Steady volume gains a positive sign for Adani Ports and SEZ stock

Increase in promoter pledges and debt levels continue to be key monitorables

The Adani Ports and SEZ stock is trading close to its 52-week high and has gained about 9 per cent since the beginning of the month. Half the gains came on Tuesday after the company was recently ranked 14th in the transportation and transportation infrastructure sector by the Dow Jones Sustainability Emerging Markets Index 2020. What could sustain the rally in the near term is expectation of steady improvement in port volumes and market share gains.

Cargo volumes continue to gather steam across major ports and were up 5 per cent in October on a sequential basis. While volumes are still down a per cent over the year-ago period, the pace of decline has reduced from the 10-15 per cent reported in the June-August period. Container rail traffic in October was at a 24-month high and total rail traffic was up 15 per cent for the second consecutive month.

Analysts at Axis Capital say the company has been gaining market share after it posted 6 per cent volume growth in the September quarter (Q2) as compared to a decline of 6 per cent at major ports. Its volumes are up 21 per cent in October as compared to the flattish performance of the sector.

After gaining 300 basis points market share on a sequential basis to 24 per cent in Q2, the company is eyeing another 100 bps gain in share going ahead. Its container volume share has also increased 100 bps to 39 per cent. The management guidance of 225-230 million tonnes in FY21 will imply a growth 12-15 per cent in the second half of FY21.

While volume trajectory remains the biggest trigger for the stock, the Street will also keep an eye on promoter pledges and debt. Promoter pledge increased by 7.6 per cent to 45 per cent, though the management has indicated this will reverse by the end of this month. Given the worry of fresh lockdowns in key export markets, investors should await volume growth improvement on a sustainable basis.