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Business News/ Market / Mark-to-market/  Idea Cellular: volumes, profits grow at healthy pace
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Idea Cellular: volumes, profits grow at healthy pace

The company's September quarter results should help sustain the rally in shares

Telecom stocks have done well since mid-July, or after reporting better-than-expected results for the June quarter. While this trend should continue, the upside could be limited to some extent because of investors’ concerns about the entry of Reliance Jio Infocomm. Photo: Pradeep Gaur/MintPremium
Telecom stocks have done well since mid-July, or after reporting better-than-expected results for the June quarter. While this trend should continue, the upside could be limited to some extent because of investors’ concerns about the entry of Reliance Jio Infocomm. Photo: Pradeep Gaur/Mint

Idea Cellular Ltd’s shares rose by more than 4% on Monday, with investors getting excited about the government’s reform measures. The company’s September quarter results, announced after the end of trading on Monday, should help sustain the rally.

The company reported a healthy 19.7% year-on-year increase in consolidated revenue and a 25.9% increase in earnings before interest, tax, depreciation and amortization (Ebitda), after adjusting for an one-time gain last quarter. Analysts at Kotak Institutional Equities had estimated growth of 17.4% and 22.8%, respectively, in revenue and Ebitda.

The September quarter is a seasonally weak one because of the monsoon, making a sequential comparison difficult. Nevertheless, it is worth noting that Idea restricted the drop in volume in the voice segment to 1.7% compared with the June quarter this year. Last year, volume had dropped by 5.8% owing to the seasonal factor, and analysts had factored in a drop of around 5% this year as well. Likewise, data volume exceeded expectations. On a year-on-year basis, they more than doubled. And data realizations have stabilized in the past two quarters, after sharp declines in preceding quarters.

The only area of concern was that voice realizations fell by 2.4% compared with the June quarter. Since competitive intensity has reduced considerably, analysts and investors had assumed that voice realizations will continue to inch up. But according to analyst with an institutional brokerage, it makes more sense to look at the big picture, which is that revenue and profit are growing at a healthy pace. While Idea may still be competing aggressively on tariffs, it has managed above-average volume growth. Of course, it remains to be seen if it has gained market share at the expense of the other listed company in the industry, Bharti Airtel Ltd.

Telecom stocks have done well since mid-July, or after these companies reported better-than-expected results for the June quarter. While this trend should continue, the upside could be limited to some extent because of investors’ concerns about the entry of Reliance Jio Infocomm Ltd. Besides, the central government hasn’t made any material changes in its policies for the industry and there remains a lot of uncertainty on issues such as mergers and acquisitions.

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Published: 20 Oct 2014, 09:15 PM IST
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