Telecard Limited Company (PSX: TELE) was incorporated in Pakistan as a public limited company in 1992. The company along with its subsidiaries is engaged in the business of providing integrated telecommunication services which includes wireless telephony, long distance and international services, and payphones.
Pattern of Shareholding
As of June 30, 2024, TELE has a total of 338.625 million shares outstanding which are held by 11,080 shareholders. The general public has a majority stake of 58 percent in the company followed by joint stock companies which hold 41.54 percent of TELE’s shares. The remaining shares are held by other categories of shareholders.
Financial Performance (2019-24)
TELE’s topline has been riding an uphill journey over the period under consideration. However, its bottom line stayed in the negative zone until 2020. In the subsequent years, TELE’s bottom line recovered from net loss. In 2021 and 2022, TELE’s bottom line picked up followed by a slump in 2023. In 2024, TELE’s bottom line boasted tremendous growth. TELE’s margins portray an asymmetrical pattern over the period. Its gross margin which had been riding an upward journey until 2021 drastically fell in 2022 followed by a rebound in 2023. Conversely, its operating margin which recovered from the negative zone in 2019 dipped in 2020 followed by staggering growth for the next two years. In 2023, TELE’s operating margin posted a steep decline. TELE’s net margin which posted a positive figure in 2021 for the first time during the period under consideration diminished in 2022 and 2023. In 2024, gross margin dipped while operating and net margins portrayed significant improvement (see the graph of profitability ratios). The detailed performance review of the period under consideration is given below.
In 2019, the topline of TELE posted a tremendous year-on-year growth of 24.3 percent which is attributable to a rebound in other revenue streams and the Long Distance International (LDI) segment. Moreover, improved rates as well as favorable exchange rates also played their role in buttressing the topline. Cost of sales grew by 16.7 percent year-on-year in 2019 mainly on the back of network media charges. Yet, TELE was able to register year-on-year growth of 37.58 percent in its gross profit in 2019 with GP margin climbing up from 36.4 percent in 2018 to 40.3 percent in 2019. Administrative and Distribution costs were 68.13 percent less than last year as the company booked loss allowance for the Karachi relief rebate package and trade debts in 2018 besides writing off receivable on account of Access Promotion Contribution for Universal Service Fund (APC for USF) in 2018. TELE recorded other expenses of Rs.101.32 million in 2019 versus other income of Rs.501.09 million in 2018. This was due to a credit note issued to Supernet Limited as the full value of benefits envisaged in the inter-operator agreement were not materialized and hence the amount booked in the previous years was reduced to reflect the value of benefits accrued to Supernet Limited. Moreover, unlike 2018, there was no reversal of loss allowance against WPS in 2019. TELE recorded an operating profit of Rs. 64.79 million in 2019 versus an operating loss of Rs.37.42 million in 2018. Finance costs rose by 39.15 percent year-on-year on the back of a high discount rate and increased short-term financing. TELE’s gearing ratio soared from 34.57 percent in 2018 to 35.29 percent in 2019. The company posted a net loss worth Rs.60.469 million in 2019 as against a net loss of Rs.128.687 million in 2018, signifying a year-on-year drop of 53 percent. Loss per share clocked in at Rs. 0.2 in 2019 versus loss per share of Rs.0.43 in 2018.
The subsequent years were comparatively slow for TELE in terms of revenue growth as its topline grew by 8.44 percent and 2.57 percent year-on-year respectively in 2020 and 2021 owing to cutthroat competition in the telecom industry. Tough competition not only puts pressure on the service rates but also on the volume of service contracts. The cost of sales took a breather during these two years on the back of a drop in satellite bandwidth and communication charges. This buttressed the gross profit which posted growth of 20.19 percent and 6.5 percent respectively in 2020 and 2021. Administrative and distribution expenses increased in both years due to high payroll expenses and rental expenses. TELE enhanced its workforce from 124 employees in 2019 to 133 employees in 2021. The factors that enabled TELE to post a net profit in 2021 as against a net loss in 2020 were a handsome net other income of Rs.254.74 million earned by the company in 2021 coupled with a drop in finance costs. Conversely, in 2020, the company recorded net other expenses of Rs.148.82 million and a 54.86 percent surge in finance costs. Net other expenses in 2020 were due to receivables from PTA against Access Promotion Contribution for Universal Service Fund (APC for USF) written off during the year. Moreover, the company also booked a loss allowance against APC for USF from PTA. Conversely, in 2021, the net other income posted by the company was the result of a write-off of provisions and liabilities that were no longer payable. In 2020, TELE’s operating profit plummeted by 26.21 percent with OP margin clocking in at 4 percent. Conversely, in 2021, TELE’s operating profit mounted by 802.63 percent with OP margin climbing up to 35.6 percent. Discount rate dynamics played a role in increasing the finance cost in 2020 as the discount rate was high during the first three quarters of 2020. Higher accumulated losses squeezed TELE’s equity and drove the gearing ratio up to 36.73 percent in 2020. The company posted a net loss of Rs. 109.288 million in 2020, up 80.73 percent year-on-year with a loss per share of Rs.0.36. In 2021, TELE’s finance cost plunged by 42 percent year-on-year on account of monetary easing as well as reduced borrowings which along with lower accumulated losses drove down the gearing ratio to 26.72 percent. TELE made a net profit of Rs. 273.188 million with EPS of Rs.0.87 and NP margin of 22.5 percent. TELE’s bottom line which had been in the negative zone since 2017, upturned in 2021.
