Shareholders of Pakistan Telecommunication Company Limited (KSE: PTC) would have surely liked the 20 percent total cash dividend (Rs2 per share) the PTC group’s management would pay out as cash dividend. However, the telecom giant’s falling profit margins might have dampened their spirits for the year ahead.
There is a sharp decline in the PTC group’s profitability (see illustration), as both its core business (PTCL Company) and its cellular subsidiary (Ufone) continued to show stress in the year ending December 31, 2015.
At PTCL Company, the top line was down by 7 percent year-on-year in CY15. But the firm was able to eke out a net profit of Rs8.76 billion, showing a year-on-year growth of 68 percent. This growth in profits wouldn’t have occurred if it weren’t for the fact that the firm charged Rs9.1 billion on account of a voluntary separation scheme and Rs907 million on account of fire-related loss in CY14.
While Ufone’s financials are not publicly available, calculations show that the fourth-ranked 2G and 3G operator presided over a top line decline in excess of 10 percent year-on-year in CY15. The operator likely posted a net loss of over Rs6.5 billion, which would be 5.5 times the loss it recorded in CY14. Higher finance costs and growing cost of services despite top line slump seem to have led to this situation.
These are testing times for the PTC group. The PTC Company, which is the group’s arm in wholesale telecom services and retail broadband and fixed-line operations, is hardly showing vigour. The stagnation in its fixed and wireless broadband subscriptions coincides with rising subscriptions of main competitors in 3G and 4G segments.
Meanwhile, its international business segment (LDI telephony) is also far from its healthier days. Its wholesale telecom business should grow, however, as other operators utilize more of PTCs infrastructure.
On balance, however, it is Ufone whose financials have really pulled down the group’s profitability. Ufone had about 20 million 2G subscriptions and 4.3 million 3G users as of December 2015. These numbers are not bad, but in the former market, all operators are facing lower usage and competitive pricing, and in the latter segment, users have a lot of choice and the pricing is also becoming competitive. In such a scenario, you get little to no growth in what each user is worth to the firm (ARPU).
Source: Business Recorder