ntwk rr report

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December 21, 2009

Netsol Tech Inc (NTWK)

COMPANY UPDATE

TECHNOLOGY

Market Outperform / Speculative Risk

Joe Giamichae212-920-359

[email protected] Shapir

[email protected]

NTWK Raises FY10 Guidance on Improving Outlook; Reiterate Outperform and $2.50 P.T.

MARKET DATA Intraday - 12/21/2009Price $0.92

Market NASDAQ

Target Price $2.50

52 Wk Hi - Low $1.31 - $0.21

EV(MM) $44.9

Market Cap(MM) $31.8

Shares Out (MM) 31.6

Public Mkt Float (MM) 31.4

Avg. Daily Vol (000) 175.1

BALANCE SHEET METRICS

Cash (MM) $4.0

LTD (MM) $7.8

Total Debt/Total Equity 44.10%

Debt/Capital 30.6%

Price/Book Value $0.8

Book Value/Share $1.22

EARNINGS DATA ($)

FY - Jun 2008A 2009E 2010E

Q1 (Sep) 0.08 0.04 (0.01)

Q2 (Dec) 0.04 (0.12) 0.01E

Q3 (Mar) 0.09 (0.19) 0.02E

Q4 (Jun) 0.08 (0.03) 0.03E

Full Year EPS 0.29 (0.30) 0.04E

EnterpriseValue/EBITDA

1.8 1.4E 1.2E

Price/Earnings 4.9 3.5E 2.7E

INDICES

DJIA 10,445.5

SP-500 1,115.5

NASDAQ 2,235.6

Russell 2000 616.9

Q1 Q2 Q30

1

2

2009

1 Year Price History

Created by BlueMatrix

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Today, December 21, 2009, NetSol Technologies raised its financiaguidance for FY 2010 as a result of growing demand for its core NetSoFinancial Suite software business. The Company expects to generatrevenues of $33mm to $35mm for the full year 2010, corresponding to 25% to 32% Y/Y growth over FY 2009. The main reason behind throbust Y/Y revenue growth is the renewed strength in NetSol’s licensinsales, which are projected to grow by over 100% Y/Y. This reflects thramping of new purchasing decisions among existing and new potentiacustomers, primarily coming from the Asia Pacific region and especialChina. The anticipated growth in revenues, combined with the coefficiency measures and corporate restructuring activities completed recent quarters, should allow the Company to return to GAAP profitabiliin its bottom line. This should be a significant improvement from th$(0.30) loss per share reported in FY 2009.

In addition to these operational improvements and organic growth, thcompany is involved in participating in several potential “game changingproject bids. Our current estimates and our valuation methodology do noincorporate this, but they should be viewed as potentially exciting anhighly accretive opportunities if NetSol is to be successful in the bprocess. In terms of back of the envelope scale and scope of thesopportunities and award on the military side could add several multipleof earnings value to the existing estimates and would likely result in material increase to shareholder value.

NetSol, like many other micro cap companies, struggled to right size th

business in the face of the severe economic downturn starting in lat2007. Management has been aggressive in both reducing costs as weas using the downturn as a marketing opportunity to sell the valuproposition that NetSol’s low cost solutions provide. Given the numeroucontract announcements over the past several months it looks like thCompany has turned the corner. Recent news flow indicates that despitthe prolonged difficult environment the Company continues to grow andiversify its business, which should generate significant benefits tNetsol’s revenues and profitability in the future (Please see Figure below for the recent news announcements).

Maintain Market Outperform Rating and $2.50 Price Target


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RODMAN & RENSHAW EQUITY RESEARCH

Figure 1: Recent News and Contract AnnouncementsDecember 9, 2009 -- NetSol announced that the company was awarded a major software and IT services contract with a new

joint venture auto finance company based in China. Under the terms of the contract, NetSol will provide full life-cycleprocessing for the customers' auto finance business through the NetSol Financial SuiteTM (NFS). NetSol's NFS solutionprovides asset finance companies a state-of-the-art tool to manage business process, work flow framework as well ascomplete portfolio management and processing. The value of the contract is in excess of $2 million over the life of theagreement, including customization, implementation, maintenance and support.December 8, 2009 -- NetSol announced that the company has started the process to form a wholly owned subsidiary in China.To date, NetSol has been operating from its representative office in Beijing.

November 18, 2009 -- NetSol announced the signing of an Independent System Review (ISR) and Testing Services contractwith BMW Group Financial Services - Asia Pacific region. The contract calls for the comprehensive testing of a newlydeveloped financial application suite to be deployed in more than eight countries in Asia Pacific and South Africa. The projectis the second in a series of contracts signed by NetSol's ISR services group with BMW after the successful delivery of ISRservices to BMW Group Financial Services Japan last year.

c o er , -- e o announce a as secure a s gn can o ow on con rac ee rom oyo a o or nanceChina. The additional NetSol Financial Suite (NFS) license fee is attributed to the rapid growth in Toyota Motor Finance's

business portfolio volume in the Chinese market, which in turn triggered the additional license upgrade for the NFS CreditApplication Processing System (CAP) and Contract Management System (CMS). The agreement also calls for additionalongoing maintenance revenue to support the expanded license base.

