NetSol gathers pace

The Lahore-based software major is back on its feet. NetSol Technologies Limited (PSX: NetSol) has received a tremendous fillip to its bottomline in the half year that ended December 31, 2016. Recall that NetSol had posted in 1QFY17 a net profit (Rs76.5 million) that was more than its entire net profit of FY16. The second quarter has also been resilient, helping the firm reach Rs267 million of net profits in 1HFY17.

It seems that Ascent NetSols flagship lease-finance software product that was launched in FY14 is behind the topline surge. The firm had signed a $100 million deal, back in late 2015, to deploy Ascent for a major European car manufacturer in a number of countries. Deployment is said to be underway in a few locations. Meanwhile, the legacy product, NetSol Financial Suite, may also be providing support.

But it wasnt the strong double-digit growth alone that helped the firm boost its net profits six-folds during the period under review. There were operational savings at work, too, that helped NetSol put on a good show in the half-yearly period, leading to visible amelioration in profit margins compared to same period last year.

For instance, the firms cost of revenue came down to 61.6 percent of sales in 1HFY17, which is about 7.5 percentage points below what these costs exhausted in the same period last year. Similarly, the administrative expenses consumed 15.2 percent of net sales in the period, which is just over 4 percentage points less than what these expenses had depleted in 1HFY16.

The selling and promotion expenses, however, nearly doubled on a year-on-year basis. They ended up consumed roughly 10 percent on net revenues in 1HFY17. That could be attributed to the firms marketing activities overseas. NetSol is heavily reliant on revenues from its overseas clients, which typically provide about 99 percent of the firms revenues.

Going forward, the gains that have been achieved thus far can be consolidated if the latter quarters help NetSol better monetize its software licensing deals. Already, the firm seems on its way to close this fiscal with all-time high revenues.