Idea Cellular shares take a fall as Reliance Jio pushes company into first ever quarterly loss

Idea Cellular shares take a fall as Reliance Jio pushes company into first ever quarterly loss

Idea Cellular shares tumbled today after posting its first ever quarterly loss as rival Reliance Jio’s entry forced it to cut tariffs, eroding margins.

Idea Cellular was trading down 3.5% at Rs 106.5, after opening at the day’s low of Rs 102, against the advance in the benchmark indices. BSE Sensex was trading firm at 28,450.42 points, up 0.41%.

Earlier on Saturday, Idea Cellular reported a consolidated net loss of Rs 384 crore in the fiscal third quarter that ended December 31, compared with a net profit of Rs 659 crore in the same quarter a year ago. The loss was slightly bigger than Thomson Reuters poll of analysts’ expectations at Rs 371 crore.

The core telecom operations loss was even higher at Rs 479 crore on a standalone basis. Idea said in a statement it cut mobile voice rates by 10.6% and data prices by about 15% in the Oct-Dec quarter to retain its customers.

Revenue declined 3.8% from a year earlier to Rs 8,663 crore during the third quarter, while expenditure rose 10.3% to Rs 8,463 crore, Idea said.

Idea is already in talks with Vodafone India to merge the two companies business operations in an effort to gain the required scale to take on the heightened competition from Reliance Jio. The proposed merger would be the first consolidation move in the Indian telecom industry reeling under the pressure of intense competition from Reliance Jio’s free service offers.

A possible Vodafone-Idea combine will surpass Bharti Airtel as the largest telecommunication company with a total subscriber base of 39 crore, far ahead of Reliance Jio’s 7.2 crore. Further, the combined entity would have 43% of the revenue market share and 40% of the active subscriber base, research firm CLSA said. The two operators complement each other, with Vodafone having strong presence in urban areas and Idea being an established player in the hinterland. The new capital that Vodafone brings in may be used to pare the substantial debt that Idea has on its books.

Reliance Jio’s entry into the telecom space has forced the incumbent players to drastically cut tariffs – as much as by 66% – in order to retain their customer base, and has put the entire sector under tremendous pressure of choosing between protecting margins and user base. Reliance Jio recently extended its inaugural free voice and data plan till March 31 drawing complaints and criticisms from its biggest rivals Airtel, Vodafone and Idea, who assert that its anti-competitive practices and freebies are hurting the industry. Vodafone earlier went as far as to write down the value of its India business on hyper competition from the new entrant.