Good times roll this year for one of Pakistan’s most prominent software makers. NetSol Technologies Limited (PSX: NetSol) has reported exceptional earnings (unconsolidated) for the third quarter ended March 31, 2018. Thanks to strong top-line growth in the latest quarter as well as controlled operating costs and expenses in the previous two quarters, the 9MFY18 EPS clocked at 13.67, roughly four times the same period last year. After a lackluster half year, net revenues came in exceptionally strong in the Jan-Mar period. The 3QFY18 top-line surge has come on the heels of “service revenue”, which grew by 59 percent year-on-year. The growth came mainly from implementation of the company’s flagship product, NFS Ascent, in China and South Africa. Service revenues have improved 142 percent year-on-year to reach Rs2.06 billion, accounting for roughly two-thirds of the top-line.
Encouragingly, “licensing revenue” – a key revenue driver that boosts service revenues later on – also improved 7 percent year-on-year. But this revenue stream has been down by a massive 41 percent year-on-year in the nine-month period to Rs621 million. The company would need to score more licensing deals to keep the top-line spinning.
As the year winds down, software licensing deals and service & maintenance contracts start maturing, thus bringing in the anticipated revenues. NetSol, which is based out of Lahore, earns bulk of its revenues from overseas sales of its software products and services.
More help came in from ‘cost of revenues’, which have been significantly reduced this fiscal year. During the quarter under review, cost of sales exhausted 44 percent of net sales, as opposed to 67 percent in the same period last year. Hence, in 9MFY18, the cost of revenues was further brought down to 52 percent of net revenues, compared to 63 percent in the year-ago period. It appears NetSol is reaping earlier product investments made into its products, especially NetSol Ascent and POS mobility solutions.
As much as operating performance has improved, a macroeconomic event has also helped the export-dependent firm lock a roughly fourfold profitability-boost in the nine-month period. Rupee’s depreciation against the greenback this fiscal has helped NetSol book massive gains under ‘other income’. Gains on foreign exchange translations have also helped stem ‘other operating expenses’ during the period. The windfall under this head was especially impressive in 3QFY18, helping the firm record quarterly net profits that were greater than the combined bottom-line seen in the first half. With PKR further shedding its value in this quarter, expect more boost to the year-end profitability. Meanwhile, maturing services contracts down the fiscal are expected to further provide a fillip to the company top-line.
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