Telenor Pakistan in CY22

Signifying a challenging operating environment for telecom operators, one of the country’s leading mobile network operators (MNOs) posted a large operating loss in the year that ended December 31, 2022. As per its parent’s latest financial report, Telenor Pakistan incurred nearly Rs22 billion in operating loss during CY22, compared to a healthy operating profit of Rs23 billion in the previous year. This was mainly due to the huge impairment loss booked by Telenor Group for its Pakistan entity back in 2QCY22.

Telenor Pakistan, which is the third-ranked mobile broadband player, saw some growth in the topline despite losing over a million subscribers, but it wasn’t enough to sustain profitability. While total revenues grew by 4 percent year-on-year to Rs109.9 billion in CY22, this growth was negative in real terms, as it fell well short of double-digit inflation in the economy. The average revenue per user (ARPU) improved slightly by 2 percent year-on-year to reach Rs179 per month (less than a dollar per month) in CY22.

Telenor Pakistan topline was negative 7 percent for its parent Telenor Group in its own currency (Norwegian Krone-NOK, from which PKR-based results are obtained after exchange conversion) due to PKR meltdown in the analysis period. High inflation, weak economic growth and overall instability are discouraging FDI inflows into the country, including for telecoms. As for Telenor Pakistan, its capital spending (excluding licenses & spectrum) was down 9 percent year-on-year to Rs12.4 billion in CY22.

Despite topline weakness, EBITDA growth was somewhat better at 9 percent year-on-year, reaching Rs61.3 billion in CY22 (still negative 3 percent in NOK terms due to PKR depreciation in the period). As a result, EBITDA margin (in terms of topline) increased from 53.1 percent in CY21 to 55.7 percent in CY22. However, the large operating loss, which apart from impairment loss was also contributed by high electricity and fuel prices and flood-related damages, was in sharp contrast to positive EBITDA.

Going forward, operating challenges are expected to exacerbate, as more hikes are on the cards for fuel prices, power tariffs, and interest rates after the resumption of the IMF program. Telenor Group has noted in its report that “Telenor Pakistan is still sensitive for impairment,” after noting that the “recoverable amount” of Telenor Pakistan assets was NOK 5.8 billion as of June 30, 2022. That valuation comes to roughly Rs123 billion under CY22 average exchange rate (~$450 million). There were rumors late last year that Telenor Group was looking to exit Pakistan, but the latest financial reports do not mention anything to that effect.