Thanks to strong second quarter performance, NetSol closed the first half of FY13 on a high note. As per the Companys half-yearly results announcement to the KSE yesterday, the countrys best-know IT firm showed exceptional growth in both its topline and bottom line during the period, while significantly improving its profit margins.
For Netsol, the growth in revenues - and revenues are predominantly derived from sales of software and IT services to foreign companies - usually intensifies in later quarter of the years. During 1HFY13, NetSols revenues exceeded one billion rupees, depicting a YoY growth of 38.5 percent. The growth is suspected to have primarily come from NetSols foreign software licensing deals, followed by its repeat IT services business.
The cost of revenue grew by a smaller proportion relative to revenues during the period, and exhausted 43.25 percent of revenues, which is 305bps less than what it ate up same period last year. Since a bulk of revenues originate from foreign clientele, NetSol incurs most of the cost for exploring, developing and maintaining overseas business. Major expenses are on salaries, benefits, travelling expenses, etc.
A sturdy top line growth coupled with controlled rise in core costs helped the Company earn a gross profit of Rs609.2 million in 1HFY13, which is almost 1.5 times over same period last year.
Robust revenue growth meant higher administrative expenses, which increased during the period by 23.1 percent. But there is a notable, 11 percent decline in the Companys selling and promotion expenses. These two expenditure heads consumed nearly 24 rupees for every 100 rupee earned in revenue during the period, which is positively, 5.28 rupees less relative to last year.
NetSols non-operating performance boosted the operating profits. The Companys other income, which NetSol derives mostly from foreign currency gains and also the dividend income, increased by more than 11 times YoY - most probably due to the effect of rupee depreciation during the period. The other operating expenses also declined by nearly 51 percent during the period under review.
Resultantly, the operating margin massively improved to 40.5 percent in 1HFY13 compared to 23.1 percent seen in the same period last year.
In the end, significant topline growth and controlled operating expenditures, along with windfall gains of currency depreciation, helped NetSol close the first half with net profits of 428.8 million rupees, while also placing all three profit margins on a higher pedestal. The earnings per share had improved to 5.5 rupees a share in 1HFY13, compared to 2.16 rupees same period last year.
NetSol is expected to maintain this growth momentum in the subsequent quarters. The management seems focused on the Asia-Pacific region, while especially concentrating on China, Japan and Thailand. Landing new clients is going to be crucial, much of which depends in the ensuing months on how well the Companys marketers are able to sell the latest version of NetSols software licensing product, Netsol Financial Suite.