PTCLs stock had been making waves at the stock market of late. From Rs13.63 in August 2012 the stock jumped to Rs20.17 by yesterdays close. Here is part of the reason why: following the Voluntary Separation Scheme the firm has started benefitting from workforce rationalisation while its revenues from LDI business are providing a boost.
The countrys telecom giant more than doubled its profits in the quarter ended March, thanks to healthy revenue growth and controlled costs. PTCLs top line grew nearly 31 percent during 1QCY13.
Detailed financials are not yet available, but the robust growth is expected to have come from broadband segment. The company operates in key telephony segments of fixed local loop, wireless local loop, broadband, carrier services, international telephony (LDI) and corporate enterprise solutions.
Company sources told BR Research that the growth in subscriptions of Evo - PTCLs flagship brand in wireless broadband category - has been strong in recent months, having sold a total of over half a million devices thus far. Besides growth in DSL broadband, the firm is said to have met success recently, winning back those fixed line customers whose bills were previously unpaid, through the V-connect campaign.
While the fixed line business has benefitted from frequent security-related cellular outages in different areas across the country, PTCLs LDI business has benefitted from the improved call termination rates in the aftermath of suspension of the International Clearing House. Sources say that LDI operators are charging higher rates (upto 8.8 cents per minute) compared to the pre-ICH era in October last year.
Despite significant growth in revenues, the associated cost of services increased only by 15.1 percent year-on-year. As a percentage of revenue, the costs were down by a significant 905 basis points over same period last year, exhausting 65.8 percent of the revenues. That showed itself in a massive, 78 percent year-on-year improvement in gross profits.
This checked growth in costs could be reflective of early impact of PTCLs second voluntary separation scheme which was completed in September last year which cost Rs9.46 billion. Since PTCL decided to close its financial year in December instead of the usual financial year end of June, the comparative aspects of the VSS in terms of its effect on costs and earnings will be more visible in financials of later quarters.
Midway through the income statement, further support to the ensuing margins came from the head of administrative expenses which witnessed normal growth of 11.6 percent. Though the selling and promotional expenses increased by 45 percent, their effect wasn pronounced due to their small quantum. Collectively, the two expense heads consumed 14.7 percent of revenues in 1QCY13, 152 bps lower than same period last year.
The companys other operating income - which includes dividend from its subsidiary Ufone and returns from its loans and investments - grew by 10.4 percent year-on-year despite a suspected absence of dividend from Ufone. The finance costs, however, jumped during the period by nearly 90 percent, probably more due to increasing exchange losses than bank charges.
Whether the strong fundamentals posted in the first quarter will build growth momentum in coming quarters remains to be seen. However, strong growth reported from the data segment and international business, revival of fixed line volumes, and the VSS-led cost rationalisation benefits hearkens, foretell similar gains for the rest of the year.
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PTCL
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Rs (mn) 1QCY13 1QCY12 chg
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Revenues 19,425 14,834 31%
Cost of services (12,780) (11,102) 15%
Gross margin 34.21% 25.16% -
Other operating income 953 863 10%
Operating Profit 4,738 2,186 117%
Profit/(loss) after taxation 2,916 1,357 115%
Net margin 15.01% 9.15% -
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Source: KSE announcement