Pak Datacom Limited (PSX: PAKD) was incorporated in Pakistan as a private limited company in 1992 and was converted into a public limited company in 1994. The principal activity of the company is setting up, operating, and maintaining a network of data communication and serving the needs of the customers.
Pattern of Shareholding
As of June 30, 2024, PAKD has a total of 11.859 million shares outstanding which are held by 2207 diverse shareholders. 67.73 percent of PAKD’s shares are held by its associated companies, undertakings, and related parties followed by the local general public holding 12.56 percent of the company’s shares. Banks, DFIs, and NBFIs have a stake of 7.2 percent in the company while Insurance companies account for 7.7 percent shares. 2.45 percent of PAKD’s shares are held by foreign companies and 1.83 percent by Modarabas & Mutual Funds. The remaining ownership is distributed among other categories of shareholders.
Historical Performance (2019-24)
Except for a dip in 2020, PAKD’s topline has been ascending since 2018. Its bottomline dipped twice during the period under consideration i.e. in 2020 and 2024. The company’s margins have been fluctuating since 2018 (see the graph of profitability ratios). Gross margin touched its optimum level in 2019 while operating margin and net margin peaked in 2024 and 2023 respectively. Owing to other income and finance income made by the company, its operating margin and net margin often exceeded its gross margin. The detailed performance review of the period under consideration is given below.
In 2019, PAKD’s topline grew by 18.67 percent year-on-year which mainly came on the back of growth in the revenue from communication value-added services (CVAS). Conversely, telecom infrastructure services registered a plunge during the year. Overall, the year was difficult for the telecom industry owing to the sharp depreciation of the Pak Rupee, high inflation, and hike in energy prices. However, PAKD’s efforts to rationalize its media cost, terrestrial cost, network, and other operational costs resulted in a 56.15 percent improvement in its gross profit in 2019 which translated into a GP margin of 24.57 percent versus a GP margin of 18.67 percent posted in 2018. Operating expenses posted a marginal 0.94 percent growth in 2019 which was mainly on account of advertisement and marketing expenses incurred during the year. Impairment booked on financial assets spiked by 118.62 percent in 2019. Operating profit magnified by 86.93 percent year-on-year in 2019 with OP margin picking up to 7.4 percent from OP margin of 4.7 percent registered in 2018. PAKD made a finance income of Rs.88.70 million in 2019 as against the finance cost of Rs.1.93 million incurred in 2018. This resulted in a 654.11 percent bigger net profit in 2019. Net profit stood at Rs. 143.02 million in 2019 with NP margin clocking in at 15.10 percent versus NP margin of 2.38 percent posted in 2018. EPS also climbed up from Rs.1.94 in 2018 to Rs.14.59 in 2019.
With 18.65 percent year-on-year shrinkage in its topline, 2020 appears to be a complicated year for PAKD. The decline in turnover was due to the outbreak of COVID-19 and the country-wide lockdowns which curtailed the special business projects and telecom infrastructure services of the company during the year. This offset the growth seen in class value-added services (CVAS). High inflation and Pak Rupee depreciation continued to take their toll on the financial performance of the company, resulting in a 37.24 percent smaller gross profit recorded in 2020 with GP margin sliding down to 18.95 percent. Operating expenses surged by 16.7 percent year-on-year in 2020 mainly on account of higher payroll expenses due to inflationary pressure and also because the workforce tally increased from 220 in 2019 to 223 in 2020. PAKD kept a check on its advertisement and promotional activities during the year to achieve operational efficiency yet couldn’t help operating profit from registering 40.61 percent year-on-year decline in 2020. OP margin also fell to 5.4 percent in 2020. PAKD’s finance income also squeezed to Rs.5.65 million in 2020, down 93.63 percent year-on-year due to lower exchange gain as the company’s foreign business was greatly affected by COVID-19-related restrictions on the movement of people and goods. Finance lease charges also trimmed down the finance income in 2020. As a consequence, net profit measured down by 94.82 percent year-on-year in 2020 to clock in at Rs.7.41 million with EPS of Rs.0.69 and NP margin of 0.96 percent.
2021 was the recovery year for PAKD with a 16.45 percent year-on-year rebound in its net sales. The topline growth was primarily the effect of specialized projects executed by the company in 2021. Improved turnover due to the completion of projects that were halted during the lockdown period coupled with widespread cost-cutting measures and strengthened local currency culminated in a 24.61 percent year-on-year rise in gross profit in 2021 with GP margin ascending to 20.28 percent. Operating expenses grew by 7.17 percent year-on-year due to a hike in payroll expenses and advertisement expenses in 2021. Superior other income on account of excessive plan assets of gratuity fund realized back also propelled the operating performance. Operating profit picked up by 86.9 percent year-on-year in 2021 with OP margin rising to 8.67 percent. PAKD incurred a finance cost of Rs.9.7 million in 2021 as against finance income recorded during the past two years. This was the consequence of exchange loss incurred during the year. The bottom line posted a 107.29 percent increase to clock in at Rs.15.367 million with EPS of Rs.1.3 and an NP margin of 1.71 percent in 2021.
PAKD continued its growth trajectory with even stronger topline growth of 38.13 percent year-on-year in 2022. All the revenue streams of the company i.e. CVAS, specialized projects, and telecom infrastructure services showed staggering performance during the year. The steep depreciation of the Pak Rupee, unprecedented level of inflation, and elevated energy prices pushed the cost of sales up by 52.5 percent year-on-year in 2022. This squeezed the gross profit by 18.38 percent year-on-year, translating into a thinner GP margin of 11.98 percent. Operating expenses spiked by 6.11 percent year-on-year in 2022. While payroll expenses were in check during the year, higher repair and maintenance charges, traveling and conveyance charges, and depreciation on right-of-use assets were the drivers for higher operating expenses in 2022. Other income registered a robust 285.78 percent rebound in 2022 on account of liabilities written back during the year. This drove the operating profit up by 142.13 percent year-on-year in 2022 with OP margin climbing up to 15.2 percent. Splendid exchange gain on international business on account of Pak Rupee depreciation resulted in a finance income of Rs.66.2 million in 2022. Net profit multiplied by over 1405.13 percent in 2022 to clock in at Rs.231.30 million with EPS of Rs.19.5 and NP margin of 18.66 percent.
