Introduction Pakistan Telecommunication Company Limited - or PTCL Group - is Pakistan's largest telecom carrier. It used to be a state monopoly, whose management stake was sold to a private operator in 2007, following the telecoms deregulation in 2003-04. The group operates in a variety of telecom segments, including fixed local loop (FLL - landlines), wireless local loop (WLL) telephony, mobile telephony (Ufone), long distance & international (LDI) telephony, broadband services, and branchless banking. It is listed on the Pakistan Stock Exchange under the moniker 'PTC'. Its latest shareholding pattern is provided below: The PTCL Group (referred to here as 'PTC') has two major firms under its umbrella: PTCL Company, which is the fixed-line giant, and Ufone, which is the cellular subsidiary. PTC was partially privatised in 2007, when its 26 percent shares were sold to Emirates Telecommunication Corporation (Etisalat) for $2.6 billion. Some $800 million from that sum still remain outstanding, as the dispute over transfer of real estate in PTCL Company's name lingers.
Following the fixed-mobile substitution that favoured mobiles over landlines in the previous decade, PTC aligned its focus towards broadband services. As a result, PTC today possesses a diversified revenue stream, composed of both data and voice businesses, in both the PTCL Company and Ufone. Last available market share in different segments is provided below:
Besides operating in the retail market of voice and data services, the PTCL Company is also operating in the wholesale market, where it provides core infrastructure services to other telecom operators, internet service providers, call centers, and payphone operators.
Recent financial Performance After the PTC management in 2013 changed the company's financial/accounting year to start in January instead of July, a historical financial analysis of the four full years since, 2013 to 2016 is provided below.
Profitability at PTC has really thinned over the years. From roughly Rs 16 billion in CY13, the net profit had declined to Rs 1.6 billion in CY16 - shrinkage of 90 percent during the period. The problems start from the top. Group revenues have declined more than 10 percent during this period. But that is not the only reason behind the profitability slump. Cost of services, meanwhile, has remained stubborn, averaging at Rs 87 billion in the four years, consuming 70 percent of the top line. In addition, two rounds of voluntary separation scheme (VSS) also affected the profitability.
Breaking down the PTC group into its two major component parts helps understand the situation better. Both arms have been under a cloud lately. The PTCL Company, which has consistently provided over 60 percent of group revenues and remains a potent source of group profitability, has seen its star fade. The company's top line has slid by 7 percent in CY15 and 6 percent in CY16.
The fixed-line giant continues to feel weaknesses in its traditional voice business. The revenues from LDI operations have also been under pressure, having nearly halved between CY13 and CY17. It is the broadband revenues that have helped provide a fallback in tough times. But that has not been enough to grow the overall top line. Also, wireless broadband (EVO) revenues have begun to fall.
Meanwhile, in an effort to make the organisation efficient, two VSS rounds mentioned earlier - one in CY14 and the second in CY16 - put significant stress on the bottom-line. As a result, PTCL Company net profits stood at Rs 6.8 billion in CY16, down 22 percent year-on-year, and roughly half of what they were back in CY13. VSS measures are expected to positively impact the financials in the medium term.
At Ufone, things have not been rosy either. As per BR Research estimates, the group's cellular arm has been running losses for the past three calendar years. In the recent past, Ufone has been shedding subscribers in the lucrative 3G segment, whereas other operators have been adding subscribers. Ufone is now the only operator without a 4G license.
After suffering from top line decline in CY14 and CY15, Ufone showed some revenue growth in CY16. That helped curtail the firm's operating loss and net loss in double digits last year. However, Ufone was still mired in a heavy net loss of around Rs 5 billion in CY16, slashing the group profitability in a massive way.
Latest financials In the six-month period ended June 30, 2017, the group showed a visible expansion in bottom-line. But the top line continued to deteriorate, thanks to competitive pressures faced by both the constituent companies. Ufone managed to curtail its losses again, but it still remains in a net loss. A strong growth in 'other income' paved the way for better group financials. But the group's operating profitability, which went down by nearly a third in the half-year period, is a major concern heading into the fall.
