PTCL: Losing ground

The telecom giant is watching its profitability erode gradually. As per the PSX announcement yesterday, the Pakistan Telecommunications Co. Limited Group (PSX: PTC) has recorded a roughly 33 percent decline in its profitability for the quarter ended March 31, 2017.

A familiar story is unfolding this year, too, but a little background is in order first.

Back in CY16, the group profitability went down by 13 percent year-on-year, reaching a low of Rs1.62 billion, which is about 10 percent of what it was in CY13. Topline has consistently dropped in recent years. A couple of voluntary separation scheme (VSS) rounds since 2013 helped put a check on overheads, but it wasn’t enough.

Breaking down the group into its component parts, one sees the main reason for the group’s dwindling net profits in the continuing losses at its cellular subsidiary, Ufone. Last year provided some breather. As per our calculations, Ufone scored a 7 percent year-on-year topline gain in CY16, and went on to narrow its net loss by about a quarter, settling around Rs5 billion.

The group’s main telecom arm, the PTCL Company – which consistently provides over 60 percent of the group’s annual topline – is thus far the sole source of corporate profits. However, revenues have been under pressure at the firm, on account of decline in voice revenues from LDI business and lackluster growth from broadband business. Last year, the topline was down 6 percent year-on-year, with net profits down by a higher 22 percent, mainly on account of VSS.

Now in 1QCY17, the same script is on play. Group topline went down by roughly 2 percent, as PTCL Company revenues dropped by roughly 3 percent, with no growth in Ufone revenues. Group profits were down 33 percent, mainly due to a 31 percent downturn in net profits of PTCL Company, which also saw a massive fall in its ‘other income’. After all, dividends cannot come by from a loss-making Ufone.

Ufone still didn’t help. Our calculation shows that Ufone was still in a net loss during the first quarter. The figure comes to around Rs950 million. But the last-ranked 3G operator narrowed its quarterly loss by roughly 30 percent year-on-year.

It seems that the going will get tougher for the PTCL Group this year. Sector data from the telecom watchdog show that the subscriptions levels of both Ufone and the PTCL Company are suffering from decline in the relevant segments. The illustration shows their recent market position.

It will be a challenge to reverse this trend of losing ground to competitors, especially in the mobile broadband space. While voice revenue growth may be difficult, growth in data revenue should be the main focus of the group.