KARACHI, April 17: Privatization of Pakistan Telecommunication Company Limited (PTCL) is, at least for the time being, out of the question. The market knows that and it has already factored into the stock price.
But there are issues about PTCL that could bring about some discernible movement in the giant telecom.
Over the last six months, PTCL has underperformed the market. But taking just the first four months of the current year, the stock has managed to catch up with the market's rise of 22 per cent. The telecom stock was priced at Rs37 on January 1, which now is Rs45.40, an increase of 22.7 per cent.
The financial figures of the company for the three-quarters ended March 2004 are already around the counter. That and the dividend announcement are expected before the end of April. The market gurus are more or less in agreement about the PTCL's full year earnings. After tax profit for the year to end June 2004 is being projected at Rs25 billion. On the 5,100 million total outstanding shares, earning per share (eps) would work out to Rs5 per share.
At the ruling price, PTCL is trading on price-to- earnings (p/e) multiple of 8.4 times which is at a discount to the market p/e of 10.4 times. Expected dividend payout ranges between Rs3.50 to Rs4 per share and the stock offers a decent 9 per cent dividend yield. Does that make it a good buy.
Investors must make their own decisions.
For financial year 2004, reduction in line rent by 33 per cent was expected to put a small dent in results, but profit for the third quarter was believed to be high, due to substantial growth in volume and Access Line in Service (ALIS).
The recent reshuffling in the company means that the chairman of the company no longer doubles up as the CEO and the role has been split. The new management is expected to suggest to the government to divide the giant telecom into various segments. There are also suggestions of considerable downsizing. Market men disagree on whether the company break up proposal would or would not damage value?
The important issue for PTCL is perhaps the upcoming competition in the cellular market as the government decided to issue two more licences. Out of the 33 parties that had initially expressed interest in auction of two licences, 24 backed out and only 9 showed up at the auction. Does that show that international operators do not see Pakistan market as commercially viable.
That perhaps depends on how one looks at it: is the glass half empty or half full? Though the number of bidders were small they were willing to pay an astoundingly high price. The government raised a cool sum of $582 million from Telenor, Norway and Space Telecom, the two successful bidders.
The expected entry of new players has created some ripples in the telecom sector. Subscribers are happy for the competition that it would fuel in the cell market and companies - Mobilink, Ufone, Paktel and Instaphone - would eventually have to offer more competitive quality services.
Because of the inter-connectivity arrangements, PTCL would be the direct beneficiary of the growth in cellular industry. That, though may be for initial years. But as number of cell phone users climb and tariffs drop, cellular companies would opt to set up their own backbone infrastructure. If the cell operators start cutting tariffs to match with that of PTCL, the telecom could be hard pressed to compete particularly in the rural areas. All of that depends, really, on how much is the mobile market potential.
Optimists are looking at every second employed urban labour force in Pakistan to be carrying the cell phone in his pocket, which means a market of 15 million subscribers over the next few years. The threat to the mobile phones also comes from the Wireless Local Loop (WLL) segment, which might, arguably be able to provide cheaper call rates.
The management report that would be tagged with the third-quarter results would doubtless attribute growth in profitability to increase operating margins and reduction in operating expenses.
It has to be seen how the competition in the mobile market and the proposed corporate split or restructuring impacts the company performance in terms of service and profitability.
