed terminals as they come up, subject to valuations, never say never. But at the moment, it's limited growth from going from 811,000 to possibly 930,000, 940,000 kiloliters within the next 3 years, something like that. But obviously those decisions have not been made.

Sure. And currently, we are seeing very strong growth of 18%, 20%. Is it more to do with the very strong pricing growth because of the urgent requirements with COVID by the customer? Or you think it will be more like a sustainable kind of a number?

Well, I would say it's more to do with as we have commissioned this capacity in Kandla for example or Haldia, it's more to do with changing product mix, which means that we are able to -- or even Mangalore for example, the Phase 2, we're building a lot of bitumen for example, bitumen storage in that Phase 2. 50,000 which is already being presold where the margins are higher. This is for road building. So it's -- as you build capacity in these terminals, I've mentioned many times that it's a 1-, 2-, 3-year kind of process of changing the kind of products that you handle. The first year, you kind of handle more bulk products where the margins are a little lower, just to get the tankage utilization rates up. But by year 3 generally the pattern is, terminal by terminal, that you are able to handle more specialty products where the margins are higher. So I think it's consistent with that pattern that we are actually squeezing out more revenues per kiloliter because of handling different products as time goes on. I think that's what we are seeing. And we expect that to continue until we can build some more capacity in the next 3 years.

So when you say that over year 2 and year 3 as your product mix become more richer, margins improves, typically, year 3 versus year 1, what are the difference in margins?

Well, each terminal will be different. But I mean just to give you a sense, the kind of rates, the storage rates that we offer for specialty chemicals can be something like INR 250 to INR 300 per kiloliter versus bulk petroleum, which might be INR 160, INR 170 per kiloliter. So yes, it's a doubling in the rate for handling certain types of specialty chemicals versus the bulk petroleum. But generally, we have a mix. We have a mix of specialty chemicals, bulk, petroleum, petrochemicals. We have a mix. And so this is why we -- and the job ultimately is to squeeze more revenues and profit out of every kiloliter of package. So our people, our sales team is always looking to handle different types of products. So I think that's generally the pattern that we see. But what I'm saying is I think now, based on the capacity that we have increased over the last 2, 3 years in Kandla and Haldia, we're probably now achieving maximum kind of rates of realization based on the product mix.

I see. And coming to your gas division, you talked about Pipavav and Mumbai and Kandla, but you didn't mention much about Haldia. So do you see -- how do you see the Haldia ramp up over next 2 to 3 years?

Yes. So Haldia has been going very well as it is I think it was even the month of September, we saw record throughput levels in Haldia. So it's going very well. And that's particularly based on demand of LPG in the northeast region is very strong. So despite COVID, everything, it remained very strong in terms of the penetration of LPG in the northeast, particularly by HPCL, our anchor customer. Now most of you are aware that BPCL is going to be commissioning their terminals in Haldia. We don't know the exact date, but we would expect possibly by December or January of -- this December of 2020 or January 2021 that they'll commission their terminal. So to that extent, BPCL volumes will go out of our terminal. It may not be completely out, but -- because they will take some time to commission their terminal. But something like that. So there may be some drop in the Haldia throughput volumes to that extent of BPCL going to their own terminal, not only in the quarter 4 but -- January, February, March, but also beyond that. But to some extent, that will be outweighed by the normal growth of HPCL's marketing volumes in northeast. And they're being very aggressive in terms of their distribution network. So we will see the balance of how much BPCL volumes go down, but then how much HPCL's own volumes will be increased. We'll see how that balances out. They're very difficult to forecast exactly, but we'll see. But right now, we remain reasonably confident that HPCL's own volumes, because they're moving so aggressively with appointing the distribution and bottling plants. And we think that to a large extent, that will compensate for BPCL's throughput going over to their own terminal. So we will be able to maintain good volumes in Haldia.

So correct me if I'm wrong, our capacity is 2.5 in Haldia, right? So over a period of, say 2 years or so, do you think it will work at its optimum utilization over a 2-year, 3-year period?

Yes, that's right...

Because it is still underutilized, right? Probably right now it's like 1.5.

That's right. We haven't yet reached 2.5 million throughput. But yes, you're right. Our current expectation, and we just discussed that in the [ HA ] LPG Board meeting literally yesterday, our current expectation is that we will be able to reach the figures of maximum capacity, 2.5 million, within the next 2 to 3 years primarily based on HPCL's own volumes.