Stock performance
In the year-to-date period, the PTC scrip has mostly underperformed the broader index. The stock's closing price touched a high of Rs 19.45 on January 27, 2017 and a low of Rs 14.08 on July 11, 2017. The PTC stock drives regular interest in daily trading. During the period under review, average daily trading volume of the stock stood at over 2.6 million shares.
Future outlook The group's somewhat rosy financials, as reported in latest period 1HCY17, mask the competitive pressures. The competition from mobile broadband operators is going to increase further, providing more challenges for both the PTCL Company and Ufone to grow their top line robustly. Operational efficiencies are much needed, but without expanding the top line, it will be difficult to expand and sustain those gains.
The PTCL management's strategy is to upgrade the fixed (wireline) broadband infrastructure to compete with 3G and 4G operators. That should help, given the high speed and quality of service of fixed-line broadband. Meanwhile, Ufone is showing a turnaround, which needs to be sustained by retaining market share in the 3G segment. Things look comparatively better in the wholesale business, where the PTC group's ICT infrastructure is expected to increasingly feed demand from other telecom operators.
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PTC: Pattern of shareholding (as at December 31, 2016)
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No. of Shares % of total
shareholders held shares
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Directors, CEO, and their spouses and minor children 10 245,009 0.005%
Associated companies, undertakings and related parties 2 1,326,000,000 26.000%
NIT and ICP 3 3,400 0.000%
Banks, DFIs, & NBFIs 26 161,176,887 3.160%
Insurance companies 17 66,614,436 1.306%
Modarabas and Mutual funds 50 34,584,383 0.678%
General public: local 42,815 154,847,399 3.036%
General public: foreign 336 538,401 0.011%
President of Pakistan 2 3,171,067,993 62.178%
Others 288 184,922,092 3.63%
Total 43,549 5,100,000,000 100%
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Source: Company accounts
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PTC's market penetration*
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Segment Subscriptions Market share As of
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PTCL Co.
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FLL 2.5 mn 95 percent Dec-16
WLL 0.14 mn 37 percent Dec-16
DSL broadband ~ 1.5 mn - Apr-17
EvDO broadband ~ 0.8 mn - Apr-17
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Ufone
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2G 13.7 mn 14 percent May-17
3G 4.8 mn 12 percent May-17
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*BR Research calculations based on PTA data
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PTC (consolidated): Financial snapshot
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Rs (mn) CY16 CY15 CY14 CY13
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Operating Results
Revenue 117,202 118,561 129,918 131,224
Gross profit 30,509 30,507 41,197 47,203
Operating profit 6,111 4,006 6,199 21,990
Profit after tax 1,623 1,868 3,967 15,753
Financial Position
Property, plant and equipment 170,800 170,289 170,568 156,428
Intangible assets 37,112 40,326 42,874 6,192
Non-current liabilities 115,503 120,713 104,756 61,539
Current liabilites 96,395 74,646 77,842 59,138
Share Capital 51,000 51,000 51,000 51,000
Shareholders' equity 88,187 96,586 109,401 119,364
Financial Ratios
Gross margin 26.0% 25.7% 31.7% 36.0%
Operating margin 5.2% 3.4% 4.8% 16.8%
Net margin 1.4% 1.6% 3.1% 12.0%
Earning per share-Rs 0.32 0.37 0.78 3.09
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Source: Company accounts
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PTC (consolidated): Latest financials
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Rs (mn) 1HCY17 1HCY16 Chg
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Revenues 58,512 58,959 -0.8%
Cost of services 43,754 42,828 2.2%
Gross margin 25.2% 27.4% -
Administrative & general expenses 8,908 8,276 7.6%
Selling & marketing expenses 3,041 3,726 -18.4%
Operating margin 4.8% 7.0% -
Other income 4,999 3,660 36.6%
Profit after tax 3,942 3,094 27.4%
Net margin 6.7% 5.3% -
EPS-Rs 0.77 0.61 26.2%
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Source: PSX announcement
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