NETSOL on a roll

The skys the limit for companies involved in providing IT services in todays world, where information technology is fundamental to corporate businesses. NetSol Technologies Limited (NETSOL) is a good case in point.
In the space of a few years, the firm has successfully managed to advance its presence in the region by targeting Asias fastest growing economies. This can be seen in the companys export sales, which alone accounted for around 85 percent of its total revenues in FY09.
However, to further advance its presence in developed parts of the globe - which are termed as the haven for IT products - NETSOL has recently announced its intention to acquire 100 percent ownership of its two sister companies up and running - NetSol Technologies Europe Limited and NetSol Technologies North America Inc.
To amass around Rs1.7 billion for this purpose, the software solution provider is planning to issue up to 61.04 million ordinary shares through private placement (other than right issue) at a price of Rs28.82 per share.
If the decision is approved, the stake of NETSOLs parent firm, NetSol Technologies Inc, in the former will increase from existing 60 percent to 75 percent.
These two subsidiaries will increase NETSOLs annual top line by nearly $10 million to around $30 million, while it expects combined revenues to leap further in the foreseeable future as world-wide IT spending is expected to rebound to pre-crisis levels. Gartner, a US-based information technology research and advisory firm, forecasts worldwide IT spending to total $3.35 trillion in 2010, a jump of 3.9 percent over 2009.
In essence, the acquisition will pave the way to directly launch all new developments, products and marketing activities in Europe and North American markers and will also strengthen confidence of potential customers, who are reluctant to sign a deal with a Pakistani company due to geopolitical tensions.
Since exports to Asia currently account for a sizeable portion of revenue, diversification will also reduce the companys dependence on Asian markets. Moreover, the company also expects high growth in demand for IT products from Asian and Australian markets.
Yet, despite this rosy picture, the market doesn seem too interested in NETSOLs stock; the firms share price at KSE has slipped nearly 7 percent in the last six months, against a 10 percent rise in the benchmark index. Why isn the market reacting to the firms seemingly exciting planns is perhaps another story.