I see. So basically, you would expect next year to be -- do you see next year any major challenge? Because BPCL is going out for 9 months whereas HPCL may become a little bit slow. So instead of 1.5, we see probably only 1.1 and then '23 becoming normal? Or do you think it will be enough for HPCL to...

Our company -- our -- Again, I don't want to overstep because -- or give very exact forecast. But our current guidance is that we expect HPCL, because of their own growth in marketing distribution, we expect to maintain, at least to be able to maintain the kind of high levels of throughput that we have currently, and then grow on that over the next 2, 3 years to that 2.5 million after that.

Okay. My last question is, sir, what is our payout policy? And do you see any change in payout kind of thing as your free cash flow becomes higher and higher?

Yes. We discussed this quarter by quarter in the Board meetings about dividends. We don't have an exact policy. But I would say we are -- currently the way the Board works currently looking at dividend growth, so every year, that there is a sustainable dividend growth. And we do look at the payout ratio. These are not exact policies, but we do kind of look at a payout ratio of around 20% to 25% of after-tax income available to Aegis shareholders. So these are the kind of 2 rules of thumb that we work on. But we also assess what's going on in terms of the cash amounts which are being generated. We also look at the wider world in terms of what's happening with coronavirus, and whether for security during this crisis, we should have -- hold more cash. We take into account all those things. But rules of thumb of around 20% to 25% of after-tax net profits is one thing. And we do look at kind of having a sustainable dividend growth rate year-by-year and then look at the overall economic situation.

[Operator Instructions] The next question is from the line of Kashyap Jhaveri from Emkay Investment Managers.

Yes. I just have 1 question. Our throughput volumes are down about less than 4% Y-o-Y, and that business contributes most of our profitability in the gas division. Whereas if I look at EBITDA, that's down about 15 [ percent ] on Y-on-Y basis. So any business there is contraction in EBITDA per unit business versus, let's say, last year or previous quarter?

No. Actually, the margins have remained stable. One of the good things about our gas business is our EBITDA margin has remained stable for a long time. But the reason for the drop in the total EBITDA in the gas division beyond that 4% drop is retail where they have very high margins. But obviously it's been the most badly affected by coronavirus. So pretty much the whole reason for that drop in EBITDA compared to last year was because of the lower sales volumes in auto gas where the margins are INR 10,000 a ton. So it's purely sales volume lower in the retail division which is the main reason for the drop in EBITDA. But as I said, the first signs of recovery in that already there in quarter 2. And hopefully, that will continue into quarter 3 and quarter 4 in terms of sales volumes in the retail as the COVID restrictions are lifted. But still, I was cautious. I said that expecting hotels and restaurants particularly to go back to where they were pre-COVID in the next few months probably, I'm not really -- I'm not ready to say that yet because people are still not going to restaurants as much as they used to, et cetera. So -- but we are seeing some recovery already. For example in the month of October, Q3, we've already seen some recovery. We already saw that in September as COVID restrictions are lifted, that there is some recovery now in retail volumes. Including in auto gas for example, people are moving about more with using taxis and autorickshaws and all that. So that's the main -- yes, you're absolutely right, the main reason for the drop in EBITDA for the gas division as a whole. A little bit was -- 4% was the drop in sales in the throughput portfolios. But mostly it was retail, retail, the impact of retail LPG sales.

And in non-auto, what would be the EBITDA per ton in non-auto segment?

Around between INR 2,000 and INR 3,000 a ton.

The next question is from the line of [ Amar Moria from Alpha Advisors. ]

My first question is what would be, sir, utilization of our liquid gas terminal in this particular quarter?

Sorry, you said liquid gas terminal?

I'm saying liquid, liquid division, what would be the utilization, the capacity utilization?

So almost every terminal except Pipa was above 90% to 95%. Mumbai was 100% as usual. Haldia was 95%. Almost every terminal was operating at 90% to 95%; or in one case in Mumbai to 100%, so very high levels. And with the exception of Pipa, which I have said it consistently has been operating around 25% capacity utilization because we simply don't have enough cargoes over there. But all other terminals were almost full or completely full.

Okay. So -- and this, the capacity expansion you are saying is going to come by the end of the Q4, right, in the liquid division?

