PTC recovers, slightly

Some improvements last long; others are cosmetic. As per the PSX announcement yesterday, the Pakistan Telecommunications Co. Limited Group (PSX: PTC) has achieved a 27 percent expansion in its bottom-line for the half year ended June 30, 2017. The visible amelioration in the hitherto-dwindling group profitability has come about despite the top line fall. So what has changed, and can it last going forward?

In recent years, the group profitability has become a shadow of its past self. From roughly Rs16 billion in CY13, the net profit had declined to Rs1.6 billion in CY16 - shrinkage of 90 percent. The problem was a lackluster top line (which declined significantly in real terms during this period), stubborn cost of services, a couple of hefty payouts on account of voluntary separation scheme (VSS), etc.

Now in CY17, a turnaround seems in the offing. Breaking down the PTC Group into its two major component parts - PTCL Company and Ufone - helps understand the situation better.

The PTCL Company, which has consistently provided over 60 percent of group revenues and remains the only source of group profitability, saw its top line slide by 2 percent year-on-year in 1HCY17. So the pattern of top line slump at PTCL Co. holds, as the fixed-line giant feels weakness from its voice segment in FLL, WLL, and LDI telephony, besides growing pressure on its wireless broadband services. Half-yearly net profits were down at the firm 16 percent to Rs4.69 billion.

Ufone did provide some relief, by curtailing its losses during the period. The cellular firm has been making losses in recent years, with the CY16 net loss coming around Rs5 billion. Ufone has been shedding subscribers in the lucrative 3G segment, when other operators have been adding more and more. It seems that Ufone experienced a marginal top line growth in 1HCY17. That has helped curtail the firm's net loss in the period, to around Rs700 million, calculations suggest.

Still, while Ufone's shrinking losses have helped the matters, the PTC group's 1HCY17 net profit gain - of roughly Rs850 million - is not accounted for completely by the group's operating performance. In fact, it was the 'other income' - mostly income from financial assets - that helped provide a significant reprieve in the period under review.

While the financials look rosy, the group isn't out of the woods yet. The 32 percent decline in the group's operating profits underscores that point. Facing growing competition from mobile broadband, it will be challenging for the PTCL Company to arrest its top line fall and for Ufone to increase its 3G market share. The group may be recovering, but it still has work cut out to turn around its operating performance.