Growing up in an Indian household, a nationwide parental fear that still resonates with us into our adulthood is this - “LPG cylinder phat gaya toh?” - and apparently, companies that deal with LPG have the same fear!
Considering almost 65% of India’s LPG needs are met by imports, the key ports in the nation must be equipped with safe storage terminals that ensure our parents don’t get an “I told you so” moment - and today’s company is going to be responsible for it.
Ganesh Benzoplast, a 40-year-old chemical company, has recently entered the LPG industry by partnering with giants in the space, using the Jawaharlal Nehru Port in Navi Mumbai as its base of operations.
This little-known company is one of the largest private players in the Liquid Storage Terminals (LST) industry (leasing out mechanisms to store special liquids like chemicals, petroleum products and edible oils), and has undertaken a silent shift in its business, with the potential to “blast” off from here!
What Is the Shift in Business?
Fun fact (not really): Ganesh Benzoplast started as a chemical company in 1986, and very quickly went on to become the largest producer of Sodium Benzoate and Benzoic Acid in India (these are the preservatives found in packaged food).
Cut to 2024, the company has achieved some semblance of normalcy, making this a good time to look at the choppiness the company experienced over the last 38 years:
Time | Event |
|---|---|
1986 | Incorporated as a benzene-associated chemical manufacturer, became the market leader |
2000 | Has set up fully functioning LSTs at 3 ports along Western India (Navi Mumbai, Goa and Cochin, which make up for a third of containerised cargo in the country), gaining market leadership at those ports among private players and diversifying its business |
2011 | Chemical business was consistently loss-making and needed huge amounts of debt to run it, and no profits to repay. New MD Rishi Pilani (son of the founder) stepped in to clear the mess |
2018 | Debt was cleared off the books by converting into equity shareholders, and LST business started to pick up |
2019 | Created a separate subsidiary and demerged the chemical business so that both businesses could get separate attention (and make LST the core identity of the company) |
2020 | Acquired 87% of a railway logistics company to assist in the transportation part of the LST business (cut the time to clear one large storage tank from 20 days to less than 10) |
Furthermore, after having established a renewed focus on the LST segment (EBITDA margins of the chemical business is around 10% while the LST business is 50%), the company is now entering an even more profitable space - the LPG storage and transportation industry!
But what’s so great about it anyway?
Why Did It Enter the LPG Business?
It doesn’t help that this extremely expensive and skilled industry has seen 3-4 government-backed players managing this entire load. Hence, there are two immediate needs - more ports to accept imports of LPG, and more terminals at those ports to facilitate storage and transport.
While the government is handling the former, the latter is where Ganesh Benzoplast has found itself a new growth driver, becoming the first mover and only private entity to have entered this space.
What does all this entail and what will it lead to?
Point | View |
|---|---|
Cost | Rs. 600 crore (Rs. 100 crore equity and rest via debt) |
Deadline | Will be operational from 1QFY26 |
Collaboration | JV with Confidence Petroleum (India’s largest private LPG cylinder producer) and BW LPG (the world’s largest LPG carrier company), making this a big deal |
Revenue | Anticipation of annual revenue of Rs. 200 crore (50% of FY23 total of the company) |
Margins | LPG terminals garner 80% margins, since for the same cost to run, the lease rates are 50-70% higher than LSTs |
In addition, Ganesh Benzoplast has also secured a 25-year land lease with the JNPT in Navi Mumbai (the largest port in terms of containerised cargo imports in the country), which is positioned well to take pressure off the nearest and most busy LPG ports - Mumbai and Kandla.
All in all, this new vertical within the LST business is a sure-shot growth driver in itself - but is the company doing anything else?
Other Growth Triggers
Point | View |
Demerger | Intends to completely demerge the chemical business from the parent company and have both entities listed separately This allows higher valuations to kick in for LST business (LST segment valued at 12x EV/EBITDA while chemicals at 5x) Roadblock is an ongoing High Court case which can be resolved in the next 5 years |
Capacity Expansion | Building newer storage tanks that could attract higher margins (70% vs current 50% since they are being made for petroleum products, which have higher realisations |
Capacity Utilization | Will see increased capacity utilization at the Goa and Kerala terminals (currently at around 70% but those ports are the fastest-growing ones in the country) |
Furthermore, despite the unimpressive historical revenue of the company (10Y Revenue CAGR of 5%, with a 50-50 split between LST and chemicals), Ganesh Benzoplast has cleaned up its act nicely since the entry of Mr Pilani in FY12:
From having almost Rs. 300 crore in debt, to less than Rs. 60 crore now (3x Debt/Equity to 0.03x now)
From Rs. 1 crore in consolidated profits to registering Rs. 55 crore
ROCE has gone from 9% to 21%
With the expectation of revenues and profits to 3x from here by FY27, this company is surely one to watch out for, with its past behind and its future ready to “blast” off before our eyes!
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