Yes, in Q4, in Q4, January, February, March. Some may come in January, some may come in March, but yes.

Okay. So basically additional 82,000 kiloliters capacity will be available for the next year of the growth?

That's our current expectation. The Kochi project, which is 20,000, is going a little slower. But at the moment, confirmed is Mangalore 50,000 and the 12,000 in Haldia, which is 72,000 is completely confirmed. At the current time, we are going a little more slow on the Kochi [ project ]. 72,000 confirmed for quarter 4 FY '21 Kochi.

Got it. And sir, in terms of the retail gas division, how do you see the recovery in the next 2 quarters? Like because I believe the volume in retail overall LPG distribution business was down by around 20%. So can we expect at least a high double-digit growth for the second half of the year?

I'm afraid I really am uncomfortable of forecasting that. Obviously, it would be lovely for me to know that so I can share with you. Because I'm just uncertain about COVID restrictions. Today's it's one thing. They say in one particular city or one particular state and things are opened up. But tomorrow it's something different. So it's very difficult to forecast. But if things carry on, if things carry on in terms of very low restrictions, which is the current state of affairs, then I would expect -- I think the first stage is we would want sales to recover to pre-COVID levels. That's what I am hoping for. I am not guiding it, but I'm hoping for sales to at least return to pre-COVID levels for auto gas and for hotels and restaurants. That is what our hope is, not our expectation. The reason I can't say expectation is because we just don't know. I mean the history of this coronavirus crisis is different towns, different municipalities, different cities, different states have different -- taken different decisions. So if you can forecast what those are going to be over the next 6 months, please, please go ahead. But at the current time, assuming status quo in terms of almost all restrictions are removed, then our hope is we would return to pre-COVID levels of sales volumes, which would mean a reversal of the 20% drop that we talked about. So that's our hope, but it's not a total forecast.

Got that. Sir, one last from my side. So like in overall gas division, if I see the volume growth in the first half was around average 4.8%. And you indicated that the second half is better than first half. I mean I just wanted to know your thoughts on that.

Yes. I think I have said it enough in terms of the LPG throughput volumes, which is 80% of the gas division operating profit. I expect that once we are able to commission this Uran-Chakan pipeline as well as the Pipa railway gantry, those 2 projects which I expect in the month of November. That's as specific as I can get. I can't give you exact date in November. Then we expect the volumes to increase in Mumbai by about 40,000 tons a month from then onwards. And we expect Pipa also to be around 40,000 tons a month once those 2 projects are over. So that's as specific I can get. And then obviously, the -- when Kandla is commissioned in Q1 of FY '22, the kind of 80,000 tons a month budget is what we have. That's as specific as I can get, but I can't give you the exact date of when those projects will be completed. So it's -- obviously it will depend on that. But that's as much guidance as I can give in the current quarter. But we do expect therefore a growth in the second half of the Q3 and Q4 in the LPG throughput volumes to that extent. And I've already answered what we think could happen in the retail, our hope in terms of retail sales volumes.

[Operator Instructions] The next question is from the line of [ Manish Jariwala from Fidus Capital Advisors. ]

Can you hear me? [Technical Difficulty] I wanted to understand a little bit about our LPG bottling plants where the target is now 37 bottling plants is the target. And I think we have about 13 of them. So how many are owned? What are -- maybe how does it go? How does it kind of work out?

Yes, it's work in progress. I think most of them are not owned. They're agreement, contract filling agreements because there are lots of LPG plants all over the country. There are a small handful that we are actually acquiring. When I say a small handful, I'm talking about 2 that we are in the process of acquiring those distressed assets from financial institutions. But the bulk of them, and we have also bought some land in certain locations, again it will be a handful, maybe 2, 2 places, 2 or 3 places. So you can say that, that plan of 37 bottling plants, the vast majority will be just commercially going into the existing bottling plants in various states. And maybe a handful, 3 to 5, will be our own. Either we'll acquire them or we have -- we're doing filling projects with. But the bulk of them will be of, those 37 bottling plants, will be contracting. And by the way, of the 13 that we have currently, I think with the exception of 3, which are our own bottling plants, 10 of them are also contracting. So that gives you a sense.

Okay. These are basically used for our non-auto gas sales, right? That's...

