The steadily rising trade volumes are not creating a winner in the ports sector for investors. Shares of Gujarat Pipavav Port Ltd are down 18% over the last one year. Sure, the Adani Ports and Special Economic Zone Ltd stock has lost just 0.2%, but the relative outperformance doesn’t count for much either.

Note that these companies are not strictly comparable thanks to their varied service offerings. However, their core ports are situated in India’s west coast, which have been lately seeing competitive intensity due to the addition of new container terminals at JNPT and Kandla port, eyeing the export-import container business.

Gujarat Pipavav’s recent June quarter results reflect the impact of growing competition. Despite higher volume and revenue, net earnings dropped from a year ago. Earnings were impacted by an adverse volume mix. The management has warned about competition and pricing pressure. Several analysts have pared their earnings estimates, fearing subdued profitability.

Adani Ports’ performance wasn’t exceptional either. Revenue and net earnings trailed Street estimates in Q1. Even so, adjusted for non-recurring revenue in the year-ago quarter and forex losses due to mark-to-market adjustment on dollar-denominated debt, the core ports business did well, said analysts.

Importantly, the management guided for improvement in profitability at the ports business and rise in free cash flows. “Port Ebitda margins to expand by 100 bps to 71%," Nomura research said in a note on Adani Ports. Management expects free cash flow of 1,750-2,000 crore against 1,253 crore in FY18 and 675 crore in FY17, pointed out Nomura. The Q1 results and commentary indicate that Adani Ports’ focus on improving the cargo mix is yielding results.

Still, the superior earnings outlook doesn’t mean much. Share performance is lacklustre. What’s more, valuations are at a discount. Compared to Gujarat Pipavav’s 26 times FY19 earnings per share multiple, Adani Ports is trading less than 20 times. This is despite Adani Ports generating superior returns.

Despite the slow growth profile, institutional investors prefer Gujarat Pipavav for its transparency and simpler business structure, said an analyst with a domestic broking firm.

Further, Adani Ports’ dealings with its group firms don’t help. Reacting to investor concerns, Adani Ports curtailed related party loans. However, exposure to group firms remains high. Trade receivables jumped to 4,300 crore (about 38% of sales; FY17 was 2,700 crore), said analysts at Edelweiss Securities Ltd in a note analysing Adani Ports latest annual report. This was led by a steep jump in receivables from related parties.

What this means is that even as expanding trade volumes are helping domestic ports, a clear winner is yet to emerge.

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