Corporate results: PTCL profits grow 7%, excluding VSS costs

Analysts expect telecom giant to rebound in next quarter due to salary savings, telecom gateway.

KARACHI:

The Pakistan Telecommunication Company (PTCL) has posted earnings (unadjusted for a one-time charge) of Rs1.5 billion on a standalone basis, up 7% from Rs1.4 billion in the corresponding quarter of last year. 

The marginal growth was largely due to changes made by the company in its core operations. The turnaround in core earnings was led by growth in the broadband and multimedia services segment, and a stabilising trend in the landline business, says a JS Global Capital research note.

The telecom giant’s landline subscriber base grew 2% in 2012, largely due to the fact that the landline is a prerequisite for the company’s highly popular broadband internet services.

On a consolidated basis, PTCL’s profits jumped 23% to Rs2.7 billion in the period under review.

Furthermore, consolidated revenues were also up 7% to Rs29 billion, while gross profit grew 4% to Rs9.6 billion; however, higher selling and administration expenses of Rs6.2 billion countered the impact of climbing revenues and margins, reducing the operating profit (excluding the Voluntary Severance Scheme (VSS)) by 9% to Rs3.4 billion.

Ufone – PTCL’s wholly-owned cellular subsidiary – currently accounts for about 47% of the company’s consolidated revenues and seems to be a sector with huge growth potential.

However, PTCL’s hefty quarterly profits transformed into losses of Rs8.3 billion due to the booking of the VSS expense of Rs11 billion.

The VSS had been announced in July. The Express Tribune had quoted PTCL Senior Executive Vice President Syed Mazhar Hussain as saying that the company’s human resource cost is 22% of total revenues, while this ratio in other telecom companies was below 10% – making it difficult for the company to compete in the market. The VSS expense cost Rs11 billion to the telecom operator, and lead to the redundancy of 16,000 employees – almost 53% of its 30,000-strong workforce. Since the government has 74% shares in the company, the maximum cost will be borne by the government.

Furthermore, due to the lower Karachi Interbank Offering Rate, the telecom’s return on investment fell 9% to Rs7.8 million.

Outlook

Nonetheless, analysts estimate that this one-time VSS charge will go on to save the company between Rs1.1 billion and Rs2.4 billion per year from 2014 onwards. The telecom giant was chronically overstaffed with total salary expenses in fiscal 2012 at Rs16.8 billion, or 15% of total revenues. The termination of excess staff makes the scheme a worthwhile investment in the long-term profitability of the company.

Moreover, the company is expected to record robust revenue growth on the back of higher receipts from international calls through the proposed international clearing house (ICH), expected to reflect from the second quarter of fiscal 2013. The proposed ICH gateway will converge all international calls to a single technical gateway led by PTCL, against the current practice of being handled by 14 long distance international operators.

The market appears to like PTCL and has seen the stock rally by about 91% since January, with most of that rise coming in August and September.

One time charge

Rs0.7 per every Re1 of revenue earned by PTCL was paid as the Voluntary Severance Scheme expense to its employees in the first quarter of fiscal year 2012-13.

Published in The Express Tribune, October 18^th, 2012.