In 2022, TELE’s topline bagged 23.32 percent year-on-year growth. Since the outspread of COVID-19, the dependence on E-commerce has increased. TELE and its subsidiaries took advantage of this opportunity and offered connectivity and beyond connectivity enterprise and business solutions. The company spread its wings in support enhancement in broadband coverage, enterprise energy solutions, cyber and software security, rolling out of digital infrastructure as well as connectivity solutions. High network media charges pushed up direct costs by 48.89 percent in 2022. This squeezed TELE’s gross profit by 6.27 percent year-on-year in 2022 with GP margin falling down to 35.2 percent. Operating expenses grew by 11.17 percent year-on-year on the back of rising inflation and the expansion of the workforce to 137 employees. Other income mounted by 97.07 percent year-on-year in 2022 on the back of gain on the sale of long-term investment as TELE sold 8.8 million shares of Supernet Limited which resulted in a capital gain of Rs.163.65 million. Moreover, the company also recorded gains on the restructuring of TFCs. As a consequence, operating profit increased by 39.15 percent in 2022 with OP margin reaching its optimum high value of 40.1 percent. Finance cost which came under control in 2021 owing to monetary easing posted an uptick of 3.6 percent in 2022 on the back of multiple upward revisions in discount rate in 2022. Profit before tax grew by 46.15 percent year-on-year in 2022, however, due to higher tax expense on the back of the impact of deferred taxation, net profit posted year-on-year growth of 8.97 percent to clock in at Rs.297.697 million with EPS of Rs.0.88 and NP margin of 19.9 percent.
TELE’s topline grew by 18.11 percent year-on-year in 2023 on the back of increased revenues from value-added services. Value-added services charges drove up direct cost by 8.23 percent in 2023; however, TELE was able to record 36.29 percent higher gross profit in 2023 with a GP margin amounting to 40.6 percent. 15.14 percent higher operating expense incurred in 2023 was the consequence of elevated payroll expense, allowance for ECL, vehicle running & maintenance charges, and utility expense incurred during the year. The company incurred higher payroll expenses despite the fact that it trimmed down its workforce to 126 employees in 2023. Other income declined by 97.23 percent year-on-year in 2023 due to the high-base effect as the company recorded a gain on the sale of its stake in Supernet Limited and a gain on the restructuring of TFCs in 2022. Operating profit tumbled by 60.33 percent year-on-year in 2023 with OP margin drastically falling down to 13.5 percent. Finance costs mounted by 52.7 percent in 2023 on the back of a higher discount rate. Net profit withered by 54.28 percent year-on-year in 2023 to clock in at Rs.136.12 million with EPS of Rs.0.4 and NP margin of 7.7 percent.
In 2024, TELE recorded 29.8 percent year-on-year growth in its topline. This was primarily on account of increased revenue from wireless data as the country is experiencing fast-paced growth in E-commerce and digital infrastructure. The major customer of TELE was the banking industry as the country is actively striving to reduce cash transactions in line with the GoP directives. Elevated electricity tariffs and inflationary pressure pushed the cost of sales up by 44.31 percent in 2024. This resulted in only an 8.61 percent improvement in gross profit in absolute terms. GP margin sank to 34 percent in 2024. Administrative and distribution expenses surged by 36 percent in 2024 on the back of higher rent & utility charges as well as additional service charges provided to the service provider. TELE recorded a staggering 3395.95 percent growth in its other income which clocked in at Rs.464.47 million in 2024. This was due to the gain on the sale of long-term investment as the company disposed of 51 percent of its shareholding in Supernet Limited to Hallmark Company Limited which is now known as Supernet Technologies Limited. After this transaction, TELE held 30.19 percent direct shareholding and 32.04 percent indirect shareholding in Supernet Limited. Tremendous other income recorded by the company during the year, drove operating profit up by 140.70 percent in 2024 with OP margin climbing up to 25 percent. Finance cost dipped by 6.78 percent in 2024 due to settlement of outstanding liabilities. As a consequence, the earnings ratio fell from 22.21 percent in 2023 to 17.67 percent in 2024. Net profit strengthened by 82.49 percent in 2024 to clock in at Rs.248.0 million with EPS of Rs.0.73 and NP margin of 10.8 percent.
Recent Performance (1QFY25)
During the first quarter of FY25, the company shed its topline by 26.94 percent. This was due to a reduction in LDI traffic. Lower revenue squeezed the direct cost by 31.18 percent during 1QFY25, resulting in a 16.13 percent lower gross profit. However, GP margin improved from 28.2 percent in 1QFY24 to 32.3 percent in 1QFY25 due to cost rationalization and improved sales mix. Operating expenses surged by 18.34 percent during 1QFY25 due to inflationary pressure. TELE recorded other income of Rs.35.43 in 1QFY25 as against other expenses of Rs.2.72 million recorded during the same period last year. However, this couldn’t keep the operating profit from declining by 22.32 percent in 1QFY25. OP margin ticked up from 9.1 percent in 1QFY24 to 9.7 percent in 1QFY25. A lower discount rate and settlement of outstanding liabilities resulted in a 52.64 percent slide in finance costs during the period. As a result, TELE recorded 54.49 percent growth in its net profit which clocked in at Rs.14.218 million in 1QFY25. EPS grew from Rs.0.03 in 1QFY24 to Rs.0.04 in 1QFY25. NP margin also showed improvement from 1.4 percent in 1QFY24 to 3 percent in 1QFY25.
Future Outlook
The company is exploring new opportunities in the non-connectivity business such as enterprise resource planning and customer support solutions to diversify its revenue streams and enhance its profitability and revenues. Alternate energy and cyber security are considered to be the two most lucrative avenues for the company which will drive its future growth.