Idea shares down on margin squeeze, growth warning

Shares of telecom operator Idea Cellular were down 2.5 percent after a contraction in margins hit the company’s April-June earnings. A warning from the company that the telecom sector may witness a muted growth in the first half of the year also dampened sentiment.

Idea’s consolidated net profit rose 32 percent to Rs 234 crore.

“Overcapacity in the sector continues, hyper-competition remains,” Managing Director Himanshu Kapania was quoted as saying in a Rueters report.

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Even as Idea’s first quarter topline (and associated metrics like traffic, revenue per minute, average revenue per user, minutes of use) met estimates, the margins disappointed, Kotak Institutional Equities said in its post-earnings note.

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“Lack of operating leverage despite a strong 5 percent+ on quarter volume growth was a tad disconcerting,” the brokerage said.

Expressing confidence the company will sustain its industry-leading volume growth, it said there was a minor concern on the cost of doing so.

Religare Institutional Research said the margins missed its estimate and also that no recovery is likely in the near future because of the pricing pressures on heightening competition.