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NETS International Q3 FY26: Core Growth Accelerates, but Financing and Tax Drag the Bottom Line

NETS International delivered sharp Q3 revenue and operating-profit growth, but higher finance, levies and tax kept net profit slightly below last year.

Sep 21, 2026

Verdict

NETS International Communication Limited delivered a strong operating quarter in Q3 FY26, but the improvement stopped short of the bottom line. Revenue for the three months ended March 31, 2026 rose 62.6% year on year to Rs485.8 million, gross profit increased 69.1% to Rs127.3 million and operating profit climbed 69.2% to Rs45.2 million. Yet profit after tax slipped 6.7% to Rs12.8 million. The reason is visible below operating profit: finance cost nearly doubled, while levies and taxation rose sharply. That makes this a quarter in which commercial execution improved materially, but financing and tax absorption prevented the operating gain from translating into higher net earnings.

The nine-month picture needs an additional quality check. Revenue rose 42.7% to Rs1.51 billion and reported profit after tax increased 49.0% to Rs54.1 million, but cumulative other income was Rs171.4 million. A separate official disclosure shows that Rs162.8 million of other income had already been recognized in the first half as a conventional insurance claim. That is about 95% of the nine-month other-income balance, so it should not be treated as a recurring operating driver. Importantly, Q3 itself did not rely on that support: quarterly other income was only Rs0.5 million, while the core operating subtotal before other income was positive at Rs44.8 million.

Results at a glance

  • Company: NETS International Communication Limited (GEMNETS). Reporting period: unaudited standalone third quarter and nine months ended March 31, 2026. The March balance sheet is unaudited, with June 30, 2025 audited comparatives.
  • Q3 revenue: Rs485.8 million, up 62.6% year on year. Q3 gross profit: Rs127.3 million, up 69.1%. Gross margin improved to 26.2% from 25.2%.
  • Q3 operating profit: Rs45.2 million, up 69.2%, with operating margin improving to 9.3% from 9.0%.
  • Q3 profit after tax: Rs12.8 million, down 6.7%. EPS was Rs0.35 versus Rs0.41 a year earlier.
  • 9MFY26 revenue: Rs1.51 billion, up 42.7%. Profit after tax: Rs54.1 million, up 49.0%. However, the cumulative result includes a large insurance-related other-income item recognized earlier in the year.

AlphaGen model outputs — not company-reported figures: Alpha QoQ Score: N/A; TTM Performance Score: N/A; 3Y Business Perf Score: 53.95; Sector Leadership Score: 60.38.

What improved

The clearest improvement was at the gross-profit level. Q3 sales grew faster than cost of revenue: revenue increased by Rs187.0 million year on year, while cost of revenue rose by Rs134.9 million. That allowed gross profit to rise by Rs52.0 million and widened gross margin by about 1.0 percentage point to 26.2%. Because NETS sells telecom and IT solutions as well as allied equipment and support services, a higher gross margin can reflect project mix, pricing, procurement or execution efficiency. The quarter report does not provide enough segment or volume disclosure to identify which of those factors drove the improvement, so attributing the margin gain to any single cause would be speculation.

Operating profit also improved on a genuinely quarterly basis. Selling and distribution expense rose 20.8%, slower than revenue, while administrative expense increased 86.1% and therefore outpaced sales. Even with that heavier administrative burden, the stronger gross profit was sufficient to lift the pre-other-income operating subtotal to Rs44.8 million from Rs25.2 million. Other income was only Rs0.5 million in Q3, which means the 69.2% rise in quarterly operating profit was primarily generated by the operating lines rather than by the large insurance claim that affected the earlier part of the year.

Cash generation before below-the-line cash payments also improved materially over the nine months. Cash generated from operations was Rs96.1 million versus cash used in operations of Rs135.8 million in the comparable period. The improvement came despite a major rise in loans and advances because receivable collections and higher payables moved strongly in the opposite direction: trade debts fell during the period and trade and other payables increased. This is a meaningful improvement in working-capital movement, although it does not yet translate into positive final operating cash flow.

