About Octopus Digital :
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. The registered address of the Company is 19 km, Avanceon Building, Main Multan Road, Satluj Block Green Forts 2, Lahore, Punjab 54660. Octopus is a technology service oriented company that provides AMS services to a wide range of clients, both locally and internationally. 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. Some of the technology oriented companies in Pakistan include Systems Limited (SYS), Netsol Technologies Limited (NETSOL), TRG Pakistan Limited (TRG) and Avanceon Limited (Parent Company of Octopus) (AVN). But they are not direct competitors of Octopus.
Listing at PSX
Application has been made to PSX for permission to deal in and for quotation of the shares of the Company. If for any reason the application for formal listing is not accepted by PSX or approval for formal listing is not granted by PSX before the expiration of twenty-one days from the date of closing of the subscription period / list or such longer period not exceeding forty-two days as may, within the said twenty-one days, be notified to the applicants for permission by the PSX, the Issuer undertakes that a notice to that effect will immediately be published in the press and will refund Application Money to the applicants without surcharge as required under the provisions of Section 69 of the Companies Act.
The Ordinary Shares of Octopus are being issued at Floor Price of PKR 29/- per share which is at a premium of PKR 19/- per share Ordinary Share to the face value of PKR 10.00/- per Ordinary Share. The Lead Manager has reviewed the business performance of the Company and in their opinion, the Floor Price of PKR 29/- per share is justified based on the following
List of services:
- Service Agreements
- Upgrades via SSIP
- Technical Trainings
- Emergency Support
Utilization of the IPO Proceeds:
Octopus entered into a business transfer agreement with Avanceon on December 8, 2020 to transfer the entire AMS business with existing clients & customer contracts considering the offer: Rs. 1,084 million settled through issuance of 108,400,000 shares of the Company at face value of Rs. 10 each.
Octopus has no direct competitor in Pakistan who engages in providing a similar line of service. However, at the outset Octopus can be seen as having indirect competition with other technology companies in Pakistan.
Strategic advantage underpinned in forecasts
Avanceon is a key player in the machinery automation industry. It brings technical efficiencies in manufacturing systems along with the application of cost-reduction techniques causing majority manufacturers to opt for their systems and technology.
Octopus’s management consists of a competitive set of individuals with a globally diverse experience. The board comprises seven directors. These board of directors possess a wide plethora of skills and experience in manufacturing, information technology and electrical engineering sectors.
Parent Company History:
Avanceon is the leading provider of industrial automation, process control and systems integration as well as proprietary energy management solutions and support services. It has a strong market footprint through its offices in Dubai, (United Arab Emirates), and Lahore (Pakistan), covering the Middle East, Pakistan, South East Asia markets, and their office in Exton, (Pennsylvania, USA), covering North America)
Emerging Player in Cloud-Based Solutions
Octopus is an emerging player in provision of cloud-based solutions at a large scale in Pakistan. The Company has not only developed a strong skill set but also a strong rapport with domestic as well as international market participants over the past couple of years. This will allow the Company to retain its market position despite introduction of new market participants as any new player will have to pass through the learning curve of the domestic market allowing ample lead time to the Company to gear up for possible competition.
POST IPO FREET FLOAT DISCLOSURE
Peer Group Comparison
(1) The market prices of companies are based on May 28, 2021
(2) Earnings and sales per share are based on the last twelve months accounts
(3) Book value per share is calculated on the basis of latest available report as March 31st, 2021
(4) ROE and ROA are based on the last twelve months earnings while equity and assets are based on March 2021 report
(5) Free float share are based on May 28, 2021 and are taken from PSX’s website
(6) Avanceon,Netsol and Systems financial data are based on consolidated accounts
(7) TRG financial information is based on un-consolidated accounts
Profit Margin and Ratio Analysis
In CY20, the net profit margin was 75% as compared to 13% in last corresponding year. This increase in margin is mainly attributed to AMS services division, which has been transferred effective from CY20.
Balance Sheet Ratio – Current Ratio
In CY20, the current ratio of Octopus was 5.17x.as compared to 2.24x in the last corresponding year. This increase has been mainly attributable to the fact that the Company has an outstanding receivable of PKR 237,870,545 million which is 90% of all current assets. These receivables (PKR 237,870,545 million) is due from related parties, owing to services that Octopus rendered to AMS clients in CY20. These AMS contracts were executed with the related parties before the business transfer agreement which was executed on December 8th, 2020. As a result of this agreement, Octopus is a legitimate owner of all AMS contracts.
Internal risk factors:
- Cybersecurity Risk
- Human Resource
- Negative Operating Cash flows
- After Market Sales Revenue Based Model
- Customer Concentration Risk
- Risk of non compliance with regulation of SECP and PSX
External risk factors:
- Competition Risk
- Regulatory Risk
- Exchange Rate Risk
- Impact of Covid 19
- Under-subscription Risk