KARACHI – The decision of Pakistan Telecommunication Authority (PTA) to further slash the rate of Access Promotion Contribution (APC) to zero cents per minute is believed to depress both revenue and earnings before interest, taxes, depreciation, and amortisation (EBITDA) for Pakistan Telecommunication Company Limited (PTCL). The regulator has already cut the APC from 5.5 US cents per minute to 2.75 US cents per minute, though a hearing against the decision is pending in the courts. This further slash is said to be taken to facilitate Long Distance International (LDI) operators for enhancing traffic of international incoming calls through legal channels.
In the consolidated results of PTCL, the company would face the contraction of 30 percent in its topline on a year on year basis. Although broadband subscribers have crossed 700,000, growing strain on public switched telephone network (PSTN) revenues due to ongoing FTM substitution and lower international tariffs should contract topline by three percent annually, said Mohammad Saqib Sajjad at KASB. Similarly Operational Expenditure (OPEX) will also rise by 11 percent as PTCL raised salary of its permanent employees by 50 percent in two steps whereby the second 25 percent increment (with retrospective effect from July 2010) was announced in December 2010, while the company had to increase salary of its permanent employees in line with government policy.
Despite aggressive cost cutting elsewhere and improved receivables quality, this should pump up OPEX by 11 percent annually and hence depress EBITDA margin by nine percent to 33 percent, he added. Moreover, PTCL’s outstanding loans to Ufone have increased to Rs 11billion while it had cash holdings of Rs 15.7 billion as on December 2010. Ufone dividends (Rs 644 million received in the first half of 2011) and markup income from Ufone and on cash holdings amid rising interest rates should contribute 50 percent to the bottom-line. On the other hand, strong broadband and other income remain the key positives while growing strain on PSTN revenues and mandatory salary hike will act as drags.
We believe consolidated results will show the full picture of the company’s performance where strong Ufone should help in EPS of Rs 1.8 per share, he stressed.
It is also expected that PTCL would announce standalone EPS of Rs 1.16 for March FY11, down 25 percent annually. Saqib said that we see PTCL continuing its tradition and announcing Rs 1.75 per share in cash dividend alongside the results. If the payout of the year materialises this should act as near-term price trigger for the stock, following 18 percent drop from its high in February 2011.
In the context of consolidated numbers of the company, Ufone is emerging as the best performing asset for PTCL and it is expected that Ufone’s revenue will overtake that of the parent by FY 2012. We expect consolidated EPS of Rs1.8 per share, where higher financial charges after replacement of suppliers’ credit with loans on Ufone’s books remain a key concern, he added.
