OVERVIEW (March 11 2010): Pakistan Telecommunications Company Limited was incorporated in Pakistan on December 31, 1995 and commenced business on January 1, 1996. It is listed on all the three stock exchanges of the country.
It was established to undertake the telecommunication business formerly carried on by Pakistan Telecommunication Corporation (PTC). The business was transferred to PTCL on January 1, 1996 under the Pakistan Telecommunication (Reorganization) Act, 1996 at which date the company took over all the properties, rights, assets, obligations and liabilities of PTC except those transferred to National Telecommunication Corporation (NTC), Frequency Allocation Board (FAB), Pakistan Telecommunication Authority (PTA) and Pakistan Telecommunication Employees Trust (PTET).
The registered office of PTCL is in Islamabad. PTCL provides telecommunication services in Pakistan. It owns and operates telecommunication facilities and provides domestic and international telephone services and other communication facilities throughout Pakistan. It has also been licenced to provide such services to territories in Azad Jammu and Kashmir and Northern Areas.
During FY09 PTCL achieved various milestones. Broadband Pakistan became the largest broadband service in Pakistan with over 200,000 subscribers spread over 170 cities. EVO was launched which made the company the first 3G wireless broadband service provider in Pakistan. It is the sole integrated Telecom Service Provider offering Bundled Voice Data, Internet and TV services at compelling and competitive rates to a wide audience. This year PTCL also underwent ERP implementation. Now PTCL is the first organization in Pakistan which successfully implemented SAP new dimension products like; Supplier Relationship Management (SRM), E-Recruitment, Employee/Manager Self Service (ESS/MSS) and Business Intelligence (BI).
Company Snapshot:
RECENT RESULTS 2001 H 2010
The PTCL Group Revenue of Rs 49.4 billion for the period under review was 6% higher compared to the corresponding period last year. The revenue earned by PTML (Ufone), the wholly-owned subsidiary of PTCL, was higher by 24%, while PTCL's revenue was decreased by 5%. Cost of sales for PTCL increased by 0.5%. PTCL's domestic voice revenue declined by 7% whereas International revenue registered an increase of 3%. Operating profit was lower by 14.25% to Rs 6.2 billion. Other income increased by 18.6%, while finance cost declined by 48.6%. Due to these positivities, the group's net profit of Rs 6.7 billion showed a 13% growth compared to the same period last year. PTCL's Profit after Tax at Rs 5.354 billion was slightly better than the same period last year because of better cost controls and improved realization of receivables.
FINANCIAL PERFORMANCE FINANCIAL YEAR 2005 - 2009
During FY09 PTCL faced a two-fold challenge of price attrition and escalating costs. Due to the increasing competition in the telecom sector and shift in customer preferences PTCL did not only provide more value to its customers by introducing unified tariff for on-net calls but also introduced new services specially focusing on areas of Wireless Broadband and Corporate services for customer retention and enhancing its revenue stream. The following paragraphs discuss in detail the financial performance of the company during the last 5 years.
During FY09 the profit after tax of PTCL was Rs 9,151 million as compared to the loss in FY08 of Rs 2,825 million. The loss during the year FY08 was because of the organizational transformation measures taken by the company.
These measures included introduction and implementation of Voluntary Separation Scheme, Enterprise Resource Planning Packages and different innovative services. Furthermore, the decline in PTCL's profits during FY07 were due to the structural adjustments brought about in the telecom sector due to increasing competition, and increasing substitution of mobile expansion. Also, the operating expenses in FY07 increased by 11.7% due to prudent provisions for doubtful debts and long-term systematic improvements in operations and customer services.
The revenues in FY09 stood at Rs 59,239 million, which were 10.7% lower than the last year. Revenues from voice continued to decelerate with an increasing rate of decline in fixed telephony due to aggressive price competition, higher taxation and mobile substitution. The revenues from the local telephony declined from a level of Rs 60,704 million in FY08 to Rs 53,093 million in FY09.
