Airlink Communication Limited

Airlink Communication Limited (PSX: AIRLINK) was incorporated in Pakistan as a private limited company in January 2014 and was converted into a public limited company in April 2019. The company is engaged in import, export distribution, identifying, wholesale, and retail of communication and IT-related products and services including smartphone/ cellular phones, tablets, laptop accessories, and related products.

Pattern of Shareholding

As of June 30, 2024, AIRLINK has a total of 395.269 million shares outstanding which are held by 5797 shareholders. Sponsors have the majority stake of 73.43 percent in the company followed by local general public accounting for 7.93 percent of its shares. Foreign companies hold 5.75 percent shares of AIRLINK while Modarabas and Mutual Funds hold 2.98 percent shares. Around 2 percent of the company’s shares are held by its Directors, CEO, their spouse, and minor children, 1.78 percent by Insurance companies, and 1.15 percent by Banks, DFIs, and NBFIs. The remaining shares are held by other categories of shareholders.

Financial Performance (2021 – 2024)

AIRLINK posted its first annual report as a publicly listed company in 2020. In 2021, the company’s topline inched up followed by a decline in the successive two years. In 2024, AIRLINK’s topline posted a staggering growth. Its bottomline expanded in 2021 and 2022 followed by a steep plunge in 2023. In 2024, the company’s bottom line considerably strengthened to attain an unparalleled level. AIRLINK’s margins, which considerably eroded in 2021, bounced back in the next year. The company’s gross and net margins improved in 2023, however, its operating margin ticked down. In 2024, AIRLINK’s gross margin slightly dropped while its operating and net margins greatly improved. The comprehensive performance evaluation of AIRLINK since its public listing is outlined below.

In 2021, AIRLINK’s topline grew by 10.15 percent year-on-year. The company’s production plant became operational in April 2021 with a total production capacity of 1.2 million cell phones; however, the company was able to utilize 13.8 percent of its installed capacity. Modest revenue growth was the result of the low penetration level of 3G/4G services. Moreover, the economy has recently started recovering from the shocks of COVID-19. The company didn’t make any export sales in 2021. Service incomes significantly grew during the year; however, it had a very insignificant contribution to the total sales of AIRLINK in 2019. High cost of sales due to Pak Rupee depreciation and high inflation resulted in a paltry 0.67 percent rise in gross profit with GP margin sliding down from 11.09 percent in 2020 to 10.14 percent in 2021. Administrative expenses hiked by 39.74 percent in 2021 as a result of higher payroll expenses as AIRLINK’s number of employees increased from 477 in 2020 to 530 in 2021. Other factors that drove up administrative expenses in 2021 were high depreciation, repair &maintenance, and allowance for ECL. Distribution expense spiked by 21.83 percent in 2021 due to higher payroll expense, freight outward, and depreciation while AIRLINK considerably reduced its advertising & promotion budget in 2021. Other income slid by 59.91 percent in 2021 on account of considerably low profit earned on investments. Other income was almost wiped off by considerably higher other expenses recorded by AIRLINK during the year due to higher provisioning for WWF, loss on termination of lease as well as exchange loss. Operating profit plummeted by 11.05 percent in 2021 with OP margin slipping to 7.4 percent from 9.17 percent in 2020. Due to lower short-term and long-term borrowings as well as monetary easing, AIRLINK’s finance cost dropped by 21.15 percent in 2021. AIRLINK’s gearing ratio also nosedived from 65 percent in 2020 to 48 percent in 2021. The lower effect of tax on the import stage drove down the company’s total tax expense for the year by 16.72 percent in 2021. Therefore, net profit rose by 2.79 percent year-on-year in 2021 to clock in at Rs.1505 million with EPS of Rs.4.47 versus EPS of Rs.4.71 in the previous year. NP margin eroded from 3.4 percent in 2020 to 3.18 percent in 2021.

AIRLINK’s topline slumped by 2.56 percent in 2022. At the onset of the year, the country was witnessing a strong impetus in its economic activity; however, towards the end of the financial year, worsening politico-economic conditions of the country resulted in a ban on imports of luxury items which restricted AIRLINK cell phones in CBU condition. After that, the SBP also issued a notification to seek prior approval to establish L/Cs for the import of cell phones in CKD/SKD condition. With the Russia-Ukraine war in full swing, there was an acute shortage of commodities, resulting in a hike in prices. Moreover, the diminishing foreign exchange reserves of Pakistan were translating into drastic depreciation in the value of local currency. Demand for AIRLINK’s products also dipped due to the decline in the purchasing power of consumers. During the year, the company utilized 85.94 percent of its installed capacity and produced 1.031 million cell phones. While gross profit tumbled by 0.96 percent in 2022, stringent cost control measures put in place by the management enabled AIRLINK to slightly drive up its GP margin to 10.30 percent in 2022. Administrative expenses escalated by 17.42 percent in 2022 as the number of employees increased to 806 in 2022 which culminated in higher payroll expenses. Higher fee & subscription charges followed by towering utility charges, traveling & conveyance, and entertainment also pushed up the administrative expense in 2022. Conversely, distribution expense slumped by 5.39 percent in 2022 on account of lower freight outward, salaries & wages as well as packing expenses due to lower sales. Other incomes magnified by 253 percent in 2022 mainly on account of reversal of ECL, gain on termination of lease, and modification gain on long-term loans. Other expenses also surged by 54.89 percent in 2022 due to increased profit-related provisioning. Operating profit marched down by 0.38 percent in 2022; however, OP margin rebounded to 7.57 percent. Despite monetary tightening, AIRLINK was able to cut down its finance cost by 7 percent in 2022 due to lower lease liabilities and short-term borrowing. AIRLINK’s gearing ratio fell to 27 percent in 2022. The effect of expenses not allowed for tax, the effect of deferred tax, prior year tax, and FTR collectively lowered tax expense by 8.86 percent in 2022. This resulted in a 9.54 percent rise in net profit to clock in at Rs.1648.59 million with EPS of Rs.4.3 and a slightly higher NP margin of 3.57 percent in 2022.

