Avanceon plans to sell 20% shares of Octopus Digital; floor price set at Rs29/share

KARACHI: Avanceon Limited plans to sell 20 per cent shares in its wholly-owned subsidiary, Octopus Digital Limited, at a floor price of Rs29/share, translating into Rs793.15 million, which the tech firm requires to develop various digital dashboard platforms to expand its services suite.

The Pakistan Stock Exchange (PSX) has invited the public comments on the draft prospectus of Octopus Digital, a software development and IT solutions subsidiary of Avanceon Limited, which plans to sell 27.35 million shares through the initial public offering (IPO) at the bourse.

The IPO will be conducted through a 100 per cent book-building method at a floor price of Rs29/share with a maximum price band of up to 40 per cent above the floor price, translating into a fund raising of a maximum of Rs1.1 billion.

Octopus is a technology service-oriented company that provides after-market services (AMS) to a wide range of clients, both locally and internationally. Other IT sector listed companies, including Systems Limited (SYS), Netsol Technologies Limited (Netsol), TRG Pakistan Limited (TRG) and Avanceon Limited (parent of Octopus) are not direct competitors of Octopus, the prospectus noted.

“[The] services and technology sectors require constant automation and upgradation, and the company and its sponsor are a longstanding automation provider for manufacturing industries. Octopus is expecting a robust demand from various manufacturing and industrial sectors across Pakistan, [the] Middle East and [the] US,” it said.

The issue comprises 27.35 million ordinary shares, which constitutes 20 per cent of the total post-IPO paid-up capital of Octopus Digital. The strike price will be the price at which 100 per cent of the issue is subscribed. However, the successful bidders will be provisionally allotted 75 per cent of the issue size, comprising 20.512 million shares and the remaining 6.837 million shares will be offered to retail investors.

According to the document, Octopus requires the funding of Rs793.15 million to develop various digital dashboard platforms to expand its services suite to industry 4.0, which is an industrial revolution that includes automation of traditional manufacturing and industrial practices. The target markets for these services will be Pakistan, the Middle East and the United States.

The business model of Octopus is based on recurring earnings with perpetual or term-based multiyear monthly subscription service instead of fixed cost or time and material-based projects; thereby, reducing the risk of volatile earnings, as this is prevalent in other conventional businesses in Pakistan.

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In Pakistan, the manufacturing sector companies have outdated processes or are being conducted manually. Octopus, in this regard, assists in the automation of these industrial processes through digital dashboard development.

Currently, the move towards digitalisation and industrial automation is on the rise, allowing several relevant technology companies to jump into the process. Automating these industrial processes and providing after-market services can be instrumental towards taking the industrial 4.0 revolution.

Pakistan, which has around 60 per cent of its 200 million population in the 15 to 29 age group, represents an enormous human and knowledge capital. It has more than 2,000 IT companies and call centres and the number is growing every year.

Pakistan has more than 300,000 English speaking IT professionals with an expertise in the current and emerging IT products and technologies and 13 software technology parks. More than 20,000 IT graduates and engineers are being produced each year in addition to a rising startup culture.

The Information and Communications Technology (ICT) exports increased 46 per cent to $1.7 billion in the nine months of the current fiscal year (July-April FY2021). ICT exports rose 66 per cent year-on-year to $96 million in April 2021. These exports are expected to exceed $2 billion for the first time during the current fiscal year FY21.

In accordance with the Pakistan Vision 2025 and the Digital Policy of Pakistan 2018, the ICT industry size is targeted to reach $20 billion by 2025. Most importantly, the security situation of the country has improved. Startups such as Careem, Daraz, Zameen.com, Rozee.pk and their success is bringing investment in Pakistan as evident from the recent acquisition of Daraz and easypaisa by Alibaba.

Traditional investors from other Pakistani sectors such as textiles and fertilisers are also taking special interest in the startup ecosystem. In the traditional IT outsourcing, other South Asian nations are becoming increasingly expensive and these countries are finding it hard to compete in the technology areas such as artificial intelligence, internet of things, cyber security, automation, etc.

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