PTCL: deepening losses

The country’s telecom giant is being weighed down by rising operating costs and escalating cost of debt. As per the latest financial results posted to the bourse yesterday for the half-year period ended June 30, 2022, the Pakistan Telecommunications Company Limited (PSX: PTC) went into deep net loss of over Rs3 billion in 1HCY22, compared to roughly Rs3 billion in net profit in the same half-yearly period last year.

The group has posted yet another quarter of net loss in CY22. Recall that during 1QCY22, it suffered a net loss of Rs1.55 billion (net profit of Rs1.6 billion in 1QCY21), as tamed topline growth was no match for rising cost of services and burgeoning cost of debt. The PTCL holding company’s operating profit had declined significantly, even as the two subsidiaries (Ufone and UBank) together plunged into a large operating loss.

A similar story – of meager topline growth, proportionally higher core costs and operating expenditures, and massive expansion in finance costs – unfolded in the second quarter this calendar year, further entrenching the net losses seen at the group. As with other capital-intensive and customer-facing industries these days, the telecommunications industry is also being challenged by the increasingly difficult operating environment in the country.

Breaking down the results into constituent parts, the PTCL holding company – which provides over 55 percent of group revenues – witnessed a marginal revenue growth of 5 percent year-on-year to reach Rs39.9 billion in 1HCY22. This signifies difficulties in on-boarding new retail customers for broadband services and selling more wholesale connectivity services to other operators that are also struggling. The profit margins down the line were depleted by proportionally-higher spending on service costs and overheads. As a result, the operating profit of Rs1.89 billion was 33 percent lower than in 1HCY21.

What supported the PTCL Company bottomline (and also what backstopped the group financials to an extent) was the Rs6.03 billion that the company booked under ‘other income’ – showing yearly growth of 130 percent (Rs3.4 billion higher relative to 1HCY21). This breakthrough – which apparently accrued mainly on account of exchange-rate-related gains amidst PKR depreciation – helped raise the PTCL Company’s net profits to Rs5.18 billion in the half-yearly period, higher by 39 percent year-on-year.

Meanwhile, the two subsidiaries (Ufone and UBank) had a combined revenue growth of 7 percent year-on-year to reach Rs31.73 billion in 1HCY22. Higher cost of services and operating expenses caused a large operating loss of Rs1.07 billion, compared to operating profit of Rs1.18 billion in 1HCY21. This was made worse by over Rs15 billion that was paid out under ‘finance costs’ (about Rs11 billion more than what was expensed in 1HCY21 on this count). This is presumably on account of mainly servicing Ufone’s long-term loan, which had been acquired last year to finance the purchase of the 4G spectrum license.

As a result, the two subsidiaries together posted a huge net loss of Rs8.24 billion in the analysis period, compared to a smaller net loss of Rs805 million during 1HCY21. This not only ensured that the PTCL Company’s profitability contribution to the group was completely wiped out, but it also left the group financials with over Rs3 billion in net losses for the half-yearly period. Considering that inflationary pressures and interest rates are not most likely not going to ease anytime soon; it is uncertain as to how the PTCL Group will be able to reverse this loss-making trajectory during the rest of the year.