What weakened / needs attention

The first concern is the conversion from operating profit to net profit. Q3 finance cost almost doubled to Rs7.85 million from Rs3.97 million. Levies more than doubled to Rs11.44 million, and taxation increased to Rs13.18 million from Rs3.59 million. As a result, Q3 profit after tax declined even though operating profit was much stronger. The economic message is straightforward: the business generated more operating earnings, but a larger share of those earnings was absorbed by financing and statutory charges before reaching shareholders.

The second concern is cost discipline below gross profit. Administrative expense rose to Rs56.3 million from Rs30.3 million, an 86.1% increase, faster than the 62.6% sales growth. NETS had already expanded materially after its merger and GEM Board listing; its FY2025 annual report showed employee count increasing to 267 from 201 and administrative payroll rising. The Q3 filing does not break the current administrative increase into salaries, professional costs, travel or other categories, so the next report needs to show whether this is deliberate scaling investment or an emerging fixed-cost drag.

The third issue is balance-sheet composition. Current assets rose to Rs1.53 billion from Rs979.9 million at June 2025, but the increase was dominated by loans and advances, which climbed to Rs1.09 billion from Rs255.6 million. At the same time, trade debts fell 68.0% to Rs148.2 million, inventory rose 27.6% to Rs196.8 million, and cash declined 41.5% to Rs19.5 million. Current liabilities almost doubled to Rs1.05 billion, with trade and other payables rising to Rs850.6 million and short-term borrowing increasing 43.1% to Rs175.1 million. The current ratio therefore fell to about 1.46x from 1.82x. The published Q3 notes do not provide a detailed composition of the Rs1.09 billion loan-and-advances balance, so it should be monitored rather than assumed to be immediately cash-like.

Why the nine-month profit growth is not all recurring

The cumulative income statement looks stronger at first glance: 9MFY26 revenue increased 42.7%, operating profit rose 45.1% and profit after tax grew 49.0%. But the bridge from gross profit to operating profit is unusual. Selling, administrative and other operating expenses together pushed the subtotal before other income to a loss of Rs46.7 million, compared with a positive Rs80.7 million a year earlier. Other income of Rs171.4 million then lifted reported operating profit to Rs124.7 million.

The separate mandatory Shariah disclosure for December 31, 2025 provides the key explanation. It identified a Rs162.8 million conventional insurance claim in other income, alongside much smaller income from term deposits, asset disposal and miscellaneous items. Since that insurance claim alone represents about 95% of the nine-month other-income figure, it is economically prudent to classify it as exceptional unless the company discloses a recurring insurance-related business model—which it does not. The Q3 quarter itself is therefore more useful for judging recurring operations than the nine-month reported operating-profit growth.

There is another caution: nine-month other operating expenses were Rs152.9 million versus just Rs1.95 million a year earlier. The Q3 report does not provide a detailed note explaining that spike, and the insurance disclosure does not establish that the expense and the insurance claim are directly linked. They may be related economically, but the public evidence is insufficient to state that as fact. The correct treatment is to flag both large lines and avoid netting them conceptually without an explicit company disclosure.

Cash flow and financing: better working capital, but still externally funded

For the nine months, cash generated from operations before cash taxes and financing charges was Rs96.1 million. However, the company paid Rs90.7 million in levies and income tax, Rs19.4 million in finance cost, Rs9.9 million in gratuity and Rs3.2 million in workers’ welfare fund. Net cash used in operating activities was therefore Rs27.0 million. That is a large improvement from the Rs196.5 million operating outflow in 9MFY25, but it still means accounting profit did not convert into positive operating cash after statutory and financing payments.

Investing activities consumed another Rs37.5 million, mostly additions to property, plant and equipment. Financing supplied Rs50.7 million, led by a Rs52.7 million net increase in short-term borrowing, partly offset by long-term loan repayment. Ending cash fell to Rs19.5 million from Rs33.3 million at the start of the fiscal year. In other words, the company has improved working-capital generation, but the balance sheet still carries materially higher payables and short-term bank funding while the business scales.