However, the revenues from the international telephony increased from Rs 5,632 million in FY08 to Rs 6,199.5 million in FY09. The total revenues in FY07 were Rs 65.28 billion as compared to Rs 69.09 billion in FY06. This decline was mainly in the domestic segment due to competition and reduction in tariffs. However the management is making efforts to boost revenues by improving customer care in addition to launching new packages and services.
The decline in the profits of the company due to the above-cited reason has led to a decrease in the gross margin percentage also. The gross margin or operating profit margin of PTCL declined in FY09 to 18.15% from 24.67% in FY08 and 26.33% in FY07. The reason for the decline in the operating profits has been increasing in the cost of selling, and marketing and selling expenses. This increase is attributable to the introduction of new services and packages and launching of campaigns to increase awareness of multimedia and broadband. The foreign operators cost and satellite charges increased to a level of Rs 6,053 million in FY09 from Rs 3,541 million in FY08. Vigorous efforts were exerted during the year to collect overdue receivables culminating in reduced level of provision required for doubtful debts and thus decreasing Administrative and General Expenses to Rs 8.935 billion compared to Rs 10.824 billion last year, ie a saving of 17.45% on this account. Also the net margin of PTCL has shown a declining trend over the last 5 years. It declined from 30.46% in FY05 to 15.45% in FY09.
The declining income after tax has been the prime reason for the decline in net margin. Moreover, the declining net income has also led a decline in the return on operating assets and return on equity over the past years. The return on operating assets stands at 10.96% in FY09 as compared to -3.34% in FY08, 18.76% in FY07, 25.53% in FY06 and 34.83% in FY05. Similarly the return on equity stands at 9.28% in FY09 as compared to -2.71% in FY08, 14.45% in FY07, 20.22% in FY06 and 25.45% in FY05.
The liquidity position of PTCL has shown a fluctuating trend over the last 5 years. The current ration declined to 1.5 in FY09 as compared to 1.81 in FY08 and 2.19 in FY07. The current assets increased by 36.9% in FY09 from the FY08 levels of Rs 39.6 billion. The increase was noted in short-term investments, which grew by about 103%. These investments are in the form of short-term deposit placements with different banks. The current liabilities grew by 64.7% in FY09 from FY08. The current liabilities stood at Rs 21.9 billion in FY08 as compared to Rs 36.1 billion in FY09. Increase has been in the amount of current portion payable to PTA against the WLL licence fee, the amount payable is Rs 1,953 million. Also trade and other payables have registered a growth of 20% in FY09 to Rs 26,114 million from the FY08 levels of Rs 21,731 million. These payables include the sales tax payable and advances from the customers. Combined these two have grown by 71% in FY09 from FY08 levels. (FY09: Rs 2,918 million, FY08: Rs 1,704 million). Similarly, the quick ratio of the company has shown a fluctuating trend. It declined from 1.58 in FY08 to 1.36 in FY09. There has been a slight increase in the stores and spares. They increased by Rs 248 million in FY09 from the FY08 levels.
The DSO of PTCL has shown a mixed trend. The ratio jumped up considerably in the FY06, completely nullifying the effect of the decline in FY05, and exacerbating the already long collection period of the company. However, DSO showed a decline in FY07 showing that management of PTCL was constantly striving for improvement and enhancement despite stiff competition. It then again increased in FY08 due to increases in trade debts and considerable fall in revenue by almost 6%. The DSO declined in FY09 and this is attributable to the better receivable management that reduced the trade debts from Rs 13.366 billion in FY08 to Rs 10.761 billion in FY09, a reduction of Rs 2.605 billion.
The total asset turnover of PTCL has also been showing a decline in the last 5 years. It declined from 0.56 in FY05 to 0.38 in FY09. The reason for this is the decline in sales and increase in assets. The total assets of the company increased in FY09 to Rs 154 billion from Rs 137 billion in FY08. A major shift was seen in capital work in progress, which increased by 25% in FY09 from the FY08 levels of Rs 7.8 billion. Long-term investments have also shown a growth. They grew in FY09 by 55% from the FY08 levels (FY08: Rs 3,607 million, FY09 Rs 5,607 million) and the long-term loans grew tremendously by 743% in the same period (FY09: Rs 3,332 million, FY08: Rs 394 million). The increase in long-term investments was due to the advance given to Pakistan Telecom Mobile Limited for issuance of ordinary shares. The increase in long-term loans was due to the loan given to the subsidiary Pakistan Telecom Mobile Limited under a subordinated debt agreement.
