Telecard Limited Company (PSX: TELE) was incorporated in Pakistan as a public limited company in 1992. The company along with its subsidiaries is engaged in the business of providing integrated telecommunication services which includes wireless telephony, long-distance and international services, and payphones.

Pattern of Shareholding

As of June 30, 2023, TELE has a total of 338.625 million shares outstanding which are held by 12,643 shareholders. General public has the majority stake of 58 percent in the company followed by joint stock companies which hold 40.86 percent of TELE’s shares. Around 1.09 percent of the company’s shares are held by Modarabas & Mutual funds. The remaining shares are held by other categories of shareholders.

Financial Performance (2019-23)

TELE’s topline has been riding an uphill journey over the period under consideration. However, its bottom line stayed in the negative zone until 2020. In the subsequent two years, TELE’s bottom line recovered from net loss. This was followed by a slump in 2023, yet the bottom line stayed in the positive zone. TELE’s margins portray an asymmetrical pattern over the period. Its gross margin which had been riding an upward journey until 2021 drastically fell in 2022 followed by a rebound in 2023. Conversely, its operating margin which recovered from a negative zone in 2019 dipped in 2020 followed by staggering growth for the next two years. In 2023, TELE’s operating margin posted a steep decline. TELE’s net margin which posted a positive figure in 2020 for the first time during the period under consideration began to diminish thereafter (see the graph of profitability ratios). The detailed performance review of the period under consideration is given below.

In 2019, the topline of TELE posted a tremendous year-on-year growth of 24.3 percent which is attributable to a rebound in other revenue streams and the Long Distance International (LDI) segment. Moreover, improved rates as well as favorable exchange rates also played their role in buttressing the topline. Cost of sales grew by 16.7 percent year-on-year in 2019 mainly on the back of network media charges. Yet, TELE was able to register year-on-year growth of 37.58 percent in its gross profit in 2019 with GP margin climbing up from 36.4 percent in 2018 to 40.3 percent in 2019. Administrative and Distribution costs were 68.13 percent less than last year as the company booked loss allowance for the Karachi relief rebate package and trade debts in 2018 besides writing off receivables on account of APC for USF in 2018. TELE recorded other expenses of Rs.101.32 million in 2019 versus other income of Rs.501.09 million in 2018. This was due to a credit note issued to Supernet Limited as the full value of benefits envisaged in the inter-operator agreement were not materialized and hence the amount booked in the previous years was reduced to reflect the value of benefits accrued to Supernet Limited. Moreover, unlike 2018, there was no reversal of loss allowance against WPS in 2019. TELE recorded an operating profit of Rs. 64.79 million in 2019 versus an operating loss of Rs.37.42 million in 2018. Finance costs rose by 39.15 percent year-on-year on the back of a high discount rate and increased short-term financing. TELE’s gearing ratio soared from 34.57 percent in 2018 to 35.29 percent in 2019. The company posted a net loss worth Rs.60.469 million in 2019 as against a net loss of Rs.128.687 million in 2018, signifying a year-on-year drop of 53 percent. Loss per share clocked in at Rs. 0.2 in 2019 versus Rs.0.43 in 2018.

The subsequent years were comparatively slow for TELE in terms of revenue growth as its topline grew by 8.44 percent and 2.57 percent year-on-year respectively in 2020 and 2021 owing to cutthroat competition in the telecom industry. Tough competition not only put pressure on the service rates but also on the volume of service contracts. Cost of sales took a breather during these two years on the back of a drop in satellite bandwidth and communication charges. This buttressed the gross profit which posted growth of 20.19 percent and 6.5 percent respectively in 2020 and 2021. Administrative and distribution expense increased in both the years due to high payroll expense and rental expense. TELE enhanced its workforce from 124 employees in 2019 to 133 employees in 2021. The factors which enabled TELE to post net profit in 2021 as against a net loss in 2020 were handsome net other income of Rs.254.74 million earned by the company in 2021 coupled with a drop in finance cost. Conversely, in 2020, the company recorded net other expense of Rs.148.82 million and 54.86 percent surge in finance cost. Net other expense in 2020 was due to receivables from PTA against Access Promotion Contribution for Universal Service Fund (APC for USF) written off during the year. Moreover, the company also booked a loss allowance against APC for USF from PTA. Conversely, in 2021, the net other income posted by the company was the result of write off of provisions and liabilities that were no longer payable. In 2020, TELE’s operating profit plummeted by 26.21 percent with OP margin clocking in at 4 percent. Conversely, in 2021, TELE’s operating profit mounted by 802.63 percent with OP margin climbing up to 35.6 percent. Discount rate dynamics played a role in increasing the finance cost in 2020 as discount rate was high during the first three quarters of 2020. Higher accumulated losses squeezed TELE’s equity and drove the gearing ratio up to 36.73 percent in 2020. The company posted net loss of Rs. 109.288 million in 2020, up 80.73 percent year-on-year with loss per share of Rs.0.36. In 2021, TELE’s finance cost plunged by 42 percent year-on-year on account of monetary easing as well as reduced borrowings which along with lower accumulated losses drove down gearing ratio to 26.72 percent. TELE made net profit of Rs. 273.188 million with EPS of Rs.0.87 and NP margin of 22.5 percent. TELE had been making net losses since 2017 which upturned in 2021.