Yes. Everything not auto gap. That is for filling our cylinders for hotels, restaurants and domestic segments. And possibly industrial sales depending on whether they take bulk LPG or they take large cylinders as well.

Okay. And we don't have any investments in the tanker. That is the road tankers. You're not investing there...

Yes, nothing, 0, 0 investment. That's a business which we obviously outsource to specialist road -- LPG road tanking companies. So we have 0 investment in that, and we have 0 plans of investing in that. There's no great returns in that business. That's just a very basic business. So we don't invest in that.

[Operator Instructions] The next question is from the line of [ Niten Lathia from Fractal Capital. ] [Technical Difficulty] Mr. Lathia, your line is inaudible.

Sir, how much of your Kandla terminal utilization depends upon the Kandla-Gorakhpur pipeline coming through?

Well, that's a good question. I -- at the moment, that Kandla-Gorakhpur pipeline has not even started, okay. And it's going to be 6.5 million tons a year capacity of that pipeline. What I have said is that the first -- in the first phase, we expect to continue to connect up to this GAIL Jamnagar-Loni pipeline, which has been boosted to 3.5 million tons of capacity from the current 2.5 million tons. So that's our first phase essentially when I said budget of 1 million tons in the first year, et cetera, and then going forward from there. But yes, the latest update that we have on the Kandla-Gorakhpur pipeline is that they are taking seriously, the PSUs are taking seriously, and they fully expect to commission that. Now they are talking about 3 years, which means FY '25. I don't know. I never respect any forecast of time frames. But they are -- I think that project is live. They are working on it, working on it financially, technically, et cetera, et cetera. So let's take a 5- to 6-year time frame as more realistic. And therefore, we expect perhaps in 5 to 6 years' time that our terminal in Kandla will be delivering into that kind of Gorakhpur pipeline, but that is 5 to 6 years from now. So the first phase is very much dependent on that GAIL pipeline interconnection, Loni pipeline. And that is there. But in the longer term, that means from perhaps from 5, 6 years or whenever the Kandla-Gorakhpur pipeline is interconnected, yes. So this is an essential part of our 4 million ton capacity that we feed into that, that pipeline. And that -- I remind you that pipeline is going -- is 2,700 kilometers going past 45 of the existing bottling plants with the PSUs, IOC, HPCL, BPCL. Which is why it's so crucial, which is why we located our terminal in Kandla because the origin of that Kandla-Gorakhpur pipeline is Kandla. So it is very much a part of the prospects of that 6.5 million ton capacity pipeline. And yes, it is -- but it will take some time. It will not happen immediately. Even if you believe it will be 3 years, that's wonderful, but I think probably our expectation is 5 to 6 years that it will be [ live. ] But for the long term, and these terminals are there for 30, 40 years, we expect this -- our Aegis Kandla terminal to be very much feeder into that Kandla-Gorakhpur pipeline, and it will be important. But probably, it will take a few years, maybe 5 to 6 years is our forecast for that to be ready. It's a big project. It's a big project, and it's very much the future of Kandla, yes.

And in the meantime, the -- I mean, what would be the slack available on the Jamnagar-Loni line possibly?

Well, they are expanding it to 3.5 million tons, which means that there will be some slack available. It very much depends on how much reliance Jamnagar feeds into that pipeline. Currently, they are feeding in around 1 million tons. But they have already informed the PSUs that they want to reduce the amount of LPG that they produce in Jamnagar because they want to go for more higher-value addition. So that's one of the reasons why imports are going to increase from Kandla. And so there will be sufficient slack, should we say, with the 3.5 million capacity boost that -- and that is our initial planning for our terminal in Kandla, that we will take up that slack, and then going forward, yes, this Kandla-Gorakhpur pipeline, which has a capacity of 6.5 million tons. So it will be a combination of both these pipelines.

And in the interim, can any other terminal feed into the Jamnagar-Loni line as such? I mean it passes through almost all the refiners and the...

So right now, right now no terminal is connected into that Jamnagar to Loni pipeline. We hope to be the first one to connect up into that pipeline. But no other terminal is -- connect to that. Because obviously it goes via Kandla, so that's why we are close by to that pipeline. But any other terminal in Gujarat, which includes Pipa, is far away. Pipa would be 150 kilometers away, whatever. So we're not going to lay a pipeline. Of course, we don't do that. It's not our business. So unless someone else lays a cross-country pipeline, that -- which is yet to happen, they won't be connected to the pipeline. But that's one of the reasons why we again chose Kandla, that there is a possibility of interconnecting a short distance to that pipeline. That's one of the competitive advantages of our Kandla terminal.

