Dialog sees flat 2012 profit

Reuters: Sri Lanka’s top mobile operator Dialog Axiata said its 2012 profit would be neutral or rise slightly due to cost restructuring in wireless fixed-line operator Suntel, which it agreed to buy last week in a deal worth up to $ 34.9 million.

Dialog’s Group Chief Executive Dr. Hans Wijayasuriya told Reuters in an interview on Wednesday that he was planning to restructure costs in network spending, marketing, overheads, administration and human resources.  “Due to this cost restructuring... revenue wise it would be an accretion of anywhere between nine and 11 per cent to the Dialog group in 2012. On profit after tax (PAT) level, it’ll be neutral or slightly positive,” Wijayasuriya said.

 Analysts have not revised their 2012 forecasts for Dialog since last week’s announcement.

The merger with Suntel, a subsidiary of Swedish telecom operator Overseas Telecom AB, is expected to be completed in next three months.

The merger will boost Dialog’s market share in fixed-line phones to 20 per cent, positioning it as the second player after the top fixed-line operator Sri Lanka Telecom.

Dialog now holds a five per cent market share and is ranked fourth in terms of market revenue share. Wijayasuriya said the merger was a long term investment, which would position the firm as an improved fixed-line operator.

“We and Suntel will work on the cost structure which is capable of delivering a profitable, viable strong fixed-line provider,” he said. “The retail market for fixed is one that will gradually deplete because of mobile substitution. Our growing fibre network combined with Suntel’s enterprise base, these two brought together will push us to a very strong position.”

Wijayasuriya also said the group would devote up to $ 25 million in capital expenditure on fibre optic infrastructure and $ 100 million for the overall capex next year, similar to 2011.

The top mobile phone operator has focused on service quality improvement and expansion of capacity amid growing demand for information and communication technology in Sri Lanka.

The merger news failed to boost shares in Dialog, which has fallen 1.3 per cent since then, as the market sees the move as a non-value adding merger to increase the group’s subscriber base.

Dialog is the seventh-largest firm in the Colombo Stock Exchange with a market capitalisation of Rs. 8.14 billion ($ 71.47 million).