PACRA Assigns Initial Entity Ratings to Avanceon Limited.
The core functions of Avanceon are automation and process optimization. Avanceon has two wholly owned subsidiaries and an associated undertaking with various branches in different regions like Pakistan, United Arab Emirates, Qatar, Kingdom of Saudi Arabia and United States of America. The company further has wholly owned subsidiary, Octopus Digital, which deals in cloud computing and provide real time dashboards to various organizations. The business strategy hinges on low fixed cost model, having billable hours internationally but clocking in Pakistan. Five verticals are in Pakistan Oil and gas, food and beverages, fast moving consumer goods, water and waste water, and specialized infrastructure. A new vertical, purely based on data, Octopus digital, has recently been carved out. The ratings are derived from the company’s consolidated strength. The company provides industrial automation, process control and systems integration solutions, to trade in products of automation and control equipment and provide related technical services.
During FY21, Avanceon generated a revenue of PKR 6.4bln at the end of Dec-20 (CY19: PKR 4.9bln) on consolidated basis. In geographical distribution, major portion of the revenue is generated in KSA followed by Pakistan. In nature of business wise approximately 75% of the business is generated through project revenue, remaining 20% through sale of goods and 5% only through services. The revenue collection from different projects is split into multiple projects and geographics which augments diversification.
Avanceon has less dependence on borrowings which provide comfort to financial risk. Company has maintained consistently operating profit margins which reflects the efficient translation of top line into higher net profitability. The rating draws comfort as major clientele is concentrated in oil and gas sectors; the rest are also multinational corporates. Company has large quantum of receivables, which are a concern. Comfort however can be drawn from the fact that these receivables are from high rated organizations.
The ratings are dependent on the relative positioning of the company in automation industry, while sustaining the topline profitability and low leveraged capital structure. Volatility in trade receivables remain key areas of consideration. Financial discipline is considered core to the ratings, with enduring emphasis on maintaining relevant coverages.
Avanceon Limited (the Holding Company) was incorporated in Pakistan on 26 March 2003 as a private limited Company which was converted to a public Company on 31 March 2008 under the repealed Companies Ordinance, 1984 (now Companies Act, 2017). The Company is listed on Pakistan Stock Exchange Limited. The majority shareholding is vested in Mr. Bakhtiar Hameed Wain (CEO and founder of the company) of 61.3% and Mr. Amir Wain 10.8%. Avanceon has two wholly owned subsidiaries which include Avanceon Free Zone Establishment, UAE (AFZE) and Innovative Automation Inc. (formerly Engro Innovative Inc.) USA (IA). One subsidiary in Qatar Avanceon Automation and Control W.L.L (AVAC) they have ownership stake of 45%. Avanceon have another wholly owned subsidiary named Octopus Digital (Private) Limited which soon ready go for an IPO.
Avanceon has seven BOD's which includes three independent, two executive (CEO and president of the company) and two non-executive directors.
Mr. Bakhtiar Hameed Wain is the CEO and founder of the company over 30 years of experience in leading global companies such as Exxon Chemicals, Fauji Fertilizer, ICI Ltd and Avanceon Limited. He is assisted by competent team of industry professionals.