elixirsecurities a dawood group company

April 2, 2010
THE BELL
PAKISTAN RESEARCH

Fixed Line Telecom

Wateen Telecom Limited – Going for the Listing
Shareholding Pattern
Wateen Telecom Limited (WTL), an associate of Bank Alfalah Limited, is going for the listing on
the KSE through issuance of 110mn fresh shares (20.85% of the total paid up capital) at par
(PKR10/share) with a Green shoe option of 90mn shares to the general public. This will
increase the paid‐up capital of the company to PKR6.2bn from PKR4.2bn at present, as the IPO
will collectively raise funds to the tune of PKR2.0bn. The major purpose of raising funds is:

Bank 1) To retire long term financial obligations of the company. WTL has borrowed PKR1.47bn
Alfalah through LCs from commercial banks to acquire new equipment (WiMAX modems) to
20%
expand its wireless operations.

Warid 2) To fully acquire Wateen Solutions (Pvt.) Limited (formerly National Engineers (Pvt)
Telecom
Int'l Limited). At present WTL has 51% stake in the company. Total cost of the acquisition is
80% estimated at PKR490mn (Per share price stands at PKR1,234.2 whereas par value of the
share is PKR100). Wateen Solutions’s cumulative profit stood at PKR285mn during FY09.

Source: Wateen Information Memorandum

An overview of the company
Wateen Telecom Limited is another venture of Abu Dhabi Group in the telecom industry of
Pakistan, after the launch of Warid Telecom (Pvt) Limited. The company was incorporated in
March 2005 and commenced its Long Distance and International Public business (LDI) from
May 01, 2005. At present, the majority of the shareholding (80%) of WTL is with Warid
Telecom International LLC and followed by 20% with Bank Alfalah. The fresh issuance of share
will eventually dilute the holding of both companies.

Wateen Telecom Limited – Earnings Highlights

PKR mn FY05 FY06 FY07 FY08 FY09
Revenue 15 2,794 4,448 9,289 16,184
Cost of sales 46 1,712 2,727 5,235 10,946
Gross profit (32) 1,082 1,722 4,054 5,238
General & admin Expenses 13 565 854 1,716 1,921
Marketing & Selling Expenses - 14 82 341 300
Operating Profit (45) 503 785 1,998 3,018
Depreciation 13 122 67 435 960
Other income - 6 26 200 191
Finance cost - 15 166 205 568
PBT (57) 371 578 1,559 1,681
Tax (20) 144 193 475 532
Hifza Zia Non-controlling interest 130
hzia@elixirsec.com PAT (37) 227 385 1,084 1,019
(+92‐21) 3247 0398 EPS (PKR) (37.10) 1.12 1.85 5.19 4.80
EPS Net Mgt fee (PKR) (37.10) 1.81 2.91 7.22 4.80
Source: Wateen Information Memorandum

Please refer to the last page for Analyst Certification and other important disclosures.
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Business Segments’ Details

The company has its main presence in five major segments of the telecom sector. In Optic Fibre infrastructure, WTL stands second after
PTC (13,000km) with 10,000km nationwide network. Second business segment is Long Distance and International (LDI), in which WTL
again stands second to PTC in terms of market share and has been doing a billion minutes per annum. Third salient segment is VSAT, in
which WTL is the largest operator of Satellite services in the country with 500+ mHz in commercial use (market share of 66%). The
company buys satellite bandwidth from international satellite operators and sells them to local corporates including cellular and media
companies, banks and MNCs to cover any redundancy in the optic fibre network. The company has also penetrated the Broadband
segment, with an overall market share of 30% (30% share in DSL and 65% share in the wireless Broadband (WiMAX). WTL’s WiMAX
represents the largest nationwide network roll out of WiMAX technology anywhere in the world, covering 22 cities and 1,100 sites.
Additionally, WTL has 12,000 broadband customers over fibre with 2,700 corporate links (including 27 commercial banks out of total of
40). The fifth prominent business segment is Wateen Solutions, which is a value added reseller of software and hardware solutions to the
companies in Pakistan.
Growth Potentials
• Continuous rise in foreign investment in the telecom sector. The telecom sector attracted PKR68bn worth of foreign investment
during FY09 despite global slowdown, whereas revenues of the sector rose by 18% YoY to PKR328bn.

• Cost rationalization programs being adopted by the telco operators in the country for which they would increasingly seek WTL’s
products and services to reduce cost and increase efficiency and coverage.

• Cost efficiencies of the company due to extensive Optic Fibre infrastructure and greater coverage and penetration in cities compared
to other operators.

• Diversified business segments and revenue streams.

• Leading player in the wireless internet market (WiMAX).

Concerns
• Hefty debt on the company’s books. Long term liabilities stood at PKR10.9bn, rising from PKR2.5bn in FY08 and short term liabilities
at PKR10.6bn in FY09 (up from PKR9.4bn in FY08). This indicates rising financial costs in coming years.

Investment Perspective
Wateen Telecom will be another addition to the listed telecom sector after its successful completion of IPO. We believe, with its
diversified products range, the company will strive to maintain its top line in future. VSAT, a backbone of any redundancy in the optic fibre
network will bode well for the company in the long run revenue generation. Moreover, the major capex of the company has been
completed and hence we do not foresee any major jump in depreciation expense in long term. Thus, in our opinion investors with long‐
term horizon should subscribe to the IPO.

2 ELIXIR SECURITIES April 2, 2010

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Economic & Political News

Research, (+92‐21) 3242 3104

Yield on Pakistan’s Eurobonds gains substantially

Yield on Pakistan’s Eurobonds, amounting to USD500mn dollars, gained substantially in the offshore markets and in almost two years fell
below 8.0% — a sign that risk factor related to the country’s economy is diluting, said a Singapore‐based foreign bonds dealer. The
gradual improvement in risk perception of Pakistan has resulted in Pak Eurobond, maturing in 2016 to drop below 8%, for the first time
since May 2008 to 7.96%, said the dealer, who asked not to be named. The credit default swap ratio spread has slashed by 84bps in a day
to 6.87%, he said.

Treasury Report
FX Market
Zeeshan Atique, zatique@elixirsec.com (+92‐21) 3240 1461

On Thursday PKR again weakened by 14 paisas against USD and closed at PKR84.23. Intraday USD traded in the range of PKR84.10
and PKR84.25. While in second half of market (Next Day Value) USD jumped further by 10 paisas and closed at PKR84.35. A little more rise
in the rate of USD is expected on Friday. In swaps, premiums were on low rates.Over night was trading as low as 7.50% while 1‐week and
2‐week swaps traded at 10.50%.

3 ELIXIR SECURITIES April 2, 2010

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Analyst Certification
The research analyst(s), primarily involved in the preparation of this report, certifies that (1) the views expressed in this report
accurately reflect his/her personal views about all of the subject companies/securities and (2) no part of his/her compensation was, is
or will be directly or indirectly related to the specific recommendations or views expressed in this report.

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contained herein have been compiled or arrived at based upon information obtained from sources, believed to be reliable and in
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not, and should not be construed as, an offer, or solicitation of an offer, to buy or sell any securities or other financial instruments.

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4 ELIXIR SECURITIES April 2, 2010