Like its larger peers Bharti Airtel Ltd and Vodafone India Ltd, Idea Cellular Ltd’s June quarter results showed signs of stability on the revenue front.

Revenues are up 0.5% from the March quarter. In the previous two quarters, revenues fell in the range of 6-7%. Revenues stabilized as Reliance Jio Infocomm Ltd moved from “free services" to “paid services".

Similar to Bharti Airtel, Idea Cellular also reported good growth in volumes. Voice minutes are up 8.4% and data volumes almost doubled. The strong volumes helped Idea Cellular arrest the revenue decline on a sequential basis. But that was of limited use. The steep drop in realizations meant the company reported losses for the third straight quarter.

While the revenues and loss figures are largely in line with Street estimates, the financial performance provides no succour to investors. Pressure on tariffs and heavy discounts are putting undue financial pressure on Idea Cellular. It slipped into losses at the Ebit (earnings before interest and tax) level for the first time in recent quarters.

The full quarter impact of the spectrum acquired by the company in 2016 has pushed up depreciation costs. But the situation is dire even otherwise. While operating earnings are under pressure, higher capital expenditure (capex) and the resultant rise in debt means that below-the-line numbers are increasingly getting distorted.

The return on capital employed turned negative. It means operating earnings are falling short of capital cost. Net debt to Ebitda (earnings before interest, tax, depreciation and amortization) rose to 7.2 times. In the year-ago quarter it was a little over three times.

Last quarter, Idea Cellular funded its capex mainly through cash profit. But given that a large part of the capex plan for the current fiscal year is yet to be incurred and cash profits are fast depleting, the situation can turn for the worse if the merger with Vodafone India, which is expected to bring in synergies and reduce leverage, is not fast-tracked or the business environment turns for better.

Unfortunately, neither seems to be an immediate possibility. The company has till now received only one of the four main approvals required for the merger with Vodafone India.

On competition, even though Reliance Jio has begun charging its customers, as Kotak Institutional Equities points out, the path to improved profitability for the industry is not clear given the current relentless competition. “The pricing power is still with Reliance Jio, dependent on how it calibrates based on adoption and therefore premature to call a bottom on the sector yet," Jefferies India Pvt. Ltd said in a note.