We take the next question from the line of [ Rajesh from Manor. ]

Sir, what has been our auto LPG margins for the current quarter?

It remains INR 10,000 a ton. The volumes have been, I think I said was 4,756. But the margins have remained stable at around INR 10,000 a ton. So -- on average. So stable margins, but we need to increase the sales volumes to take advantage of that. And as I said, I'm hoping for a recovery to pre-COVID levels in the next 6 months as people start moving around and start using autorickshaws and taxis in all the various states.

Are the volumes improving [ month to month? Right ] ...

They have -- quarter 2 has improved from quarter 1. So that's -- but as I said, our -- that has clearly been dependent on removal of COVID restrictions. So -- and confidence to get back and start traveling around the cities. So we expect at the moment, we expect there to be some continued recovery in auto gas volumes in Q3 and Q4, already seeing that in the month of October. But our first wish is to at least get back to pre-COVID levels of sales volumes. And our hope is that we will achieve that in the next 6 months and then go on from there. But obviously that is totally dependent on what happens with the coronavirus crisis.

The volume has not increased in the first quarter, the first half year, is this because of the economy? Or maybe another reason?

Yes. I mean the throughput volumes have not increased. They have been basically at a run rate of around 700,000 to 722,000 tons a quarter in -- So in the first half, you can say it's an average of 710,000 or 715,000 tons. The reason is because don't forget, even the PSUs, they have got less volumes in their own retail, right, in terms of hotels and restaurants and auto gas. So it's all been cooking gas. But when there should be some positive impact of volumes for them as well the PSUs, just like us, in terms of hotel restaurant and auto gas. So that should improve. And yes in the second half of the year, as the industry also recovers, we've seen industrial volumes recover sharply in quarter 2 compared to quarter 1 as we people brought their requirements, their factories back. So their industry is also recovering. So we expect some that. And then seasonally quarter 3 and quarter 4, winter months in the north and all that, normally there is higher LPG throughput volumes. So -- and then as I said, we have this Chakan pipeline and the Pipa railway gantry project. So all of these factors together, we should get a boost in those quarterly volumes, LPG throughput volumes. So that's what we expect.

[ So regarding volumes ] [indiscernible] this quarter? Or it was not operating?

Yes. It's been operating since June. So we -- so July, August, September obviously quarter, they've been taking LPG every other day through that pipeline, HPCL. So not every day, but every other day. So once we...

So what was the technical issue then?

Sorry?

What was the technical issue?

There are certain booster pumps that we have to port. And there are certain -- the in-tank pumps that we have in our tanks in Mumbai had to be increased, the pumping rate, those type of things. And the [ bullets ] that HPCL has in its refinery to enable more storage is there, and those type of technical [ things. ] They are able to take every other day from the month of June onwards, which they've been doing. And now the idea is to take it every day and increase their pumping rate. So those will be over, as I said, in the month of November, and those technical improvements at our end and in HPCL. And therefore we have sufficient confidence that once that is over, -- I made a lot of statements in this earnings call in more detail. But that should happen in the month of November. Then we will be able to take HPCL's -- we will be able to take every day their throughput through that pipeline. Along with the tanker, road tanker movement, then we should be able to achieve those kind of maximum levels that we talked about.

Sir, last question, what is [ the retail sourcing volume? I think you said you will tell how sourcing went? ]

Sorry, what was the question on sourcing?

[ Was the sourcing volume decreasing? ]

The sourcing volumes reduced in the first half of the year because the PSUs concentrated not so much on their tenders to the private sector, they just concentrated on bringing their own cargoes. So I think that was probably also because of too high stock levels and all the rest of it. So that, they started increasing now again, December, it's going up. So we'll see what happens, but it's a small business. So...

Thank you. Ladies and gentlemen, due to time constraint, that was the last question. I now hand the conference over to Mr. Anish Chandaria for closing comments.

Yes. I hope we were able to [ explain how things are. ] And hopefully we'll be able to continue these client calls, earnings calls and give our impression that things are improving slowly in all the businesses. Thank you very much, and stay tuned in the next call in January.

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