For the leading IT exporter, the first quarter of the year has been just as impressive as CY21. As per the latest financials posted to the bourse for the three-month period ended March 31, 2022, Systems Limited (PSX: SYS) nearly doubled its consolidated bottomline to Rs1.2 billion. This expansion was due, in large part, to the massive 75 percent year-on-year surge in the group topline. The net profits are also supported substantially by non-core gains recorded under ‘other income,’ which continue to give amidst PKR woes.

The holding company (Systems Limited) as well as the two subsidiaries, (Pakistan-based E-Processing Systems and the Dubai-based TechVista), have returned strong performance again to make early 2022 a continuation of an impressive show that was put up by the group last year. Recall, back in CY21, SYS consolidated topline had jumped 55 percent year-on-year to Rs15.3 billion and its net profits more than doubled to Rs4.38 billion.

Now in 1QCY22, the holding company’s net revenues jumped 77 percent year-on-year to cross Rs4 billion, even as the two subsidiaries scored a combined Rs1.26 billion in topline, growing 69 percent year-on-year. As per the management, the standalone revenues grew in USD terms by 55 percent year-on-year. This signifies continued strong demand for the holding company’s software solutions and system integration services in core export markets of the United States, the European Union, and the Middle East.

Meanwhile, the management has been pushed to focus on aggressive talent acquisition, in order to meet strong demand for IT services and solutions from overseas market during the pandemic. On the flipside, massive hiring also reveals itself in much-higher growth in the ‘cost of revenues,’ especially in the quarter under review. This resulted in less-than-proportional growth (relative to the topline) in the rupee-based gross profits of both the holding company (48 percent YoY growth) and the subsidiaries (58 percent YoY growth).

Pressure on margins did not relent down the line. Due to massive increase in the holding company’s operating expenditures (administrative expenses and distribution expenses), its operating profit growth was restricted to 20 percent year-on-year to Rs788 million in 1QCY22. In contrast, the two subsidiaries more than doubled their collective operating profit to Rs212 million in the period under review.

That’s where ‘other income’ came in handy. Under this accounting head, it was the holding company’s ‘exchange gain’ of Rs150 million in 1QCY22 (vs. exchange loss of Rs152mn in 1QCY21) that made the difference, as PKR significantly depreciated against USD in the analysis period. This helped the holding company’s net profit to jump 103 percent year-on-year to reach Rs1.06 billion in the quarter. The two subsidiaries collectively grew bottomline by 73 percent year-on-year to Rs132 million sans such support.