The working-capital note shows the underlying movements clearly: trade and other payables added Rs457.8 million of cash and lower trade debts added Rs321.4 million, while the increase in loans and advances absorbed Rs795.0 million. This combination explains why cash generation improved even though one current-asset line expanded dramatically. It also makes the loans-and-advances balance one of the most important items to unpack in the next annual report.

Sector context: a supportive digital market, but company-specific execution matters

Pakistan’s technology and telecom backdrop was constructive during the period. The Pakistan Economic Survey 2025-26 reports that ICT export remittances rose 19.7% to about US$3.38 billion in July–March FY26. It also reports telecom-sector revenue of roughly Rs837 billion for the same nine months, total telecom subscriptions of 207.22 million by March 2026, and the 5G spectrum auction held on March 10, 2026. Those indicators point to continued demand for digital infrastructure and technology services.

However, they should not be used as a mechanical explanation for NETS’ 62.6% Q3 revenue growth. The company’s filing does not disclose Q3 customer volumes, local-versus-export sales, project wins, order book or revenue by solution. A listed peer, Supernet Technologies, also reported a strong March-period business but had just completed a major merger, making direct growth comparisons unreliable. The fair inference is therefore limited: the sector backdrop was supportive, while NETS’ unusually high growth rate likely also reflects company-specific project timing and execution, but the public evidence does not allow a precise split.

What changed versus the recent historical pattern

NETS is still a relatively newly listed and structurally transformed business, so historical comparisons need context. Its FY2025 annual report showed revenue jumping to Rs1.66 billion from Rs168.3 million in FY2024, with management attributing the step-change mainly to a merger completed in the prior year and the GEM Board listing, which expanded market reach. FY2025 also introduced export sales alongside a much larger local-sales base. That makes FY2026 the first period in which investors can begin testing whether the enlarged operating platform can sustain growth without another structural base-change.

Q3 FY26 is encouraging on that specific test because quarterly revenue, gross profit and core operating profit all grew strongly against the comparable quarter, while quarterly other income was immaterial. The weakness is that the economics below operating profit remain demanding, and the balance sheet is carrying much larger advances, payables and short-term borrowing. Sustainable growth will depend less on reproducing the nine-month headline PAT growth and more on repeating Q3-style core operating gains while improving cash conversion.

Recurring versus exceptional

  • More recurring / operational: customer revenue, cost of revenue, gross profit, selling costs, administrative costs, finance cost and the ordinary tax/levy burden. Q3’s Rs44.8 million pre-other-income operating subtotal is the cleanest visible indicator of current operating momentum.
  • Exceptional / not safe to annualize: the Rs162.8 million insurance claim disclosed in first-half other income. It materially influenced cumulative nine-month earnings quality.
  • Unclear from current disclosure: the Rs152.9 million nine-month other operating expense and the large Rs1.09 billion loans-and-advances balance. Neither should be assigned a cause without fuller notes.

What to monitor next

  • Whether revenue growth remains strong in Q4 and FY26, and whether the company begins disclosing project, product, geographic or local/export mix to make growth drivers more transparent.
  • Gross margin and administrative-cost growth. The Q3 gross-margin expansion was positive, but administrative expense grew faster than revenue.
  • Finance cost and short-term borrowing. The Q3 finance charge nearly doubled and short-term borrowing was 43% above June 2025.
  • The composition and recovery cycle of loans and advances, which became the largest current-asset line by March 2026.
  • Cash conversion after taxes, levies and finance cost. Working-capital generation improved, but nine-month operating cash flow remained negative.
  • Whether FY26 annual disclosures explain the large other operating expense and confirm the non-recurring nature and accounting treatment of the insurance-related income.

Bottom line

NETS International’s Q3 FY26 result is stronger than the headline PAT decline suggests. The company produced a 62.6% revenue increase, slightly wider gross margin and a 69.2% rise in operating profit with almost no help from quarterly other income. That is genuine operational progress. The caution is that finance cost, levies and tax absorbed the gain, leaving quarterly PAT 6.7% lower, while the cumulative nine-month result is flattered by a large insurance claim recognized earlier in the year. The next result cycle should therefore be judged on three things: repeatability of core sales and gross-margin growth, discipline in administrative and financing costs, and whether the rapidly expanded working-capital balance converts into cash.

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