On the other hand, Idea continues to expand its reach aggressively, increasing the number of cell sites by about 15%. The mismatch in volume growth and capacity expansion was one of the main reasons for the sharp 670 basis points contraction in operating margin. One basis point is one-hundredth of a percentage point.

The other reasons included costs related to the recent launch in the Mumbai circle. According to Idea, the benefit of the cell sites added in the September quarter would be visible in the ensuing quarters. But the markets would have none of it, evident from the 13% drop in the share price on a day when the markets rose by nearly 4%.

Investors seem to focus on near-term performance rather than discount earnings way into the future. In any case, the prospect of Idea’s numbers getting materially better in the near future are dim. Last quarter’s results included the Mumbai circle’s financials for only five weeks. In the next quarter, it will be visible for the whole quarter. Besides, the firm is also set to launch operations in a few more new circles. Financials of recently acquired Spice Communications would soon be merged, and that, too, is expected to drag down overall performance in the near term.

Idea’s story is one of the good stories in the telecom space, what with it having spectrum in the 900MHz band in nine circles, as well as having a strong cash position, thanks to the equity infusion by Telekom Malaysia Bhd. Besides, on an enterprise value/subscriber basis, it’s valued at just $134 (Rs6,539) at current levels, much lower than the reported valuation ($330) at which NTT DoCoMo Inc. is expected to buy into Tata Teleservices Ltd.

But as pointed out earlier, investors are solely focused on near-term performance, and are least interested in betting on Idea being an acquisition target. Besides, there are other worries such as the coming overcapacity in the sector, thanks to the GSM roll-out by Reliance Communications Ltd and other new players in the space. Although valuations are compelling, these worries and lacklustre near-term performance may continue to keep investors away.

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