GP vs Robi: Why one outshines the other, makes more money from investment

Grameenphone (GP) and Robi Axiata seem to have fought a close fight when it comes to revenue generation, but by the time they take away profits excluding all expenditures GP goes beyond the horizon of Robi.
In the quarter through March, GP's revenue was Tk 37.35 billion, 1.59 times that of Robi. The gap widened in operating profits as the largest mobile operator, GP managed to limit expenditures to 59 per cent of the revenue up until that level while the second-largest operator, Robi saw about 84 per cent revenue gone.
Going further to extract net profit, Robi earned only Tk 0.42 billion, which was only one-eighteenth times that of GP.
"GP's larger market share, innovation, and efficient control of operating expenses have helped maintain a healthy profit, while Robi has struggled to keep up," said Prof Subarna Barua, of the international business department of the University of Dhaka.
Market competition costing Robi more
Operating expenses include cost of materials & traffic charges, salaries & administrative costs, cost of operation & maintenance, sales, marketing & commission, revenue sharing & spectrum charge and depreciation & amortization.
Ironically, Robi's network operation and maintenance cost is more than three times higher than GP though they are on a par with each other in terms of network coverage.
GP's network covers 99 per cent of the population while Robi's 98.4 per cent.
GP and Robi both bought the maximum allowable 60 MHz spectrum in an auction of the Bangladesh Telecommunication Regulatory Commission (BTRC) last year at the expense of Tk 33.61 billion.
The new acquisition took GP's total spectrum to 107.40 MHz while Robi's 104 MHz.
To be as good as GP, Robi bolstered its network coverage with a high cost of wear and tear, almost equivalent to the cost borne by GP. But GP's revenue is higher than Robi.
Hence, Robi spent more to earn less revenue.
"Robi has been making efforts to improve its services and expand its customer base, and it will be interesting to see how its financial performance evolves in the coming years," said Prof Barua.
Operating in the same market, the mobile companies compete for subscribers, revenue and profit.
GP adopted innovative marketing strategies and provided GP-to-GP offers, attaining the position of the market leader.
Having attained 4G leadership, Robi was the first company to launch 4.5G services in all 64 districts in 2018 and successfully conducted the first-ever trial of 5G technology in the same year.
However, selling and marketing expenditure is high for Robi relative to its revenue.
Experts say higher costs of revenue generation, a huge foreign currency loan burden and increased foreign exchange losses kept Robi's profit significantly lower than that of GP.
The trend has continued, with GP consistently outperforming Robi in terms of revenue and profit.
On the January-March quarterly performance, Yasir Azman, chief executive officer of GP, said, "Grameenphone exhibited a resilient performance in the face of external hurdles, ending the quarter with continued top line growth momentum".
Higher financial leverage
Robi has been bearing a foreign currency loan of Tk 10.12 billion from the International Finance Corporation, whereas GP has no such loan exposure. The loan burden rose in tandem with the appreciation of the dollar -- about 25 per cent since the Russia-Ukraine war began last year.
Including local loans, Robi's borrowings amounted to Tk 13.93 billion while GP's Tk 3.12 billion, as per the latest financial statements.
Then foreign exchange loss added to the financial expenses.
"Higher financial leverage is one of the key reasons for Robi being a lower profit-making company," said Salim Afzal Shaown, head of research at BRAC EPL Stock Brokerage, a top-tier brokerage firm in Bangladesh.
Moreover, since both the companies are operating as an MNO (mobile network operator), they must pay revenue-based tax as well as profit tax, said Mr Shaown.
Mobile network operators are required to pay minimum 2 per cent tax of their annual gross revenue. They pay minimum turnover tax even if they incur a loss in business, meaning they will have to pay tax out of capital if such a situation arises.
Apart from these, there are license fees and annual spectrum fees, which are almost same for Robi and GP. They also pay 15 per cent value added tax.
GP paid Tk 24 billion to the government exchequer for the first three months of this year while Robi paid Tk 11 billion in spectrum fee, tax, value added tax, duties and revenue sharing and VAT collected from customers.
Since Robi's profit before tax has been significantly lower, it is facing a higher effective tax rate.
"All these took GP far ahead of Robi, particularly in terms of profit growth," said Mr Shaown.
As a result, GP's return on equity (ROE) is 53.20 per cent while Robi's only 2.76 per cent, according to Investing.com, a financial markets data analyst that provides real-time data.
Return on equity shows how well a company is managing the capital that shareholders have invested in it.
The higher the ROE, the more efficient a company's management is at generating income and ensuring growth from its equity financing.
For the last several years, Robi has been investing heavily in the market, according to EBL Securities. Since its rebranding in 2010, Robi has increased its spectrum, and expanded its digital business, making it a strong player in the telecom industry.
Mohammed Shahedul Alam, Robi's chief corporate and regulatory officer, earlier said the company would reap the benefit of the investment in future.
"We are a profitable company and the way we are progressing we are hopeful about doing much better."

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