NetSol Technologies Inc. believes it will report record revenues for the recently concluded fiscal year now that its newest product has picked up momentum in growing Asian markets – namely China. Nearly two years after a rocky launch of its next-generation leasing and financing software, NFS Ascent, the Calabasas firm has signed contracts with three Chinese companies, in addition to a $16 million deal with a multifinance company in Asia. The new overseas customers – namely auto dealers, banks and equipment financers, represent the payoff for NetSol. “I believe the Chinese market is really ready to grow. If you think about how big that market is and look at the middle class and younger population, they’re upgrading their lifestyle and moving from motorbikes and such,” said Chief Executive Najeeb Ghauri. In July, the company announced that it had signed a contract valued at $1 million to implement NFS Ascent for a Chinese construction equipment leasing company. Before that, the company had signed a deal in early June with BNPP-Geely, a joint venture of Geely Automobile Holdings Ltd. and BNP Paribas Personal Finance in Hong Kong, to provide its auto dealers with a software platform to manage their lease activities. The value of that deal was not disclosed. NetSol first entered the Chinese market in 2005 when the auto finance industry was gaining momentum. Its first customer there was Daimler Benz, parent company of Mercedes-Benz. “They needed our system and we helped them set up their enterprise software solutions. That was the beginning of NetSol being there, and from then onward we started to grow,” Ghauri said. NetSol now has more than 20 customers in China including Mingsheng Financial Leasing Co., one of the country’s largest financial institutions, and BMW. Ghauri said his company is the market leader in asset-based leasing in China, and accounts for roughly 85 percent of the market share. Slow launch When NetSol projected that its NFS Ascent software would be a huge hit and generate record-breaking revenues for the company, investors scoffed and analysts were more than skeptical after it launched in October. The company had delivered disappointing earnings the month after the launch. It reported a net loss of $3.3 million (-12 cents a share) compared with a net income of 15 cents that analysts expected. NFS Ascent is more robust than the company’s legacy products – NetSol Financial Suite, LeasePak and Lease Soft – thus it took longer to explain the product to customers, according to Ghauri. He said that after the launch there were several deals that were still in the negotiation phase and had yet to close, and were therefore not reflected in the company’s earnings. “Yes, it was disruptive. In 2013 we had a record, profitable year, then in 2014 (we suffered a loss),” he said. “This is a very complex business and we are not selling hardware like laptops or iPhones, we are selling solutions.” Over the past two years, NetSol invested a large sum in building up its workforce and expanding offices in Lahore, Pakistan, to handle the influx of business the company expected to generate. According to Ghauri, the average time it takes to sell NFS Ascent to a client is anywhere between three to nine months. Given the complexity of the contract, deals for licensing NetSol’s software can be valued at $16 million, if not more. In the quarter ended March 31, the company reported a net loss of $1.6 million, down from the loss of $2.8 million the year prior. Still, in a statement NetSol put out last month discussing the company’s preliminary revenue results for fiscal 2015, it forecast ending the year with $49.5 million to $50.5 million in revenue, reflecting a return to its prior levels in 2013 before the dive. The company gave no guidance on earnings. Its fiscal year ended June 30; earnings are to be released next month. Howard Halpern, an analyst with Taglich Brothers in New York, gives NetSol a speculative “buy” rating due to its increased fiscal year 2015 and 2016 forecast. In a May report, he projected that the company will bring in $48.8 million in net sales this fiscal year and $58.6 million in 2016. “With an estimated 8,300 potential customers, growth potential for the company’s second-generation platform NFS Ascent is substantial,” the report stated. Halpern did note that the company’s stock carries some risks for investors, including geopolitical unrest, outstanding litigation and a low trading volume of shares. “The company’s largest subsidiary is located in Lahore, Pakistan, (and) current relationships between the U.S. and Iran, the U.S. and Pakistan and the conflict in Afghanistan may negatively affect the perception of NetSol’s ability to have its 1,350-plus employees operate effectively in other Asia-Pacific countries,” the report stated. Big names In the auto lease and finance sector, NetSol has some big-name clients, including Ford Motor Co., JPMorgan Chase Bank and Citigroup Inc. But it also has rival software suppliers. Competitors include companies International Decision Systems in Minnesota, 3i Infotech in Mumbai and CHP Consulting in London. While the company continues to license its software to lenders and dealers in the mature markets of North America and Europe, NetSol sees China as the region where its growth will come, after breakthroughs in the country’s legal system, credit market and funding sources. “We believe one out of every three cars in the world will be sold in China within the next 10 years – and consumer adoption of financing and leasing will play a large part of that trend,” said Ghauri in a June statement. Founded in 1997 by Ghauri, NetSol has offices in London, Beijing, Bangkok and Sydney – though its largest location is in Lahore, where more than 1,400 programmers, developers, and engineers are based. In the past three years alone, the company hired 500 of those programmers in Pakistan in anticipation for major growth after the launch of NFS Ascent. As of this March, NetSol has a total of 1,530 employees worldwide. The company has also invested $10 million in adding two additional floors totaling 90,000 square feet to its campus in Lahore. “You can see we are very strong in our footprint in developed and emerging markets,” said Ghauri, a Pakistani native. “I am very optimistic about NetSol’s growth and I am very optimistic about where NFS Ascent is going. NetSol is one company which stands out in the competitive landscape, (and we hope to be) the leading IT developer in this domain in the next years.”
