Pakistan’s market leader in the telecom industry faces “significant revenue-growth potential”. As per a recent note by Moody’s Investors Service, Mobilink would get profit from growth of 3G services and mounting smartphone penetration.
Official data of Aug 2015 reveals that Mobilink was leading the 2G cellular segment with 29% share among 119 million subscriptions. It placed second in the 3G data market by having 26% of the 16 million subscriptions.
In spite of financial enhancements, Moody’s has retained Mobilink’s corporate family rating unchanged at B1 stable in the latest rating review. This rating is one notch below its ultimate parent, VimpleCom (Ba3 stable). Since Mobilink generates almost all of its revenues inside Pakistan, the country’s lower sovereign rating (B3 stable) was one of the aim that held Mobilink back from an upward revision despite strong fundamentals.
Report: Mobilink will Benefit from Expansion of 3G Services and Rising Smartphone Penetration
Mobilink is functioning in a competitive situation. Intense competition is anticipated from Zong and Telenor, who are the companies of cash-rich sponsors. But the market is attractive, Moody’s said. Lower average revenue per user at $1.7 per month and low wireless penetration 60% of the population provide chance for further growth for these operators.
Moody’s explained strong internal factors that make Mobilink a strong unit. Mobilink holds only about 5% of its total denominated debt in US dollar, thus being less prone to currency associated payment risks. Over the next 12 months, the firm’s cash holdings, cash flow from operations, and credit lines would be more than enough to cover for capex and short-term debt repayments.
Another reason besides the sovereign risk, Mobilink’s healthy financials couldn’t lead to a rating upgrade was the stimulating and capricious regulatory environment for the industry. Federal government’s doubling of sales tax on mobile phones, Punjab government’s Internet tax imposition back in June 2015, and lasting service curfews for security purposes did not go unobserved by Moody’s.
“Higher fees and taxes are credit negative for Pakistan’s telecommunications industry because they will discourage smartphone adoption and mobile data usage growth – key drivers for industry revenue growth. Telecom operators spent $1.1 billion on the 3G and 4G spectrum auctions in 2014 and need to generate sufficient returns on their investments.”
The note underscored.
“Besides the 19.5% FED on mobile usage and 14% withholding tax additional taxes, will deter demand growth and subsequently weigh on telecoms’ profit growth.”
It is obvious that these challenges are weighing down the industry’s growth. But if Moody’s note is any guide, the market is still looking attractive in the aggregate.