Quarterly gains mustn’t be read too much into. But the recent quarterly numbers posted by the Pakistan Telecommunications Co. Limited (PSX: PTC) group are intriguing. The group, which is a sum total of the PTCL Company, Ufone, U Microfinance Bank, and DVCom, has shown a healthy improvement in top-line and a remarkable expansion in bottom-line for three-months ended September 30, 2018.
Intriguing because those improvements came about despite the PTCL Company (the group’s breadwinner) having an unusually rough quarter. True that its top-line fell just 28bps over 3QCY17; the decline in troubled revenues streams like LDI telephony and voice revenues was nearly offset by growth segments like DSL, corporate services and carrier services. But the dip in operating profits was higher, by 47 percent year-on-year, due to rigid cost and expense structure and rupee depreciation in the period.
Matters were made worse by rupee-related exchange losses, besides lower non-operating income due to lower liquid holdings courtesy ongoing capex and an earlier VSS settlement. In the end, the PTCL Company’s net profits came down 40 percent year-on-year in 3QCY18. Thus far, in 9MCY18, the telecom heavyweight’s net profits are down by 26 percent year-on-year, settling at Rs4.7 billion.
Meanwhile, other subsidiaries stepped into the breach and prevented the group financials from going into a freefall. These subsidiaries, among which Ufone is a dominant player, accounted for roughly 60 percent of the group’s operating profits and 40 percent of its net profits in 3QCY18. This is in sharp contrast to 3QCY17, when the subs were in the red. Now they are turning in double-digit revenue growth – they accounted for 47 percent of group top-line in the quarter (up 6 percentage points over 3QCY17).
It looks as though Ufone is back into black, after running losses for quite a few years. The management has reported revenue growth in both Ufone and U Bank, despite the two players operating in a tough market environment. As per the PTA data, Ufone added nearly a million 3G subscribers in July and August this year put together – remarkably higher than the monthly averages seen last year.
The subsidiaries helped the group bump its operating profits 81 percent in the quarter under review. But a big decline in ‘other income’ (due to lower liquid holdings) and higher finance costs (due to rupee depreciation) reversed those gains, resulting in a 2.5 percent decline in pre-tax profits. It was a smaller tax-bill booked in the quarter that helped the group to lock in a double-digit bottom-line growth figure.
Over at the bourse, the scrip has lost about a quarter of its value in the year-to-date period while under-performing the broader index. PTC touched a low of Rs9/share on October 8; it closed at Rs9.8 on October 12. Perhaps PTCL Company’s top-line woes and Ufone’s tough competitive landscape are weighing down the stock. While Ufone is now showing some promise, the management expects its ongoing capex on a network transformation project to yield results for the PTCL Company by 2019.
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