October 22, 2009 -- NetSol announced that NetSol Asia Pacific was awarded a new IT Services contract by Atheeb IntergraphSaudi Company (AISC) of Saudi Arabia. The project is related to application development for AISC and further strengthensNetSol's presence in the Middle East market. This project was facilitated by Atheeb NetSol Ltd., the recently announced jointventure between Atheeb Trading Company and NetSol Technologies, Inc.

c , -- e so announce a e company was awar e a ma or so ware an serv ces con rac w a n eKingdom based bank. Under terms of the contract, NetSol will provide full life-cycle processing for the bank's Asset FinanceDivision through the NetSol Financial Suite (NFS) and Electronic Data Interchange (EDI) platforms, including DataWarehousing and Business Intelligence. The value of the contract is in excess of $1 million over the life of the agreement,including implementation, maintenance and support.

Oct 15, 2009 -- Netsol announced that the company has been awarded a significant contract for Information Security Serviceswith a leading IT solution integrator in Pakistan. Under the terms of the agreement, NetSol will provide the customer an IBM-ISS based information security solution to protect strategic data centers of the client against cyber security threats. The

deployment of this solution is expected to be completed in approximately 3 months time.

Adjusting Our Estimates In light of today’s guidance issued by the Company, we are raising our current estimates. We now expect the Company to

report revenues of $33.6mm and $43.2mm for FY10 and FY11, compared to our prior estimates of $31.5mm and$40.1mm, respectively. In addition, our new EPS estimates have been revised upward; we now expect NTWK to reportFY10 and FY11 EPS of $0.04 and $0.22, above our previous estimates of $0.03 and $0.19.

Maintain Market Outperform Rating and $2.50 Price TargetBased on our adjusted estimates and today’s intraday price of $0.92, shares are trading at 4.3x FY 2011 P/E and 3.8x FY2011 EBITDA estimates, significantly below the peer group’s respective averages of 14.5x and 9x. Our price target of$2.50 is predicated on 11.6x FY 2011 P/E and 7.9x FY 2011 EV/EBITDA multiples. Please see Figure 2 below for the fulpeer valuation analysis. In our opinion, these valuation metrics more closely align the Company with its peer comparables

Figure 2: Peer Valuation Analysis

Name Ticker Rating Price Market Value EV P/E P/E P/E EV/EBITDA EV/EBITDA EV/EBITDA

2009 2010 2011 2009 2010 2011INFOSYS TECHNOLOGIES LTD INFY Not Rated $54.38 $31,176.5 $29,301.2 24.6 22.5 18.8 18.5 16.6 14.2

INTL BUSINESS MACHINES CORP IBM Not Rated $128.59 $168,912.6 $178,703.6 13.0 11.8 11.1 7.8 7.3 6.8

WIPRO LTD WIT Not Rated $22.44 $32,881.5 $33,136.3 34.9 31.2 27.7 26.9 24.1 21.0ORACLE CORP ORCL Not Rated $24.28 $121,669.6 $115,637.6 15.5 14.0 12.8 9.8 8.9 8.3

