The country's largest telecommunication firm, PTCL saw its profits drop 19 percent to Rs 2.56 billion for the quarter ending September as both revenues and margins fell on account of diminishing land line users and nose-diving tariffs.
Unable to maximise returns on its large infrastructure, the firm has been suffering from high fixed overheads, amid declining land line users which have reduced by one third since 2005, leading to soaring depreciation charges for its plant, property and equipment.
As a consequence, PTCL's cost of services didn't drop in tandem with revenues and remained largely same - pushing its gross margin to 35 percent from 43 percent in same quarter last year. However, with efficiency gains finally trickling in, PTCL managed to slash its administrative and general expenses by nearly one-fourth, as a result of cost cutting measures implemented earlier by the company - where it seems much of the decrease stemmed from a decline in its provisions for doubtful debts. But in contrast selling and marketing expenses remained high, up 15 percent, in order to market new services and packages, primarily related to broadband.
The company's other operating income jumped by 50 percent over the same quarter last year as high cash payoffs to employees under VSS had resulted in lower cash balances and thus lower operating income in the year ago period.
Meanwhile, finance cost was more than halved, which had risen last year due to high exchange losses.
Despite intense competition in telecom sector, PTCL is still enjoying the position of a market leader, having 95 percent and 50 percent market share in fixed line and wireless local loop segments respectively.
Moreover, U-fone, PTCL's wholly owned subsidiary, is also likely to support its earnings in the future as driven by continuous advertising efforts the cellular arm is seen at least keeping its market share stable at 20 percent.
Yet, marketing efforts aren't the only answer for growth and U-fone must expand its services even further by providing more m-banking solutions and products akin to those offered by Mobilink and Telenor.
With diminishing fixed line revenues and a mature cellular market, PTCL's next wave of profits should come from the broadband segment. According to a UN report, broadband market in Pakistan is highly unsaturated with only 0.17 broadband users out of the total 19 million internet subscribers.
The firm's recent contract with Universal Service Fund bodes well for its revenues as the deal will help expand its outreach into both un-served and less served areas.
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PTCL P&L
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Rs (mn) 1QFY10 1QFY09 %chg
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Revenue 14,472 16,610 -13%
Cost of services 9,380 9,453 -1%
Gross profit 5,092 7,157 -29%
Gross margin 35% 43% -18%
Admin & general exp 1,679 2,219 -24%
Selling & marketing exp 439 383 15%
Operating income 1,109 738 50%
Finance cost 129 403 -68%
PAT 2,568 3,178 -19%
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Source: KSE Announcement
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