AIRLINK’s topline drastically fell by 53.41 percent in 2023. The macroeconomic environment remained quite challenging characterized by Pak Rupee depreciation, import restrictions, commodity super cycle, high indigenous inflation, and soaring discount rate. The company was able to operate at 18.7 percent capacity owing to restrictions on imports. Shallow demand also played a pivotal role in the thin revenue registered during the year. The company was able to significantly cut down its cost of sales by 53.57 percent in 2023. Although gross profit also thinned down by 52 percent in 2023, GP margin slightly improved to 10.61 percent in 2023. The administrative expense was scaled down by 29.42 percent in 2023 as AIRLINK aggressively streamlined its workforce to 191 employees in 2023 versus 806 employees in the previous year. Distribution expense also dipped by 39.18 percent in 2023 mainly on account of lower payroll expenses, freight charges, and advertising budget. Lower profit-related provisioning resulted in 38 percent fewer other expenses incurred by AIRLINK in 2023. Other income also plunged by 38 percent due to a lesser reversal of ECL. Operating profit eroded by 59 percent in 2023 with the lowest OP margin of 6.65 percent. Regardless of the high discount rate, AIRLINK was able to cut down its finance cost by 29.92 percent in 2023 by rationalizing its long-term and short-term borrowings. This resulted in its gearing ratio falling to its lowest level of 20 percent in 2023. Nevertheless, net profit plummeted by 45.74 percent in 2023 to clock in at Rs.894.54 million with EPS of Rs.2.33 – the lowest since 2020. On the positive front, AIRLINK was able to record a matchless NP margin of 4.16 percent in 2023 by streamlining its outstanding loans and overcoming its finance costs.

In 2024, AIRLINK’s topline registered a whopping year-on-year growth of 161.73 percent. Measured recovery in economic activity, removal of import restrictions coupled with the company’s strategic measures over the year, and its ability to leverage its partnerships resulted in a remarkable recovery in its sales volumes. During the year, the company produced 652,421 cell phones which resulted in capacity utilization of 54.37 percent. The cost of sales surged by 162.44 percent in 2024 due to the heightened cost of raw materials consumed coupled with elevated energy tariffs. Spike in regulatory duties, clearing charges, and sales tax on mobile phones paid during the year also drove the cost of sales up. In absolute terms, gross profit grew by 155.77 percent in 2024, However, the GP margin slid to 10.36 percent. Administrative expenses escalated by 35 percent in 2024 due to higher payroll expenses incurred during the year as AIRLINK expanded its workforce from 191 employees in 2023 to 390 employees in 2024. Distribution expenses plummeted by 4.6 percent in 2024 due to lesser salaries expenses incurred in the distribution network, lower advertising and promotion budget, and considerably lower depreciation charges. Other income stayed at the same level as recorded in 2023 However, it was conveniently offset by 499 percent higher other expenses incurred in 2024 due to higher provisioning done for WWF, WPPF, and slow-moving and obsolete stocks. Moreover, loss on disposal of TFCs and operating fixed assets also drove other expenses up in 2024. AIRLINK recorded a 215.59 percent stronger operating profit in 2024, with OP margin rising to 8 percent. Finance costs mounted by 81.42 percent in 2024 due to a higher discount rate and a tremendous rise in the company’s short-term borrowings to meet its working capital requirements. AIRLINK’s gearing ratio bounced back to 30 percent in 2024. The company recorded a net profit of Rs.3059.34 million in 2024, up 242 percent year-on-year. This translated into EPS of Rs. 7.74 and the highest ever NP margin of 5.44 percent.

Future Outlook

AIRLINK’s strategic partnership with XiaomiTV and Acer Gadgets Inc. will strengthen its footprint in the local market. The company is already producing smartphones from renowned brands such as TCL, Tecno, Alcatel, Mitel, Huawei, MI, etc. To take advantage of the growing urban population and technological consciousness, the company is not only enhancing its global partnerships to diversify its product mix but also expanding its distribution network and geographical presence. The recent technological collaboration with China and the signing of an MOU with IMIKI Corporation will set the tone for the manufacturing of smart wearable devices in Pakistan, providing yet another avenue for AIRLINK to expand its product portfolio and customer base.