PTC: it’s the ‘other income’

The Pakistan Telecommunications Co. Limited Group (PSX: PTC) announced its financial results for the quarter ended September 30, 2017. Despite a roughly 2 percent decline in top-line and a 23 percent drawdown in operating profits, the consolidated (group) net profits surged nearly 69 percent year-on-year. That may seem rosy, but it is not.

The telecom giant is watching its operating performance deteriorate quarter after quarter. Back in 1HCY17, the group had expanded its net profits by 27 percent, despite dips in top-line and operating profits. It was the ‘other income’ – mostly income from financial assets, recoveries, etc. – that helped save the day back then. And so it did, again, in 3QCY17.

Since the ‘other income’ dominates the improvement in financials, the group’s 9MCY17 performance has nothing unique to write about. The management would be aware that profitability boost coming from a non-operating, non-core income source is not sustainable. The group’s top-line needs to gather some momentum.

On that count, calculations show that the PTCL Company – which provides some 60 percent of revenues to the group – is facing growing stress. Revenues declined at the company by 4 percent year-on-year in 3QCY17 and 3 percent year-on-year in 9MCY17. Not only is the firm’s voice business (fixed line, wireless, and international telephony) down, its broadband subscriptions have also been thinning lately. In 3QCY17, the company’s operating profits were down 10 percent and net profits declined by 12 percent year-on-year.

But at least PTCL Company is a source of profitability for the group. The same cannot be said about Ufone, which is the group’s cellular subsidiary. Ufone has been making losses for a while. Calculations suggest that Ufone was in a net loss of roughly Rs1 billion in 9MCY17. But the losses were thrice as much in the year-ago period, so there is some solace that Ufone is gradually healing its bottom-line. In the latest quarter, Ufone showed some top-line growth, which is another positive development for the group.

The group’s fixed-line subsidiary, the PTCL Company, is operating in a tough competitive environment. The voice business cannot seem to fight the onslaught of mobile broadband connectivity and over-the-top tech applications that are virtually free. The company must keep its last-mile business, but it needs to focus on its wholesale business, as it is the carriers’ carrier possessing immense ICT infrastructure. Ufone must not only grow its 3G subscriptions but also try to better monetize the user base.