After years of decline, a telecom giant is on its way back to restore order at the top line. Latest financials released by the Pakistan Telecommunications Co. Limited (PSX: PTC) show a healthy operating profit for the first quarter ended March 31, 2018. It’s another matter that the bottom-line still ended up in red, thanks to a couple of non-operating events.

Following the results’ announcement, the PTCL management held a media briefing at its HQ to put those numbers into context. There was little new to the “stabilization” narrative that BR Research has previously been made aware of by the management. But the top management’s confidence at the briefing seemed to suggest that the group has turned the corner as far as top line decline is concerned. After all, all three group companies – PTCL Company, Ufone, and U Microfinance Bank – saw revenue growth in 1QCY18.
Breaking down, top line growth at the PTCL Company – which provides close to 60 percent of group revenues – came in under 1 percent year-on-year. It’s not much, but it is now evident that the growth in promising segments – like DSL broadband (9% growth year-on-year), corporate services (up 17%) and Charji wireless (up 89%) – is overpowering the declining segments – like voice (3% decline year-on-year), Evo wireless (down 59%) and international business (down 6%).

In the retail business, DSL broadband is the main growth driver; it grew impressively in the quarter (9% over 1QCY17), to reach Rs6.64 billion in the quarter; now it constitutes about 38 percent of the company’s top line. Those gains were wiped out by wireless EVO, which continues to bleed revenues, going down 59 percent year-on-year, to Rs390 million. Charji wireless grew 89 percent year-on-year to Rs525 million. Voice revenues, at Rs3.81 billion, declined at 3 percent year-on-year.

The company’s profitability still tanked 14 percent year-on-year to Rs1.81 billion. Management explained that away with factors: like i) higher marketing spending in the first quarter and ii) low ‘other income’ (down 32% over 1QCY17). The non-operating income took the quarterly dive as the treasury had lower liquid assets – and hence associated returns – following i) the settlement of a Rs4.6 billion employee voluntary separation scheme (VSS) announced in 2016 and ii) higher capex payments.

Over at Ufone, top line also went up by 4 percent year-on-year. But still, the last-ranked 3G operator is in a state of net loss. (The management generally refrains from commenting on a turnaround strategy for Ufone). U Microfinance Bank, an upstart, also showed “high double digit revenue growth”; but it isn’t clear whether this PTCL subsidiary is contributing any profits yet or is making losses like Ufone at this stage.

In a nutshell, the telecom giant looks firmly placed on a top line growth trend line. Dr. Daniel Ritz, the PTCL President and CEO, noted that the group’s quarterly net profits would have been 28 percent higher year-on-year had it not been for lower ‘other income’ and PKR devaluation during the quarter that bloated finance costs. That claim would be tested in the coming quarters when corporate cash recovers and if rupee resists further fall.