Netsol: bigger than the top line suggests
At first glance, the financial results posted by Netsol Technologies Pakistan Limited (NETSOL), depict a weak performance. The companys revenues have trimmed by 18 percent in 3QFY12 to Rs456 million, compared to the Rs555 million during the same period last year. Despite falling sales, the companys cost of revenue has shot up by 30 percent over the same period to reach Rs237million. But the dilapidated gross margin - from 67 percent to 48 percent over the period under review - is not an accurate depiction of the company which is in fact doing more business than ever before and employing higher resources too. The conundrum faced by the company is linked with the realization of revenues in Pakistan. "Many of our clients are reluctant to sign contracts in Pakistan and we are working on legalities involved in contracting with these clients through our US-based and UK-based businesses," explained the companys Chief Executive, Salim Ghouri. According to him once these arrangements are finalized, clients may be billed through the overseas subsidiaries, which would in turn be charged for services rendered by Netsol Pakistan. Given this information, it may be assumed that the company can expect one-off gains in coming months after the realization of said revenues. In the meantime though, the companys growing appetite for human resources coupled with aggressive marketing shall continue to narrow the bottom line. Selling and promotion expenses grew from Rs32 million in 3QFY11 to Rs49 million in the outgoing quarter. Similarly, administrative expenses also expanded by 17 percent, between the periods under review to Rs89 million. Other income reported by Netsol mostly comprises of gains on currency conversions because more than 90 percent of the companys revenues are earned in foreign currency. Other income has spiked from about Rs22 million in Jan-Mar period last year, by a whopping 277 percent to reach Rs89 million in the outgoing quarter. This improvement should be indicative of the unrealized revenues of the company. Having said that, it is no secret that the persisting global economic slowdown has taken a bite out of IT businesses and Netsol is no exception. Companys management has expressed as resolve to pursue opportunities in the Asia-Pacific and the Middle East to bolster demand. Stronger financial results in the future may rely more heavily on these markets.
Source: KSE notice