NetSol undergoing growth consolidation

After facing slow revenue growth during the first quarter, NetSols top line picked steam in the second quarter, bringing total revenues for the first half of the current fiscal year to Rs852 million from Rs770 million same period a year earlier.
Export revenue, which makes for more than 95 percent of NetSols revenue pie, grew by around 20 percent during the first half of the financial year, aided by higher proceeds from maintenance and services sales. However, revenue from license exports showed a negative growth - falling to Rs278 million from Rs360 million in the same period a year earlier.
Contrary to the export growth, the revenue stream from the local market remained sluggish, as the total domestic revenue squeezed by nearly half to around Rs37.6 million in 1HFY11.
Selling and promotion expenses, though very small, increased owing to a growing presence in the Chinese and the Far Eastern market, whereas administrative expenses increased massively on account of one-off events, such as write-offs of receivables and relief assistance for the flood-affected populace.
Looking ahead, the growth in global IT spending is likely to keep the business of software houses and technology service providers up and running.
Forrester Research, a technology and market research company based in North America, has predicted global IT purchases to rise by 7.1 percent in 2011 over last year, while, Gartner, another technology research, expects global IT spending to grow by a 5.1 percent in 2011.
In line with the companys historical annual revenue growth trend that has averaged around 44 percent during the past four years, current growth level doesn seem too overwhelming. It seems that the company might be going through a transition phase - from super-normal growth to a sustainable growth phase period.
However, since the company is expanding its operation in the Far Eastern and the Middle Eastern countries, strong revenue growth is inevitable down the line.

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NetSol Technologies ltd

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Rs (mn)                 1HFY11      1HFY10         chg

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Revenue                    852         770         11%

Cost of revenue            279         271          3%

Gross profit               573         499         15%

Gross margin               67%         65%          4%

Administrative exp         181          81        123%

PAT                        417         395          6%

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Source: KSE notice