KARACHI: Octopus Digital is going for its Initial Public Offering (IPO) this month marking the first tech IPO in last 7 years.
Octopus Digital is a 100 percent wholly owned subsidiary of Avanceon Limited, and focuses on digitalization solutions for various businesses, apart from providing tech upgradation, and database maintenance services.
Avanceon Limited is a full-fledged technology powerhouse focused primarily on automation services. Avanceon’s business is diversified into various segments and in CY19 the AMS (After Market Support) Engineering and Technical Services business of the company was merged into Octopus Digital.
As of the first quarter of CY21, Octopus has 89 contracts with average contract duration of 3-5 years. As of CY20, Octopus customers contributed 6.5 percent to total AMS revenues while 15.4 percent came from Elegencia Hospitality and Facilities Management Services and 14.7 percent came from Pakistan Petroleum. Overall the clientele is highly diversified into various sectors including Oil and Gas, FMCGs, Chemicals and Public Utilities.
IPO: Octopus Digital's book building to be held on September 9, 10
The IPO comprises of an issue of 27,350,000 shares of face value of Rs 10 each at a floor price of Rs 29/share, and which would make up 20 percent of the total post-IPO paid-up capital. The total capital to be raised is Rs 793 million and the primary purpose for raising these funds is to develop various intellectual properties.
The company aims to develop Digital Dashboard platforms in order to enhance its suite of services and expand its footprint across borders further in the Middle East and US.
The business model of Octopus is such that the company benefits from a recurring revenue stream, Faizan Kamran at Arif Habib Limited said. Revenue is earned from perpetual or term-based multi-year monthly subscription service. This helps reduce volatility in earnings which would be a result of fixed cost or time/material-based projects. The revenue stream is independent of any upfront investment for its clients, or any investment to activate the services, he added.
The company has recorded exceptional financial performance that it can boast to its investors. In CY20 the company recorded revenues of Rs 277 million with gross margins of 92 percent and posted earnings of Rs 209 million translating to an EPS of Rs 1.91. The company has recorded revenues of Rs 168 million as of the first quarter of CY21 and forecasts revenues to clock in excess of Rs 01 billion for the year, a jump of almost 4x YoY, while earnings are expected to clock in at Rs3.07/share, a jump of 61 percent on YoY with gross margins expected to settle at 59 percent. At a floor price of Rs 29/share the company trades at a very attractive CY21 P/E multiple of 9.4x. Strong pipeline of contracts that is diversified across regions as well as sectors is likely to propel a healthy revenue trajectory, which is expected to grow at a 5-Yr CAGR of 70 percent.
Copyright Business Recorder, 2021