NetSol in FY17

The Lahore-based software giant has had a great year in FY17. Latest financial results (unconsolidated) released to the PSX yesterday showed that NetSol Technologies Limited (PSX: NetSol) recorded highest-ever top-line in the year ended June 30, 2017. The strong, double-digit top-line gain, coupled with healthy swings in non-core income and expenses, yielded a bottom-line that was six times the size previous year.

Compared to the lean period seen in FY14-FY16, the software exporter has surely turned a corner in FY17. It has been three years since NetSol launched its new flagship lease-finance software suite, Ascent. The firm got a major break in late 2015 when it signed, in late 2015, a deal worth $100 million with a German carmaker to implement Ascent in multiple locations in Asia Pacific.

Speaking to BR Research, Salim Ullah Ghauri, the Chief Executive Officer of NetSol, said that license sales had been coming in strong for Ascent. After a patient process of product development and product testing at client sites, the flagship product is in delivery stages, he said.

NetSol usually picks up revenue momentum in the ending quarter, as deals already in the pipeline tend to mature as clients spend their IT budgets before the fiscal year is over. But the company financials suggest that NetSol (unconsolidated) top-line came in at Rs803 million in 4QFY17, down 11 percent year-on-year. The firm made a net loss of was approximately Rs9 million in that quarter, compared to a net profit of Rs69 million in the year-ago period.

Regarding the 4QFY17 slump, Mr. Ghauri explained that some of the revenues coming in from Ascent implementations couldn’t be recognised in the last quarter. “Interesting quarters are coming up,” he said.

Thanks to healthy performance in earlier quarters, NetSol spent less of its revenues on core costs and operating expenditures in FY17 relative to the previous year. For instance, cost of revenue exhausted 68 percent of revenues in FY17 (FY16: 71%). Operating expenditures – selling and promotion expenses and the administrative expenses – collectively depleted 29 percent of revenues, almost the same as in FY16.

But what really bolstered the financials towards the year end was a massive jump in the firm’s ‘other income’. Thanks to higher profits on bank deposits and dividends as well as foreign currency gains on account of currency depreciation in the Apr-Jun quarter, ‘other income’ recorded Rs187 million in 4QFY17, up 68 percent year-on-year.

The top-line attained by the firm is highest ever. But the profitability is far from the peak (FY13: Rs1.2 bn). NetSol has bounced back from the recent abysmal years. But the net profit margins have been tightening for some time – coming down to single digits as opposed to high double-digits seen earlier this decade.

“Ascent is a genuine new-generation technology product. We expect it to have a long life cycle. Investments have already been made into its development. No new development costs are required. The focus is on implementations. We are already focusing on new markets in North America and Europe,” Mr. Ghauri explained.