APAC CUSTOMER SERVICES INC APAC Not Rated $5.40 $281.4 $265.3 8.7 8.6 NA 5.8 5.1 NA

CONVERGYS CORP CVG Not Rated $10.99 $1,351.4 $1,608.9 9.8 9.6 8.5 8.5 5.1 4.8

ICT GROUP INC ICTG Not Rated $16.52 $265.6 $216.9 49.6 26.0 #N/A 7.4 5.8 NA

STARTEK INC SRT Not Rated $6.51 $96.8 $75.9 18.7 11.9 9.2 3.2 2.5 2.3

TELETECH HOLDINGS INC TTEC Not Rated $18.68 $1,164.3 $1,049.4 15.8 15.2 13.5 6.3 6.1 5.8

SAP AG SAP Not Rated $46.98 $57,597.3 $56,209.3 18.7 16.0 14.3 11.6 10.0 9.1

AVERAGE $41,539.7 $41,620.4 20.9 16.7 14.5 10.6 9.2 9.0

NETSOL TECHNOLOGIES INC NTWK Outperform $0.92 $31.8 $44.9 NA 20.6 4.3 NA 5.4 3.8

Multiples with Price Target $2.50 79.1 92.2 NA 55.9 11.6 NA 11.1 7.9

Netsol Tech Inc December 21, 2




RODMAN & RENSHAW RATING SYSTEM: Rodman & Renshaw employs a three tier rating system for evaluating both the potentiareturn and risk associated with owning common equity shares of rated firms. The expected return of any given equity is measured on RELATIVE basis of other companies in the same sector, as defined by First Call. The price objective is calculated to estimate the potentiamovement in price a given equity could achieve given certain targets are met over a defined time horizon. Price objectives are subject texogenous factors including industry events and market volatility. The risk assessment evaluates the company specific risk and accounfor the following factors, maturity of market, maturity of technology, maturity of firm, cash utilization, and valuation considerationPotential factors contributing to risk: relatively undefined market, new technologies, immature firm, high cash burn rates, intrinsic valuweighted toward future earnings or events.

RETURN ASSESSMENT

q Market Outperform (Buy): The common stock of the company is expected to outperform a passive index comprised of all the commostock of companies within the same sector, as defined by First Call.

q Market Perform (Hold): The common stock of the company is expected to mimic the performance of a passive index comprised of athe common stock of companies within the same sector, as defined by First Call.

q Market Underperform (Sell): The common stock of the company is expected to underperform a passive index comprised of all thcommon stock of companies within the same sector, as defined by First Call.

RISK ASSESSMENT

q Speculative - The common stock risk level is significantly greater than market risk. The stock price of these equities is exceptionalvolatile.

q Aggressive - The common stock risk level is materially higher than market level risk. The stock price is typically more volatile than thgeneral market.

q Moderate - The common stock is moderately risky, or equivalent to stock market risk. The stock price volatility is typically in-line wimovements in the general market.

Q1 Q2 Q3 Q1 Q2 Q3 Q1 Q2 Q30

1

2

3

4

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2007 2008 2009

09/18/08I:MO:$6

11/14/08MO:$4

05/12/09MO:$2

10/19/09MO:$2.5

Rating and Price Target History for: Netsol Tech Inc (NTWK) as of 12-18-2009

Created by BlueMatrix

RATING SUMMARY

Distribution of Ratings TableIB Serv./Past 12 Mos

Rating Count Percent Count Percent

Market Outperform(MO) 107 74.30% 27 25.23%

Market Perform(MP) 31 21.50% 5 16.13%

Market Underperform(MU) 3 2.10% 0 0.00%

Under Review(UR) 3 2.10% 0 0.00%

Total 144 100% 32 100%

Investment Banking Services include, but are not limited to, acting as a manager/co-manager in the underwriting or placement





securities, acting as financial advisor, and/or providing corporate finance or capital markets-related services to a company or one of itaffiliates or subsidiaries within the past 12 months.

ADDITIONAL DISCLOSURES

Rodman & Renshaw, LLC. (the "Firm") is a member of FINRA and SIPC and a registered U.S. Broker-Dealer.

ANALYST CERTIFICATION

I, Joe Giamichael, hereby certify that the views expressed in this research report accurately reflect my personal views about the subjecompany(ies) and its (their) securities.

None of the research analysts or the research analyst's household has a financial interest in the securities of Netsol Tech Inc (includingwithout limitation, any option, right, warrant, future, long or short position).

As of Nov 30 2009 neither the Firm nor its affiliates beneficially own 1% or more of any class of common equity securities of Netsol TecInc.

Neither the research analyst nor the Firm has any material conflict of interest with Netsol Tech Inc, of which the research analyst knows ohas reason to know at the time of publication of this research report.

The research analyst principally responsible for preparation of the report does not receive compensation that is based upon any specifinvestment banking services or transaction but is compensated based on factors including total revenue and profitability of the Firm, substantial portion of which is derived from investment banking services.

The Firm or its affiliates did not receive compensation from Netsol Tech Inc for any investment banking services within twelve monthbefore, but intends to seek compensation from the companies mentioned in this report for investment banking services within thremonths, following publication of the research report.

Neither the research analyst nor any member of the research analyst's household nor the Firm serves as an officer, director or advisorboard member of Netsol Tech Inc.

The Firm does make a market in Netsol Tech Inc securities as of the date of this research report.

Any opinions expressed herein are statements of our judgment as of the date of publication and are subject to change without notice.

Reproduction without written permission is prohibited. The intraday prices of securities mentioned in this report are as of Dec 21 200Additional information is available to clients upon written request. For complete research report on Netsol Tech Inc, please call (21356-0500.

Readers are advised that this analysis report is issued solely for informational purposes and is not to be construed as an offer to sell othe solicitation of an offer to buy. The information contained herein is based on sources which we believe to be reliable but is n

guaranteed by us as being accurate and does not purport to be a complete statement or summary of the available data. Past performancis no guarantee of future results.


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