Business is good for NetSol Technologies

Innovation does matter when it comes to technology businesses. However, for the highly competitive IT industry, smart marketing tactics are crucial in order to realize smooth revenue streams.
By employing these two principles, NetSol Technologies Limited has become one of the highly competitive and dynamic IT solution and service providers in the global market.
Although, contribution of NetSols domestic revenue to total revenue pie tripled to 12 percent during six months ending December, the firms tilt towards export business with growing presence in Asian market amid global economic recovery helped boost its revenues to Rs770 million, from Rs574 million in the year ago period.
NetSols cost of services, which dropped remarkably to 35 percent as a percentage of sales from 50 percent in a year ago period, declined on the back of efficiency measures adopted a year earlier. Consequently, gross margin rose by 15 percentage points to 65 percent.
In tandem with better resource management that reduced administration expenditures, the companys selling expenditure also eased considerably. Falling marketing bill in the face of growing top line implies growing demand of the firms product offerings.
Better performance in the core business, however, was offset by a reduction in other income that declined by three fourths due to downsliding rupee during the period under review.
Looking ahead, NetSols expansion in Chinese market will help the firm target growing business in Asia Pacific region. Similarly, the firms holding concern - NetSol Technologies Inc - has recently formed a joint venture with Ahteeb group in Saudi Arabia to expand customer reach in the Middle East.
Company officials say the launch of Blue Star (next generation software) expected this year, which is an improved version of its flagship products, Lease Soft, will take NetSol to a higher level of growth, since it is designed to meet the needs of a wide array of lending businesses. In addition, development of public sector projects, such as Hospital Management Information System and E- government solution will have a positive impact on local revenues.
But behind this optimistic outlook there are still two areas of concern; a) if NetSol expands its presence in domestic market further, it might increase risks of late cash recovery; and b) since the firms topline growth still depends on shape of economic recovery, what if the recovery curve shifts from V to a W?

==========================================

NetSol P&L

==========================================

Rs (mn)              1HFY10  1HFY09   %chg

==========================================

Revenue                 770     574    34%

Cost of revenue         270     288    -6%

Gross profit            500     286    75%

Gross margin             65%     50%   30%

Admin exp                81      99   -18%

Selling & promotion exp  36      49   -27%

Other income             48     165   -71%

PAT                     395     307    29%

==========================================