Mumbai: For long, Adani Ports and Special Economic Zone Ltd circumvented market changes by tactically expanding service offerings and capacities. But such is the intensity of the current slowdown even the largest private port operator in India is finding it hard to withstand the challenge.

Cargo volume growth decelerated to 1% in September quarter compared to double digit growth in the previous four quarters. The stock is down 0.8% in Wednesday morning trade. Cumulatively volume growth in first half of the current fiscal stood at 9%, down from 15% in the H1 FY19.

Growth at the mainstay Mundra port declined 5.7% last quarter. In the first half of the year, they grew just 4.5%. The volume slowdown weighed on revenue growth, impacting profitability. Operating profit margin contracted two percentage points to 63%. This led to a tepid 5% expansion in operating earnings.

Profitability trailed Street expectation, triggering cuts in earnings estimates. But the cuts are rather modest. Analysts at Antique Stock Broking Ltd and Nomura Financial Advisory and Securities (India) Pvt Ltd lowered their operating earnings estimates by 2-5% for current fiscal year.

The earnings estimate cuts were modest tempered by management optimism. Despite a notable slowdown in volume growth, the management pared the guidance for current fiscal only slightly.

The company expects current fiscal revenue to grow 11-13%, more or less similar to 12-14% it provided earlier. Volume growth projection was also trimmed slightly to 8-10% from 12%. The minor cuts in guidance capped losses in the stock.

But the guidance will not hold ground if the current slowdown in trade continues. Volumes in October did not see meaningful improvement.

Further, the guidance pins hopes on rebound in oil and coal trade, whose users (refineries and power plants) are seeing muted consumer demand. “While management acknowledges October has been weak as well, it expects a revival in 2H which may enable the volume growth guidance of 8-10% in FY20 to be achieved. In fact, management believes that crude oil volumes will normalize as refineries under planned maintenance come on-stream in 2H," Nomura said in a note. “Furthermore, increased thermal coal volume demand from power plants in Mundra and from Dhamra port (both thermal and coking coal) will lead to volume growth in 2H in addition to the present run rates," analysts at Nomura add.

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