Pakistan Telecommunication Company Limited

Pakistan Telecommunication Company Limited (PTCL) is the largest telecom carrier in Pakistan. It holds licenses to operate in a variety of telecom segments, including Fixed Local Loop (FLL-landlines) telephony, Wireless Local Loop (WLL) telephony, mobile telephony, Long Distance and International (LDI) telephony, and broadband.
PTCL's management control rests with the Emirates Telecommunication Corporation (Etisalat), after the latter successfully bid in 2006 for the former's 26 percent stake in a $2.6 billion transaction, of which $800 million are yet to be paid to the government of Pakistan by Etisalat.
PTCL has revenue streams from various telecom segments it operates in. It is a carriers' carrier, meaning that it also provides core infrastructure services to other telecom operators, internet service providers, call centers and payphone operators. Fixed line voice business used to dominate the Company's revenues. But, over time, particularly in the last 6-7 years, voice business's revenue contribution has significantly gone down following the telecom sector's deregulation and resulting customer preferences towards mobile telephony and SMS-based communication.
Under a new management since 2007, PTCL has been striving to diversify its business towards data communication. The management reports continuing double-digit growth in its broadband customers, which are over one million for its wireline DSL broadband service and over half a million for its 'EVO' 3G wireless broadband service. As per the PTA statistics, PTCL had 2.84 million FLL subscriptions as of June 2012 and about 1.4 million WLL subscriptions as of September 2012. The cellular brand Ufone of Pakistan Telecom Mobile Ltd--which is the wholly-owned subsidiary of PTCL--adds to PTCL's operational footprint, as it held over 19 percent of the 125 million cellular subscriptions as of May 2013.
FINANCIAL PERFORMANCE PTCL has now changed its financial/accounting year to start in January instead of July. Available financial results for the nine months ending September 2013 suggest that the Company has made great strides in expanding its financial profile. Its business turnaround has become visible in recent quarters when both the top line and bottom line have shown healthy growth year on year.
During 9M CY13, PTCL's net revenues surged to Rs 60.69 billion, which is slightly more than full-year revenues recorded back in FY12. (Data for 9M CY12 is unavailable from PTCL, which makes it imprecise to do a year-on-year comparison). The thrust for revenue expansion is coming from broadband segment, which is still largely untapped in Pakistan. Both fixed and wireless broadband are in much demand and PTCL is the undisputed market leader with a vast communication infrastructure at its disposal.
Recently, the Company management indicated a revival in the Company's fixed line business, which was sagging in the face of mobile competition. Landline subscriptions are said to be turning in decent revenues from both the household and business customers. Meanwhile, revenue growth has also been supported by Company's focus on corporate solutions and institutional business. Revenues from the LDI business are also said to be increasing, on account of better call termination rates following the controversial ICH mechanism episode.
COST OF SERVICES Measures to impact cost control are also visible in the Company's finances. During 9M CY13, the cost of services seemed to remain under control, as it exhausted just 66 percent of net revenues during the period. That is comparatively lower than 75 percent revenue depletion seen in FY12 and 76 percent in FY11. One of the Company's measures to enforce cost containment was taken in September last year, when the management paid out nearly Rs 11 billion for their second Voluntary Employee Separation Scheme (VESS).
The cost of services summed up to Rs 39.88 billion which yielded a gross profit of Rs 20.8 billion during 9M CY13. Thanks to cost efficiencies kicking in, gross margin has started to gain flight, settling in at 34.28 percent during the period under review.
OPERATING EXPENDITURES Similarly, the operating expenditures have also remained under check. The sum of administrative expenses and the selling expenses during the nine-month period was Rs 9.35 billion. Together, these two expense categories consumed 15.41 percent of revenues in 9M CY13, which is lower than 17.5 percent average revenue depletion seen in previous five fiscal years (FY08-FY12).
OTHER OPERATING INCOME AND FINANCE COSTS Meanwhile, further boost to the ensuing margins came from 'other operating income', which totalled Rs 3 billion during 9M CY13. This income head comprises of dividends from subsidiaries; returns on cash parked with banks and interest long-term loans to subsidiaries. Company's finance costs have also gone down as percentage of revenue, claiming 0.44 percent of revenues in 9M CY13, compared to 0.8 percent in FY12.
PROFITABILITY Thanks to bulging top line and reduced core costs and expenses as percentage of revenues, PTCL is flying high and looks set to close the financial year ending December on a high note. The Etisalat-run Company earned Rs 9.28 billion in after-tax profits in 9M CY13, which is higher than the full-year profitability seen in FY11 or in FY12. A rising net margin sits pretty at 15.3 percent for the nine-month period.
FUTURE OUTLOOK Similar gains in top line and bottom line are expected to be made in the last quarter of the ongoing financial year. PTCL's strategic focus towards data services is expected to intensify, as the Pakistani telecom market is on the verge of migration to the next-generation data services. Towards that end, PTCL's potential Warid acquisition and its participation in the next-generation spectrum auction for Ufone are going to test its quest for market dominance in the future. But to be successful in the data market, PTCL will have to offer more value-added services, while fully exploiting its networks and communication infrastructures.