Karachi September 10 2021: Octopus Digital Limited received an overwhelming response from investors as it is oversubscribed by 27.6 times as per information shared by Pakistan Stock Exchange (PSX).
The company received bids of 745 million against offering of 27 million shares at cap price of PKR 40.6 per share at a premium of PKR 30.6 per share.
This translates to total participation of PKR 30.2 billion or USD 180 million, which is just short of Avanceon market cap by PKR 3.2 billion.
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Octopus Digital Limited IPO Oversubscribed 4 Times In Less Than Two Hours
The Issue comprises of 27,350,000 Ordinary Shares of face value of PKR 10/- each, which constitutes 20% of the total post-IPO paid up capital of the Company. The entire issue has been offered through 100% book building method at a Floor Price of PKR 29/- per share (including a premium of PKR 19/- per share) with a maximum price band of up to 40% above the Floor Price.
The bidders are allowed to place bids for hundred percent (100%) of the Issue Size and the Strike price shall be the price at which the hundred percent (100%) of the Issue is subscribed. However, the successful bidders shall be provisionally allotted seventy five percent (75%) of the Issue size i.e. 20,512,500 shares and the remaining twenty five percent (25%) i.e. 6,837,500 shares shall be offered to retail investors. In case retail portion of the Issue remains unsubscribed, the unsubscribed shares will be allotted to the successful bidders on pro rata basis.
Octopus Digital Limited (“Octopus” or the “Company” or the “Issuer”) was incorporated on 29th December, 2017 as a private limited company in Lahore, Pakistan. Octopus is a wholly owned subsidiary of Avanceon Limited.
Octopus is a technology service oriented company that provides After Market Support (AMS) services to a wide range of clients, both locally and internationally. The AMS services includes provision of parts, repair, maintainance and digital services for the equipment which is installed in their customers’ plants. The prime business of the Company is to carry out Information Technology enabled services which includes but are not limited to online data/information storage, online monitoring and review of employees efficiency, online monitoring of cost and production efficiency, online monitoring and maintenance of plant and machinery, sale and trade of related software and equipment etc. List of services provided under AMS 1) Service Agreements 2) Upgrades via SSIP 3) Technical Trainings 4) Emergency Support
The Company requires funding of PKR 793.15 million to develop various Digital Dashboard platforms to upgrade its services suite to industry, which is an industrial revolution that includes automation of traditional manufacturing and industrial practices. The industry refers to a new phase in the industrial revolution that focuses heavily on interconnectivity, automation, machine learning and real-time data. The target markets for these services will be Pakistan, Middle East and United States.
AMS is Octopus’s existing revenue stream. At present, it has dozens of contracts with an average tenure of 5 years, and it caters to clients based in Middle East and Pakistan. The main revenue drivers are services delivered by virtue of SLA agreements with respective clients. The majority of these contracts are those contracts that were transferred from Avanceon to Octopus.
Avanceon Limited continued to carry on business with its customers of AMS segment after the effective date of the contract i.e. 1st January 2020 until 30 September 2020. Therefore, the entire AMS segment's revenue net of direct cost recorded by Avanceon Limited relating to period after effective date until September 30, 2020 was transferred to the Company after retaining an administrative charge. For the period October 01, 2020 and onwards, the AMS business has been carried out by Octopus.
The major portion of revenues of Octopus is coming from clients based in Middle East. There are some international players operating in this segment in Middle East, that is, Honeywell Automation, ABB, CISCO and Rockwell automation. Octopus has procured cloud services from Microsoft, and delivers AMS services using Microsoft’s cloud. This gives an edge to Octopus over these international players which do not possess Microsoft’s cloud. Octopus has its own data lake established through the Microsoft cloud facilities which the other competitors do not have and the Company caters specifically to industrial automation clients with its services which is not a common customer base for the other players in this segment. Due to service procured from Microsoft, Octopus is uniquely positioned to cater its clients based in Middle East.
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Uptil CY2020, Octopus was only catering to Avanceon’s clients. Many of these customers insisted on not altering their contracts’ counter party i.e. from Avanceon to Octopus. Therefore due to this operational and procedural reason, Avanceon Limited continued to bill these customers, and also recorded the direct cost of services provided by Octopus. Consequently, the resultant gross profit is being transferred to Octopus.
In the future, existing AMS contracts revenue shall be transferred from Avanceon to Octopus net of Direct cost as it occured in CY2020. This transfer of revenue from these customers shall continue till CY2022 for all customers except for one customer which is based in Qatar and its contract will expire in CY2024. These customers are free to renew their contracts after expiry either with Octopus or with any other AMS service provider. Further, new contracts signed by Octopus will be recognized in the usual manner in accounts i.e. sales revenue. The new contracts signed post AMS business transfer are are twenty six (26); this indicates strong prospects for the AMS business going forward.