The debt to asset ratio of the company had declined considerably in the FY05 but the trend reversed in the FY06, declining again in FY07. It is important to notice that the company has a provision of leveraging by raising funds through borrowing money from financial institutions. The change in current liabilities was brought about mostly due to a decline in current liabilities of the company in the FY05 and an increase in the same in the FY06. The absence of the dividends payable portion of current liabilities in FY05 and its coming back online in FY06 was an important contributor to the trend. Furthermore, the FY06 also saw an increase in short term borrowings of the company, complemented by increases in other components of current liabilities. Increases in assets, mainly arising from higher cash and bank balances, could not prevent the trend of the debt ratios. The debt to asset ratio has again increased in FY09 to 36% from the previous level of 29% in FY08 due to an increase in the liabilities of the company.
There has been a major jump in the current liabilities due to the reasons cited in the previous paragraphs. The long-term liabilities also increased by 5% in FY09 due to an increase in deferred government grants, these represent grants received from Universal Service Fund (a government formed agency) mainly relating to property, plant and equipment received as assistance towards development of the telecommunication infrastructure in rural areas and include telecom infrastructure project for (i) basic telecom access in Pishin, Mansehra, Dadu and Larkana; (ii) Optical fibre extension - Balochistan Package - 2; (iii) Broadband projects in Faisalabad, Sargodha Civil Division, Multan, Bahawalpur, Dera Ghazi Khan Civil Division and Hyderabad Civil Division. These reasons have also caused fluctuations in the debt equity ratios of PTCL.
The financial strength of the PTCL was satisfactory till the year FY07 but it was alarming in FY08, as the TIE ratio had fallen considerably. The TIE ratio of the company continued to rise in the FY06 despite lower profits during the period. However, it declined in FY07, as a result of decrease in profits. This reflects the little ability of the company to pay off its liabilities as they become due. The major portion of debt arises from current liabilities. The TIE ratio became negative in FY08 due to the losses suffered but then it improved in FY09.
The EPS of PTCL has shown a fluctuating trend in accordance with the net profitability of the company. It declined from Rs 5.22 in FY05 to Rs 1.79 in FY09. It was negative 0.55 in FY08 due to the losses suffered. Dividends have also seen the fluctuating trend over the past 5 years. The dividend payout was around 38.34% in FY05 and has now increased to 83.6% in FY09. However in real terms the DPS have declined from PKR 5/share in FY06 to Rs 1.5/share in FY09. The stock price of the company has also seen a fluctuating trend. It stood at Rs 70.25 in FY05 but on June 30, 2009 it has declined to Rs 17.24. Currently the share is being quoted at KSE around Rs 20/share.
The graph above shows the trend in the variation of stock price of PTCL and the KSE 100 Index over the last year. The stock has a beta of 1.06, which means that the returns on the stock are positively correlated with the market. The maximum price reached by the stock during the period starting 1 January 2008 and ending 24 February 2010 was Rs 50.80/share on April 18, 2008; and the minimum level during the same period was Rs 12/share on 26 January 2009. The current stock price is around Rs 20/share.
COURTESY: Economics and Finance Department, Institute of Business Administration, Karachi, prepared this analytical report for
Business Recorder.
DISCLAIMER: No reliance should be placed on the [above information] by any one for making any financial, investment and business decision. The [above information] is general in nature and has not been prepared for any specific decision making process. [The newspaper] has not independently verified all of the [above information] and has relied on sources that have been deemed reliable in the past. Accordingly, the newspaper or any its staff or sources of information do not bear any liability or responsibility of any consequences for decisions or actions based on the [above information].
Copyright Business Recorder, 2010 
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