NetSol strikes back

After a run of subdued financial performance between FY14 and FY16, the Lahore-based software giant is looking to shake things up this fiscal year. As per the latest financial information released to the local bourse, NetSol Technologies Limited (PSX: NetSol) scored a massive expansion in its bottom-line for the nine-month period ended March 31, 2017.

Up and down the income statement, one notices improvements all around in 9MFY17. To begin with, the firm’s top line jumped by more than a third to reach a level roughly the same as net revenues accrued during the entire FY16. (The management couldn’t be reached so we could make better sense of the latest financials. And the firm’s website, well, it seems to have vanished from cyberspace, and it’s been like that for months.)

Much of the top line growth is presumably attributed to Ascent, which is NetSol’s latest lease-finance software product, now in its third year. The software’s commercialization received a major boost when in late 2015 a major European carmaker gave it a try, with a $100 million deal. The deal is said to be under implementation in multiple client locations. The incremental revenues from NetSol Financial Suite, the firm’s hitherto flagship offering, are also suspected to have contributed to the top line growth.

Adding to the top line gains, the export-dependent firm has done well reining its overheads this fiscal. For instance, cost of revenues grew by a lesser proportion compared to revenue growth. Hence, NetSol ended up depleting 63 percent of its net revenues on these costs, as opposed to 72 percent in 9MFY16 and an average of 83 percent between FY14-FY16. Now with a major software product ready, with no significant additional development costs, NetSol is gradually moving to its historical, lower cost profile. More savings lined up as admin overheads remained flat during the period under review, consuming 5.41 percentage points less of net revenues compared to same period a year ago. The selling expenses, however, more than doubled over this period, for the firm is actively busy marketing and building a pipeline of deals for Ascent in both existing and new markets overseas. Good times for salaries and commissions!

Further down the column, NetSol also received a boost from its ‘other income’ that more than tripled on a year-on-year basis – most likely on account of higher profits on bank deposits and dividends. The effect was somewhat dissipated by an abnormal increase in ‘other operating expenses’. But in the end, a mix of top line gains and largely efficient overheads management rewarded Pakistan’s top software maker with a significant amelioration in all three of its profit margins vis-à-vis previous year.

While all that glitters, NetSol is still a fair distance from the peak profitability it had reached back in FY13 (Rs1.16 bn). There is little chance of the firm reclaiming the billion-rupee profitability this fiscal. But the important thing is momentum, which is there. At the going rate, NetSol looks poised to have a year-end top line figure that will be, by some margin, highest-ever for the firm on record. So far, so good!