In 2022, TELE’s topline bagged 23.32 percent year-on-year growth. Since the outspread of COVID-19, the dependence on E-commerce has increased. TELE and its subsidiaries took advantage of this opportunity and offered connectivity and beyond connectivity enterprise and business solutions. The company spread its wings in support enhancement in broadband coverage, enterprise energy solutions, cyber and software security, roll out of digital infrastructure as well as connectivity solutions. High network media charges pushed up direct costs by 48.89 percent in 2022. This squeezed TELE’s gross profit by 6.27 percent year-on-year in 2022 with GP margin falling down to 35.2 percent. Operating expenses grew by 11.17 percent year-on-year on the back of rising inflation and the expansion of the workforce to 137 employees. Other income mounted by 97.07 percent year-on-year in 2022 on the back of gain on the sale of long-term investment as TELE sold 8.8 million shares of Supernet Limited which resulted in a capital gain of Rs.163.65 million. Moreover, the company also recorded gains on a restructuring of TFCs. As a consequence, operating profit enhanced by 39.15 percent in 2022 with OP margin reaching its optimum high value of 40 percent. Finance cost which came under control in 2021 owing to monetary easing posted an uptick of 3.6 percent in 2022 on the back of multiple upward revisions in discount rate in 2022. Profit before tax grew by 46.15 percent year-on-year in 2022, however, due to higher tax expense on the back of the impact of deferred taxation net profit posted year-on-year growth of 8.97 percent to clock in at Rs.297.697 million with EPS of Rs.0.88 and NP margin of 19.9 percent.

TELE’s topline grew by 18.11 percent year-on-year in 2023 on the back of increased revenues from value-added services. Value-added services charges on the back of inflationary pressure which drove up direct cost by 8.23 percent in 2023; however, TELE was able to record 36.29 percent higher gross profit in 2023 with GP margin mounting to 40.6 percent. 15.14 percent higher operating expense incurred in 2023 was the consequence of elevated payroll expense, allowance for ECL, vehicle running & maintenance charges, and utility expense incurred during the year. The company incurred higher payroll expenses despite the fact that it trimmed down its workforce to 126 employees in 2023. Other income declined by 97.23 percent year-on-year in 2023 due to a high base effect as the company recorded a gain on the sale of its stake in Supernet Limited and a gain on the restructuring of TFCs in 2022. Operating profit tumbled by 60.33 percent year-on-year in 2023 with OP margin drastically falling down to 13.5 percent. Finance costs mounted by 52.7 percent in 2023 on the back of a higher discount rate. Net profit withered by 54.28 percent year-on-year in 2023 to clock in at Rs.136.12 million with EPS of Rs.0.4 and NP margin of 7.7 percent.

Recent Performance (1HFY24)

TELE’s topline grew by 62.15 percent year-on-year in 1HFY24. However, 92.21 percent higher direct cost allowed 22.67 percent growth in gross profit during the period with GP margin sinking to 32.7 percent from 43.2 percent during 1HFY23. Operating expenses surged by 11.07 percent year-on-year in 1HFY24 due to hiking inflation. The company recorded net other expenses of Rs.2.49 million in 1HFY24 versus net other income of Rs.15.94 million during the same period last year. One of the reasons was the exchange loss incurred by the company during 1HFY24 versus the exchange gain recorded during the same period last year. Operating profit grew by 27.15 percent year-on-year in 1HFY24; however, OP margin shrank to 12 percent from 15.3 percent in 1HFY23. Despite the high discount rate, TELE was able to cut down its finance cost by 9.56 percent in 1HFY24 due to lower external financing obtained during the period. Net profit grew by 8.6 percent year-on-year in 1HFY24 to clock in at Rs.69.5 million with EPS of Rs.0.21 versus EPS of Rs.0.19 during the same period last year. NP margin nosedived from 8.1 percent in 1HFY23 to 5.4 percent in 1HFY24.

Future Outlook

The company is exploring new opportunities in the non-connectivity business such as enterprise resource planning and customer support solutions to diversify its revenue streams. TELE is also exploring new avenues in technology and alternate energy sectors to enhance its revenues. However, rising direct costs, elevated operating expenses, and finance costs coupled with exchange losses are there to dampen its margins and bottom line.