PTCL stays steady

In a pandemic year, you earn what you can and remain grateful. The Pakistan Telecommunications Co. Limited (PSX: PTC) did not grow its group topline for the year ended December 31, 2020, as per the financials posted on PSX website yesterday. But the strong double-digit increase in its annual profits – thanks mainly to non-core factors – should be a source of comfort for the telecom giant. Looking at the group’s constituent parts is instructive.

On a yearly basis, the PTCL Company, which continued to supply about 55 percent of group revenues, saw a meager 0.36 percent increase in topline during CY20. The whole telecom sector had been affected last year, what with the lockdowns impacting new sales and customers continuing to face economic difficulties that pre-dated the pandemic. This has apparently affected the pace of growth in flagship DSL broadband revenues.

Meanwhile, the two subsidiaries, Ufone and UBank, together posted a 0.65 percent yearly decline in revenues for the year under review. But the main culprit here seems to be Ufone, and not UBank. The latter has been witnessing strong topline growth thanks to higher transactions in the digital financial services segment. Ufone has been facing similar headwinds as other mobile network operators.

Overall the group managed to keep its administrative expenses in check as well as lower the selling expenses. But the operating profit still saw a yearly fall of 16 percent to Rs5.6 billion. Operating profits fell across the board. At the PTCL Company, they were down 30 percent year-on-year to Rs3.4 billion. The two subsidiaries together scored an operating profit of Rs2.2 billion, down 26 percent year-on-year.

It was the ‘other income’ that saved the day for PTCL Group down the line. At Rs8.3 billion, this non-core income grew by a third over previous year, with healthy contributions coming from both PTCL and (especially) the subsidiaries. This helped the group post 26 percent growth in pre-tax profits. In the end, a lower tax bill relative to pre-tax earnings ensured a solid 38 percent expansion in CY20 bottomline.

The PTCL Company continued to be a source of net profits for the group, providing Rs6 billion in net earnings, albeit down 5 percent year-on-year. Meanwhile, the subsidiaries (read: Ufone) continued to post a cumulative net loss, this time of Rs2.75 billion. The losses there, however, narrowed by 31 percent over previous year. Both the PTCL Company and the subsidiaries seem to have posted healthy operating results in the fourth quarter. The management will need to find ways to sustain recent quarterly growth.