PTCL, the telecom giant of Pakistan, is a company in transition. If the preceding five years were the years of transforming the formerly state-run organisation from within, the coming years would have been dubbed by the management as years of consolidation and diversification of revenue streams. This is already visible in the Companys financials for the first half ended December 31, 2011. After years of declining top line, finally, PTCL closes its half-yearly books with revenue growth of nearly 6 percent. PTCLs revenue streams include PSTN (fixed lines), wireless local loop, broadband, corporate business solutions, carrier services and international business (LDI). Voice segment used to be PTCLs bread and butter. However, hyper competition among cellular operators for share of voice and the SMS trend battered PTCLs voice revenues over the years and reduced the segments share in revenues down to just over 40 percent. At the same time, growth in emerging segments has picked up, with broadband and corporate enterprise solutions contributing roughly 20 percent and 10 percent to the revenues, respectively. During 1HFY12, PTCLs cost of services grew by more than eight percent, and reduced the gross profit growth to 44bps. Though the gross margins remained over a quarter of revenues, they declined by 142bps over same period of last fiscal year. The firms administrative expenses grew by 12.14 percent, whereas the selling and marketing expenses came down by nearly 2 percent in 1HFY12. The two expense heads, together, exhausted 37bps less of revenues in 1HFY12 than they did in the same period of last fiscal year. PTCLs usual saving grace, the other operating income, couldn strengthen the firms core earnings in the absence of dividends from Ufone, PTCLs subsidiary. The 45.86 percent drop under this income head really marred an otherwise healthy operating performance, in that the operating profits went down by 28.6 percent and the operating margin slipped by 743bps during 1HFY12. With a roughly 5 percent increase in finance costs and nearly 30 percent reduction in provision for corporate taxes, PTCL closed 1HFY12 with a net profit of Rs.2.84 billion, which is 29.3 less than same period of last fiscal year. For every share they held, the Companys longtime shareholders earned 29.1 percent less in 1HFY12 than what they earned in the same period of last fiscal year. The top line growth in 1HFY12 indicates that the deterioration in Voice revenues is more than offset by the gains emanating from non-voice segments. This incidence is likely to persist as PTCL is readily diversifying its revenue streams away from the Voice business. The launch of 3G-enabled Smartphone and tablet with built-in EVO wireless broadband are steps in that direction. As highlighted by the PTCL President in a detailed discussion with BR Research recently, PTCL is increasingly going to rely on "home-grown" revenues, and wants a more share in the lucrative broadband market. The Company is working to invest Rs.100 billion in this segment for a period of five years ending June 30, 2016. Up to 5 million broadband connections would be provided, with a guaranteed 10MB speed. The future belongs to data, and PTCL is uniquely poised to leverage its infrastructure and networks to offer bundled, high-margin services like quad play (voice, data, video, surveillance) to the customers.
================================================== PTCL ================================================== (Rs mn) 1HFY12 1HFY11 chg ================================================== Revenues 29,339 27,698 6% Cost of services 21,681 20,074 8% Gross margin 26% 28% - Other operating income 1,725 3,187 -46% Operating profit 4,503 6,307 -29% Net Profit 2,844 4,022 -29% Net margin 9.69% 14.52% - EPS (Rs) 0.56 0.79 -29% -------------------------------------------------- Source: KSE notice ==================================================
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