PTCL: back to profit

Contrary to expectations, Pakistan’s telecom giant has fared rather well in the so-called “corona quarter” (Apr-Jun 2020). A Rs400 million quarterly net loss in 1QCY20 is followed by a net profit of similar magnitude in the second quarter for Pakistan Telecommunications Co. Limited Group (PSX: PTC). The challenges at subsidiary Ufone and impairment losses still hurt, but consolidated financials look better.

The bulk of the PTCL Group’s topline decline of 5 percent year-on-year in the quarter is due to its cellular subsidiary Ufone, which continues to incur losses at the bottom. Already, the cellular sector had been affected by regulatory changes last summer that hurt topline. Upcoming quarterly results from Telenor Group and Veon will highlight how much the cellular sector has been affected by the effects of the lockdowns, specifically due to closure of franchisees and wage loss for millions of vulnerable employees.

The PTCL Company seems to have weathered the storm, as its quarterly topline declined by mere 1.5 percent year-on-year. The firm accounted for roughly 57 percent of the group’s topline and bulk of its operating and net profitability in the quarter. The management has identified growth in broadband services, corporate services, and wholesale business, and LDI (international telephony) segment as factors that helped cushion the topline during the initial months of the pandemic.

The decline in operating expenditures helped offset some of the topline drop. But the subsidiaries (mainly Ufone and UBank) together scored a Rs100 million operating loss and the PTCL Company saw its operating profits dwindle by 18 percent year-on-year to Rs1.1 billion in the quarter. This led to group operating margin of 3.35 percent in 2QCY20, down from 5.55 percent in the same period last year.

It is the sharp, 40 percent reduction in finance costs (mainly for Ufone’s liabilities) that saved the group from plunging into red again last quarter. The moratorium on loan repayments is certainly helpful. But this only delays the inevitable and come next year a bigger bill will need to be footed. Besides, markedly lower finance costs, a comparatively lower tax bill also helped the cause of creating profits down below.

In the end, the 28 percent yearly uptick in quarterly profits helped the group’s net profit tally to reach Rs33 million in the half-year ended June 30, 2020. But this is way lower than the Rs2.34 billion in net profits scored in the same period last year. Hanging on to such slim margin will be challenging in the rest of the year if the topline does not recover, especially at the cellular arm.

Nevertheless, the financial aspect alone should not define the corporate performance in these times. The telecom behemoth deserves credit for maintaining the provision of digital services during the initial months of the pandemic. PTCL, Ufone, and other market players, kept things going despite challenging circumstances for its workforce, so that Pakistanis did not have to unnecessarily venture out.