PAKD’s topline growth was recorded at 9.97 percent year-on-year in 2023 which came on the back of superior revenue from CVAS. Improved revenue mix, upward revision in the prices of services, and cost-cutting measures adopted by the company buttressed the gross profit which picked up by 94.52 percent year-on-year in 2023. GP margin also posted a remarkable improvement to reach 21.19 percent in 2023. Operating expenses surged by 32 percent year-on-year in 2023 on account of higher payroll expenses (despite the reduction in the number of employees from 227 in 2022 to 193 in 2023), higher advertisement and marketing expenses as well as higher vehicle running and traveling expenses. Other income slid by 35.94 percent year-on-year in 2023 due to the high base effect produced by liabilities written back in 2022. Higher operating expenses and lower other income took their toll on the operating profit of PAKD which slipped by 16.79 percent year-on-year in 2023 with OP margin inching down to 11.5 percent. Tremendous finance income of Rs.242.39 million earned during 2023 due to massive exchange gain proved to be the game changer for PAKD’s financial performance and culminated in a 25.32 percent higher net profit registered in 2023. PAKD’s net profit stood at Rs.289.86 million in 2023 with EPS of Rs.24.44 and NP margin of 21.27 percent – the highest NP margin recorded during the period under consideration.
In 2024, PAKD recorded a 23.67 percent year-on-year rise in its topline. This was on account of a staggering rise in revenue from CVAS and specialized projects. The company also added a new revenue stream as it made solar equipment sales during the year. Conversely, revenue from telecom infrastructure services ticked down during the year. Cost of sales grew by 19.23 percent in 2024 resulting in 40.15 percent improved gross profit recorded in 2024 with GP margin jumping up to 24.02 percent. Operating expenses surged by 23.82 percent in 2024 mainly on account of higher payroll expenses due to inflationary pressure. The company squeezed its workforce from 193 employees in 2023 to 186 employees in 2024. PAKD booked a reversal of impairment loss on financial assets worth Rs.41.22 million in 2024. This was against the booking of impairment loss on financial assets worth Rs.32.06 million in 2023. Other income posted a marginal growth of 2.38 percent in 2024. While return on bank deposits and short-term investments as well as gain on disposal of fixed assets and income from other non-financial assets grew during the year, the high base created by liabilities written back in 2023 resulted in a minor uptick in other income in 2024. Operating profit posted 89.8 percent year-on-year progress in 2024 with OP margin attaining its highest level of 17.65 percent. PAKD recorded a finance cost of Rs.33.04 million in 2024 as against a finance income of Rs.242.39 million recorded in the previous year. This was the consequence of the exchange loss incurred in 2024 versus the exchange gain recorded in the previous year. Net profit slumped by 33.68 percent in 2024 to clock in at Rs.192.22 million with EPS of Rs.16.21 and NP margin of 11.41 percent.
Recent Performance (1QFY25)
With a year-on-year topline drop of 23.54 percent in 1QFY25, the ongoing financial year doesn’t appear to be favorable for PAKD thus far. One of the reasons for this was the conservative approach adopted by the banks on the issuance of letters of credit which didn’t allow the company to continue the operations of the data communication segment smoothly. Besides, the international telecom businesses run by PAKD are closing their operations in Pakistan due to poor politico-economic backdrop. Cost of sales also plunged during 1QFY25, however, with a considerably lower magnitude of 16.89 percent. This resulted in a 35.73 percent decline in gross profit in 1QFY25 with the GP margin sliding down to 29.68 percent versus the GP margin of 35.31 percent recorded during 1QFY24. Operating expenses plummeted by 4.45 percent in 1QFY25 due to lower payroll expenses as well curtailed advertising & promotion budget. During the period, the company booked a reversal of impairment loss on financial assets to the tune of Rs.10.489 million. This was against the impairment loss of Rs.3.54 million recorded in 1QFY24. Other income mounted by 47.64 percent in 1QFY25. This was the result of hefty returns recognized on bank deposits and short-term investments during the period. PAKD’s operating profit eroded by 28.35 percent in 1QFY25 with OP margin clocking at 20.86 percent versus OP margin of 22.25 percent recorded during the same period last year. The company recorded a finance cost of Rs.5.496 million in 1QFY25 versus a finance income of Rs.10.081 million recorded in 1QFY24. This was due to the exchange loss incurred during 1QFY25 versus the exchange gain recorded during the same period last year. PAKD’s net profit thinned down by 42.17 percent to clock in at Rs.38.463 million in 1QFY25 with EPS of Rs.3.24 versus EPS of Rs.5.61 recorded in 1QFY24. NP margin shrank from 17.71 percent in 1QFY24 to 13.39 percent in 1QFY25.
Future Outlook
Pakistan’s demographic break-up shows that there is a large proportion of the population under 30 years old who are eager to adopt new technologies and digital services. This may result in improved demand for mobile connectivity and high-speed internet. Besides, the growing trend of online education, remote work, entertainment, e-commerce, digital transformation across various sectors, etc will also fuel the demand for PAKD’s services. The company has also recently ventured into the sale of solar equipment. This diversification of revenue streams will also prove to be rewarding for the company.
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