An end to Technical Service Fee (TSF) payments to Etisalat post FY12, the freezing of salaries in the upcoming budget and mergers and acquisitions in the industry, particularly in the case of the cellular sector will constitute key near-term triggers for Pakistan Telecommunication Company Limited (PTCL). It is believed that PTCL’s cash holdings of Rs 15.5 billion and strong Free Cash Flow (FCF) leaves it in a relatively strong position while most cellular service companies are reeling.
It is hoped that much needed cellular sector consolidation could help boost efficiency and therefore value accretion. Ufone and the broadband unit remain PTCL’s star performers and should collectively contribute 60 percent to topline in FY11E. Ufone has emerged a star performer for PTCL with topline and Earnings before Interest, Taxes, Depreciation and Amortisation (EBITDA) notching up growth of 26 percent per annum and 57 percent per annum, respectively in FY08-10, and remains the third largest with a 20 percent market share and the only profitable cellular service in Pakistan.
Looking ahead, it is expected that Ufone revenue will improve to Rs 72 billion by FY13E, with an EBITDA margin of 33 percent, said Muhammad Saqib Sajjad at KASB. PTCL’s push for a network upgrade has expanded its broadband services to over 1,000 locations with 700,000 subscribers. PTCL is one of the first companies offering VDSL2 based 50Mbps broadband services as well as EVDO Rev B based wireless broadband (upto 9.3Mbsp) that should attract high-end users.
However, it is believed that the introduction of a new, basic 256Kbps package to entice lower end users should boost growth in terms of subscribers at the expense of ARPU and lift revenue as demand for higher quality services induces these users to upgrade to higher speed packages, he opined.
It is pertinent to note that Access Promotion Contribution (APC) cut from 5.5 cents per minute to 2.75 cents per minute, a 50 percent salary hike; and weaker than expected fixed line performance remain key negative factors for the company in the 3QFY11. Salary freeze offers Rs0.12 per share upside to FY12E estimates while an end to TSF implies upside of Rs 0.5 per share from FY13E, he added.
