x Abu Dhabi, UAETuesday 25 July 2017

Du may start recording profits by next year

The upstart telecoms firm that broke Etisalat's domestic monopoly has trimmed losses as subscribers increase.

A man walks by an advertisement for the telecomunications company du in Abu Dhabi.
A man walks by an advertisement for the telecomunications company du in Abu Dhabi.

Analysts expect that second quarter results from du, the upstart firm that broke Etisalat's domestic telecommunications monopoly, will show it has continued to trim losses and improve margins. Upon launching its services last year, du announced that it expected to become profitable by the first quarter of 2009. Weighed down by the costs of establishing the company and building a nationwide mobile network, du has reported losses of more than Dh1.6 billion (US$435.6 million) since it was founded in December 2005.

But the losses have shrunk in recent quarters, with the company becoming marginally profitable on an earnings before interest, tax, depreciation and amortisation (EBITDA) basis in the first quarter of this year. Second quarter results, due by the end of the month, are likely to show a continued improvement on this front. An average of analyst expectations shows du making a Dh55m loss in the second quarter of this year. Estimates ranged between Emaar Saudi Financial Services predicting a Dh46.2m loss to EFG-Hermes predicting a Dh62m loss.

But analysts agreed that the company had continued to add new customers and improve operating margins in the quarter. Thanks to an aggressive price-based campaign to gain new customers, du is expected to announce a total of 2.1 million subscribers. The company said it had crossed the two million mark in late May. In a note to clients, Alok Nawani, an analyst for Emaar Financial, said du was "comfortably headed toward market share of 30 per cent by the end of 2008".

In second quarter results published last week, Etisalat reported 6.83 million subscribers, adding 200,000 new customers. The report said that profits were up by 58 per cent on last year. The Dh3 billion profit was driven largely by a Dh1.78bn windfall from the sale of a quarter of the company's 35 per cent stake in Mobily, its new network in Saudi Arabia. Etisalat also has begun to absorb the costs of its loss-making international operations, which are currently in start-up stages.

These operations, in growth markets like Egypt, Nigeria and Pakistan, are widely expected to begin contributing profits next year, at the same time that analysts foresee that du will begin making money. Mr Nawani said he expected du's core operations to have become more profitable in the second quarter, with EBITDA margins for the period reaching 13 per cent, up three percentage points on the previous quarter.

As the burden of start-up costs is reduced and customer revenues grow, most analysts agree that du will approach real profitability by the end of this year. But the financing cost associated with its new Dh3bn loan is also expected to rear its head for the first time in the coming quarter, costing the company an estimated Dh8m, a figure that will rise dramatically when the debt comes online in the second half of the year.

"The injection of additional debt to its capital structure has obvious cost implications," said Mr Nawani. "It may put pressure on the company's ability to meet its break-even target." @Email:tgara@thenational.ae