Karachi, December 26, 2022 (PPI-OT): Pakistan Technology: An investment case for the IT sector

Pakistan’s IT exports have posted a substantial increase after the Covid-19 pandemic due to the increase in the pace of technological adaptation afterwards. Exports have grown by ~140% since FY19.

When compared to regional competitors, IT companies in Pakistan experience key cost advantages. IT talent in the country has considerably lower compensation when put against the compensation of other regions.

As the PkR depreciates, revenue increases in proportion while costs of sales grow at a meagre pace, leading to higher gross margins for the companies. Furthermore, as the trade debts are majorly foreign, they get revalued in Rupee terms once the currency depreciates, leading to hefty exchange gains which are recorded in Other Income.

Our top pick from the sector is Systems Limited. Our likeness of the scrip is based on favourable currency breakup in revenue and costs to take advantage of hefty PkR depreciation foreseen for CY23.