Telecom stocks rally as Idea numbers fuel optimism

Telecom stocks, including that of market leader Bharti Airtel, rallied today after the better-than-expected March quarter earnings of Idea Cellular fuelled investor optimism towards the sector. Other telecom stocks also rallied in early trade, on hopes that they will take cues from Idea numbers too.

Idea, the second-biggest telecom operator in terms of market capitalisation, posted net profit of Rs 308 crore, beating analysts' expectations of Rs 267 crore.

Shares of the company, after gaining as much as 11 per cent, finally closed 5.2 per cent up at Rs 122.3, the highest in over three months. At the NSE, the scrip surged 10.43 per cent to a one-year high of Rs 128.60. Led by the uptick in the stock, the market value of the company jumped Rs 2,950 crore to Rs 41,478 crore.

Buoyed by strong growth in voice usage and data consumption, Idea Cellular had yesterday posted a 29 per cent jump in consolidated net profit at Rs 308.18 crore for the fourth quarter ended March 31, 2013.

Bharti Airtel gained 4.5 per cent to close at Rs 318.4, its highest close since March 11. Tata Teleservices (Maharashtra) gained 2.6 per cent to Rs 8.67, while Reliance Communications, which had opened higher, failed to hold on to its gains, to end at Rs 93.05, down 2.62 per cent. The benchmark Sensex ended 0.62 per cent down at 19,286.72.

Analysts tracking the sector said Idea's positive numbers indicated the competitive landscape in the telecom space was improving and consolidation is having a positive impact on established players.

"This result is a welcome relief given wider expectations around improving trends from rationalising competitive dynamics," said a a client note by Nomura. "Virtually every domestic carrier expects to maintain pricing stability, which we think should continue in the next one or two quarters; however, uncertainty prevails beyond that."

Credit Suisse's analyst duo, Sunil Tirumalai and Chunky Shah, said in a research note that the Idea's earnings show "market consolidation and competitive improvement are happening rapidly".

"We continue to believe that tariff rationalisation should result in revenue per minute upticks in coming quarters," they added, while upgrading Idea from neutral to outperform.

Analysts are expecting Bharti Airtel, which will announce its numbers on May 2, to post net profit of Rs 735 crore.