Continuing its growth momentum, Pakistan’s leading IT exporter, Systems Limited (PSX: SYS), has had a strong close to the first half of the calendar year. According to the latest financials posted to the stock exchange, for the six-month period ending June 30, 2022, the company witnessed a remarkable 75 percent year-on-year increase in consolidated revenue, reaching Rs11.46 billion. The bottom line saw an even more significant expansion of 96 percent year-on-year, generating nearly Rs3 billion in profit during this reporting period. With assets of Rs21.68 billion, the balance sheet size has expanded by a fifth since December-end 2021.
The primary driver behind the revenue growth is the company’s exports of IT services and BPO services. Additionally, domestic sales of IT services and software trading are also growing. SYS’s growth trajectory began before the surge in digital adoption associated with the Covid-19 pandemic, and it gained further momentum during the pandemic. This trend has continued into the current year. To stay ahead, the management has recently made several investments. However, there are concerns regarding the export growth in main regions like North America, the Middle East, and Europe in the latter half of 2022, as there is a possibility of an economic slowdown leading to reduced IT spending by foreign firms.
While revenues are growing, expenses related to cost of sales and administrative expenses have also increased disproportionately compared to the revenue growth during 1HCY22. This has resulted in a relatively lower expansion of operating profit for SYS, although it remains substantial. To meet the growing external and local demand, SYS has significantly ramped up its recruitment efforts.
The surge in pre-tax profits to Rs3.13 billion was primarily driven by “other income” down the line. This amount was more than double the previous year’s figure. The “other income” during 1HCY22 increased by 13 times compared to 1HCY21, reaching nearly a billion rupees. This increase was mainly due to exchange-related gains resulting from a significant depreciation of the Pakistani Rupee during the analysis period.
Looking at SYS’s components, the standalone financials of the holding company, Systems Limited, continue to contribute significantly to the overall consolidated results. The holding company witnessed a 76 percent year-on-year surge in net revenue, reaching Rs8.79 billion. Operating profit rose by 53 percent year-on-year, surpassing Rs2 billion, and net profits jumped 107 percent year-on-year, reaching Rs2.79 billion. As a result, during 1HCY22, the holding company accounted for 77 percent of the consolidated revenue gains, 82 percent of the consolidated operating profit growth, and 99 percent of the increase in consolidated net profits.
Meanwhile, the SYS subsidiaries also experienced healthy growth during 1HCY22. The combined net revenues of the subsidiaries grew by 72 percent year-on-year, reaching Rs2.67 billion, and operating profits increased by 71 percent year-on-year, reaching Rs360 million. However, the cumulative net profit of the subsidiaries only saw a 5 percent year-on-year increase, amounting to Rs173 million. The contribution to the consolidated bottom line from subsidiaries could improve, as they accounted for 23 percent of the group’s revenue but only 6 percent of the group’s net profits. The second half of the year will determine what lies ahead for SYS.