In Focus: PTCL (19082008)

PTCL is recently expected to announce its financial results for FY08. We expect the telecom giant to post the FY08 loss of PKR0.68 per share and after tax loss of PKR3.47billion against the PAT of PKR15.64bn (EPS PKR3.07) in FY07, showing a decline 122 percent YoY.
The earnings decline flows, for FY08, from the expansion in operating costs by 12 percent primarily due to the one time cost of VSS that the company has booked in the second quarter. The VSS cost of over PKR23bn was recorded due to the voluntary termination of employment by above 29K employees which, according to the management would provide fruitful in future onwards from FY09 resulting in decline in salaries cost by 20-25%.
35 percent raise to put pressure on PTCL's
bottom line earnings!
Despite costs cutting efforts through VSS, the recent rift between PTCL and its employees resulted in the final agreement of regularisation of 8,000 daily wages employees and salaries of employees has been raised by 35 percent. This hike in salaries and regularisation of contractual employees would pose a burden of around PKR 2bn in the coming years, which is expected to largely mitigate the effect of VSS.
Fixed Line, WLL subscribers declining
We have also witnessed a decline in fixed line and WLL subscribers of PTCL during the year, as consumers are opting for cellular communication that turns out to be cheaper and provides mobility. The WLL segment has seen a decline of 5 percent in its subscribers during the month of Jun-08 while the fixed line segment has witnessed a negative growth of 4 percent during Jan-Mar 2008. Such as decline is anticipated to hamper the top line earnings of the company.
Revenues to flow from interconnect charges…
Despite the decline in fixed and WLL subscribers, we anticipate PTCL's Interconnect charges to drive its top-line with recent rise in international termination charges to USD0.10. Also, the diminishing value of rupee against the dollar will further enhance the revenues through such international interconnectivity. Furthermore, large cellular teledensity resulting in increased cellular traffic will add to PTCL's revenues through interconnectivity.
Ufone's performance remains stagnant in terms of market share!
Ufone has recently lost its position, as the second largest company based on subscribers, to Telenor (20.59%) which has shown considerable efforts to expand its market position. PTCL's cellular subsidiary's Ufone has increased its subscriber base to over 18.1mn subscribers (20.56%) nationwide however its plans of enhancement of network has not paid off and may remain in the similar mode in coming period.