Pakistan Telecommunication Company Limited (PTCL) – A Profile

Pakistan Telecommunication Company Limited (PTCL) – A Profile

(November 13, 2012 / Business Recorder) – Pakistan Telecommunication Company Limited (PTCL) is undoubtedly the single-largest telecom carrier in Pakistan. The Company has licenses to operate in a host of ICT segments, including fixed and wireless local loop telephony, mobile cellular telephony, and both wireless and wire-line broadband services. The Ufone brand of Pakistan Telecom Mobile Ltd – the wholly-owned subsidiary of PTCL – significantly enlarges the Company’s footprint on the local telecom scene.

The telecom giant also provides core infrastructure services to cellular companies, LDIs, FLL operators, ISPs, call centres and payphone operators. In April 2006, Emirates Telecommunication Corporation, or Etisalat, assumed management control of Pakistan Telecommunication Corporation Ltd – part of the 2.6 billion dollars deal to buy a 26 percent stake in PTCL. Etisalat has its majority on the PTCL’s board of directors.

According to the management report, during FY12, PTCL had expanded its DSL broadband footprint to over 1,800 cities and towns. During FY12, the Company’s DSL customer base is said to have increased by 32 percent to reach 0.8 million subscribers, cementing its position as market leader. The 3G EVO wireless broadband service is reportedly available in more than 250 cities. Together with these two broadband services, PTCL acquired its first one million broadband customers in May earlier this year.

In the FLL segment, PTCL has over six million installed PSTN lines (fixed lines) with 2.96 million active subscriptions as of December 2011, as per PTA statistics. In the WLL segment, PTCL continues to be the market leader with 1.64 million subscribers in a market of 3.1 million, as of March 2012.

PTCL’s revenue streams include PSTN lines, wireless local loop telephony, broadband services, corporate business solutions, carrier services and international business (LDI). Voice segment used to be PTCL’s bread and butter, but since after the telecom sector’s deregulation in Pakistan and due to shifting telecom customer preferences (more sms than phone calls) and declining voice tariffs, the segment’s share in revenues came down to just over 40 percent in 2010-11.

FINANCIAL PERFORMANCE SALES REVENUE Since the FLL operations and LDI telephony were no longer offering the hitherto attractive margins in the past five, six years, PTCL had to transform and diversify its revenue streams. The turnaround started to happen last year when the Company reported that the continuous decline in FLL revenues was becoming offset by the continued increase in the revenue from emerging segments of broadband and corporate services & solutions.

During FY12, PTCL’s topline crossed Rs 60 billion for the first time after FY08, and recorded a fairly decent growth of 8.66 percent on a year-on-year basis. Both the local and international revenues grew during the period, with major growth coming from the domestic operations. According to the management report to shareholders, the revenue from broadband segment grew by a whopping 58 percent, corporate services by 12 percent, and international incoming LDI business by eight percent increase compared to previous year. The revenues from FLL business continued to decline due to depressed voice tariffs and substitution to other forms of communication.

COST OF SERVICES Cost of services increased by a relatively lower 7.37 percent YoY in FY12. Higher expenses on salaries, allowances and benefits, currency depreciation, foreign operators’ costs, satellite charges, fuel expenses, led to this rise. It was a good year, for the cost of services consumed 74.78 percent of revenues in FY12, which is 89bps lower than in FY11.

GROSS PROFIT MARGIN That showed in the gross margins, which reached 25.22 percent in FY12, compared to 24.32 percent in FY11. Gross profits recorded a double-digit YoY growth of 12.66 percent in FY12.

OPERATING EXPENDITURES Much like previous years, the operating expenditures have remained under check. After the managed cost expenditures, both the administrative and the selling expenses registered modest growth in FY12 – the former growing by 5.35 percent and the latter by 8.64 percent. Collectively, these two expense heads exhausted roughly 17.07 percent of the revenues in FY12, good 41bps lower from the FY11 level. PTCL has been actively advertising its services through a variety of communication platforms, which seems to be working as topline growth shows.

OTHER OPERATING INCOME Other operating income, which includes dividends from subsidiaries and returns on cash parked with banks and long-term loans to subsidiaries, declined by a notable 15.86 percent in FY12. While the returns on bank deposits declined due to the declining interest rate curve, the major dent came from a more than halving of the dividends from Ufone’s holding company, PTML. Some respite was delivered by writing back the liabilities that were deemed no longer payable, however, that couldn’t offset the large shortfall.

OPERATING PROFIT MARGIN This led to a decline of 1.15 percent in the Company’s operating profit for the year. The EBIT margin fell below 20 percent for the first time in five years, shedding 190bps over previous year’s margin of 21.03 percent.

FINANCE COSTS Successive years of controlling the finance costs met a setback when these costs jumped 1.32 times during FY12. Bank charges showed a notable increase, but exchange losses of nearly Rs 260 million really pushed the financial costs higher here.

PROFIT AFTER TAX It’s a pity that a healthy topline growth and a reasonable operating performance were marred by not-so-promising results from the non-operating activities. Hence, PTCL’s net profits declined by almost three percent in FY12, and the net margins lost 143 bps to settle at 12.07 percent for the outgoing year. A bottom-line of Rs 7.2 billion still looks attractive nonetheless, especially when topline has resumed its growth trend.

RATIO ANALYSIS LIQUIDITY MANAGEMENT PTCL’s liquidity position significantly improved during FY12. Both the current and quick ratios added 90 points each to reach 2.3 and 2.16 percent, respectively. PTCL had accumulated cash & cash equivalents worth Rs 13.19 billion at the end of FY12, which is 1.3 percent more than at the end of FY11.

DEBT MANAGEMENT The debt accumulation in PTCL’ capital structure slightly decreased during FY12. The debt to asset ratio declined to 0.33 in FY12 from 0.35 in FY11. The debt represented 21.9 percent of firm’s equity in FY12, same as in FY11, but significantly lower compared to 17.6 percent in FY10 and 16.2 percent in FY09. On the other hand, due to a sudden increase in finance costs, PTCL’s debt repayment capability, measured in Times Interest Earned, declined massively to 23.85 times in FY12 compared to 56 times in FY11 and 36.4 times in FY10.

PROFITABILITY Lower net profits translated into lower returns on capital employed and equity invested in the firm. The company’s return on capital came down in FY12 to 6.1 percent from 6.4 percent in FY11. Similarly, the return on equity declined to 7.08 percent in FY12 from 7.5 percent in FY11.

The company’s EPS slightly declined to Rs 1.41 in FY12, five paisa lower than in FY11. The price to earnings ratio was slightly down at 9.68 in FY12 from 9.76 in FY11.

FUTURE OUTLOOK It’s a positive sign for the Company’s shareholders that the deterioration in voice revenues is now being more than offset by the gains emanating from non-voice segments, like broadband and corporate services. This was also visible in the Company’s 1QFY13 financials where PTCL recorded top line growth of eight percent. Due to a one-time expense of Rs 10.998 billion on employee VSS programme during the maiden quarter, the bottom line may well remain in red for FY13 (just as it was in FY08). However, moving forward, the benefits of a skimpier payroll would augur well in tandem with a focused business approach.

Triple play services of voice, data and video – all served on a single line – may take a while to gain traction in Pakistan. But when that happens, PTCL is ideally poised to lead the market as it possesses the spectrum, networks and infrastructure to deliver high quality services. Moreover, if and when the matter of International Clearing House for incoming LDI traffic gets in the clear, old bells may start tolling again for PTCL again, because the telecom giant controls well over 50 percent of this market, too!

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