23 July 2020
Update | Sector: Oil & Gas
TP: INR250 (+30%)
Reality check on LPG demand v/s imports – favors AGIS
LPG has been in ever-increasing use as the need for cooking gas increased amid the
lockdown and owing to various government schemes. For this reason, LPG
consumption growth came in strong at 12–16% YoY over Apr–June, while demand for
other fuels tanked to 30–60% of normal during this period. This led to a huge jump in
LPG imports at ~65% of total LPG consumption as refineries trimmed their operating
rates due to the lack of demand.
The story for the last three months is similar to that for the last three years – in 2016,
the government introduced the Pradhan Mantri Ujjwala Yojana (PMUY), which led to
a huge spike in LPG consumption. Although, for AGIS, investors have been wary of
capacity utilization amid increasing competition.
In light of the same, we highlight the potential for increase in LPG imports (by ~2.7x
to 36.5mmtpa) despite a rise expected in domestic refining capacity (by ~1.5x to
367mmtpa) by FY31. Moreover, there is huge gap in the per connection consumption
of gas by domestic consumers (with expected demand jump of 6.7mmtpa).
Factoring the above-mentioned fundamentals in favor of the company, we reiterate
Buy on AGIS, with target price of INR250.
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
Free float (%)
65.1 / 0.9
267 / 108
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Longing for LPG imports and…
Financials Snapshot (INR b)
2020 2021E 202E
Adj. EPS (INR)
-55.0 249.6 19.7
Div. Yld (%)
FCF Yld (%)
Shareholding pattern (%)
Jun-20 Mar-20 Jun-19
FII Includes depository receipts
Coming decade will mark the period of domestic refineries expansion. Refining
capacity, which stands at 250mmtpa in FY20, is expected to grow at a CAGR of
4% and reach 367mmtpa in FY31. Projects of ~117mmtpa (i.e. ~2x FY11–20) are
lined up to be commissioned by FY31; however, just one-fourth the capacity
has a clear timeline / has seen work commence.
LPG yield from refineries has been in the range of 4.5–4.9% over the last 10
years, and may decline with increasing focus of refiners on producing
LPG consumption in India saw a CAGR of ~7% over FY11–20 (with FY16–20
registering CAGR of 8% owing to the introduction of PMUY in 2016).
Assuming LPG yield of 5% and a demand CAGR of 7% over the next decade,
our calculation suggests imports could see a CAGR of 10% over FY21–31.
LPG production is expected to increase ~1.5x (to 18.5mmtpa) by FY31,
while imports could see an increase of ~2.7x (to 36.5mmtpa) over this
The above scenario assumes that all of the refinery expansion projects
would get commissioned by FY31; although, considering only those
projects where work has already commenced, the estimated imports CAGR
over FY21–31 could be ~12%.
Reflecting over FY11-20, despite a ~34% increase witnessed in domestic
refining capacity, the percentage import of LPG increased to ~56% in FY20 from
~21% in FY10 (clocking double the CAGR of demand at ~14%). Our calculation
highlights a similar story going into the next decade as well.
This should benefit
AGIS the most as it is very well placed to cater to the huge
potential of imports from its various terminals facilitated through pipelines or
railway gantry v/s traditional off-lift via trucks (in smaller quantities).
Swarnendu Bhushan- Research Analyst
Sarfraz Bhimani - Research Analyst
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
Investors are advised to refer through important disclosures made at the last page of the Research Report.