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'Avanceon plans to double its revenue in next five years,' CEO, Avanceon Limited

BR Research: Take us through Avanceon's journey so far and the products and services on offer!

Bakhtiar Wain: Our core business is industrial and factory automation. Most project work generally revolves around core automation which is why the company came into existence. However, to follow up with the project work, we came up with aftermarket support solutions, to ensure continuous engagement with the client and sustain the increased process efficiencies that automation projects achieve.

It not only offers us a continuous revenue stream, but also helps our clients to maintain the system to an optimal level. As well as we offer process and energy optimisation, packaged as a guaranteed financial payback. Our core automation initiative is further subdivided into application-based solutions and large system sales

BRR: What is your client portfolio in terms of blue chip presence?

BW: We have an outstanding client portfolio. If you pick any of the top 30 listed firms at the Karachi Stock Exchange, engaged in any sort of industrial and manufacturing activity, you will find them on our list. And most of them have been our clients for the past six to seven years, which speaks of our credibility and quality of service delivery.

BRR: Which sector contributes most to your revenue stream on a consistent basis?

BW: The top most are oil & gas and food & beverages in Pakistan. Chemicals and sugar industries also contribute significantly to our top line and so do distilleries.

Over seventy percent of the revenue is generated from our well-established international business as overtime our major contributor has gradually shifted from local to foreign, owing to expansion in Middle East. The upcoming IPO is meant to expand our operations in four countries within the Middle East with our Dubai office as the Regional Centre.

BRR: What are your tangible targets for the expanded international business and the business in Pakistan?

BW: Our plan is to double international sales in the next five years. Moreover, we also see outstanding potential for our business in Pakistan. We have grown a lot in Pakistan. From Rs100 million company seven years back, we are now a billion rupee firm just in terms Pakistan based revenue. With oil and gas sector coming alive, we foresee tremendous business opportunities within Pakistan. Our model is pegged to successful companies and whenever such companies incur capital expenditure, our business will expand.

I am confident that the Pakistan business will grow at a healthy 15-20 percent in the coming four to five years. We also see opportunities in refineries, power and IPP sectors; if the sentiment changes and investment kicks in, believe, we can double our business very quickly.

BRR: What is your position in the local and foreign markets in terms of competition?

BW: We are market leaders by some distance. At the backend, whatever engineering work is done, we do it in Pakistan. So the business, wherever it expands, entails increased activity in Pakistan.

BRR: The automation industry is largely dependent on human resource. What your HR practices are in terms of maintaining standards and quality?

BW: Undoubtedly, human resource is the most focussed area in our company. We hire the best people and provide every opportunity of training and growth to young talent. One major reason for IPO is the stock options being distributed among key employees through the stock option scheme.

Ours is most specialised field so we ensure that our people deliver to the highest international standards to justify the premium that we charge our clients.

BRR: How does your product pricing compare to your competitors both locally and internationally?

BW: We compete with the best in terms of pricing in the international market. We do have the advantage of conducting our business from Pakistan. The price does matter in our business, but, eventually, it is the value proposition that is the most important determinant. Technical superiority is, in effect, the most important aspect in this business, and we compete pretty well on this front.

BRR: How do you see the human resource availability and capability in Pakistan?

BW: We have the capacity to do that as we have outstanding human resource in Pakistan. Finding quality human resource has never been a problem for us. Ours is a high fixed cost business, not a capital intensive one with salaries being the biggest cost centre. We keep projecting our business revenue streams, and induct new resource periodically.

Our core team of 35-40 people are all subject matter experts, with outstanding skill set, and we have been able to retain them for a good period now.

BRR: There is a view in the market that Avanceon has charged too little premium of just Rs4/share, in a time when the confidence is high in the market. What are your views on this?

BW: Technology companies, unfortunately, do not have a good history in this country, which is one factor. Our accounts are very clean; probably the cleanest in the industry. Even then, you don't find good multiples in this industry.

We are a zero debt company without any draw down even for working capital. We have very healthy cash flows and further equity is only to ensure our march towards expansion without any debt. It is very dangerous for a technology company to have a large debt on its books.

The share value is not the objective today as we have ample cash available. The core objective is employee stock option plan, which is the most critical component of our future business plan which we can't wait. We have committed to our people who have worked hard in the years gone by; note that the new shareholders are not paying for this, as we have already booked it in our books.

We are giving these shares at Re1 per share, with the only caveat that they will have to be with the company for another five years. This is a perpetual scheme and we plan to offer an additional 5 million shares to our employees over the next five years.

Copyright Business Recorder, 2013


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