Though Pakistan Telecommunication Company Limited (PTCL) has already announced cash dividend of Rs1.75 per share during 9MFY11, fulfilling its full year dividend target of Rs5.5 billion. However, with profits of the company scaled down on the back of escalating employment costs during FY11, the dividend for next year is also estimated to come down.
This is expected to stand around Rs1.5 per share, leading to an estimated dividend target of Rs4.6 billion in FY12. Moreover, an additional increase in salaries in FY12 might dent PTCL profitability further, whereas it is estimated that a 10 percent rise in salary expenses will depress earnings by Rs0.11-0.12 per share (six to seven percent) looking ahead, said Farhan Bashir Khan at Investcapital.
In addition, despite consistent efforts by the government, the remaining portion of $800 million due from Etisalat against the PTCL privatisation deal worth $2.6 billion for 26 percent stake remains a distant prospect. However, it is being rumored that pending dues might be realised on the back of additional offer of shares. Nevertheless, the government is still aiming to finance its FY12 deficit partly through remainder dues (which would help finance seven percent of FY12 deficit if it materialises).
On the other hand, a one time flood surcharge fixed at 15 percent will be abolished as its validity will expire by June 2011, thereby bringing effective tax back to 31.5 percent and having an incremental impact of Rs4 billion to total taxes. With a three-tier sales tax system already on the cards, any change in GST/FED rates for telecom sector is not expected. The infamous RGST which was to bring rates down to a uniform level of 15 percent has apparently been shelved due to lack of consensus on a broader scale.
Given the current scenario, standard sales tax rate is anticipated to continue at 17 percent while telecom services would continue to have a higher rate of 19.5 percent. A downward revision of this to a standard 17 percent appears unlikely as the same is anticipated to cause a loss of Rs6 billion in terms of taxation. Additionally, the maintenance of other charges including custom duty on import of headsets and SIM activation charges (both currently at Rs250 per headset and SIM) is expected in the upcoming budget.
It is pertinent to note that during 10MFY11, the import bill of mobile phones showed an increase of $44 million over last year (up 32 percent annually). Meanwhile, growth in cellular connections also improved to six percent YTD in FY11 compared to two percent in the same period last year. But given the reduction in demand, a cut in either import duty or SIM activation charges in FY12 is not expected, the analyst noted.
