Muhammad Harris Ghaffar
PACRA Maintains Entity Ratings of Avanceon Limited
Avanceon Limited (the Company) ratings reflect a reputable business profile in the technology segments of industrial automation, process control, system integration, energy management, and support services. Avanceon Limited is the ultimate parent company and has four subsidiaries including two wholly-owned. The Company has extended its business footprints in Qatar, KSA, UAE, and the USA. One of the previously wholly-owned subsidiaries Octopus Digital Limited has got listed on PSX. Octopus deals in cloud computing and provides real-time dashboards to various organizations. The business strategy hinges on a low fixed cost model, having billable hours internationally but clocking in Pakistan. The Company’s major customer base belongs to, the oil & gas, food & beverages, power generation, chemicals, and cement industries. Aftermarket sales business has been completely shifted to Octopus. The ratings are derived from the company’s consolidated strength. During CY21, Avanceon has generated a revenue of PKR 7.1bln depicting ~10% growth (CY20: PKR 6.4bln) on a consolidated basis. In geographical distribution, a major portion of the revenue is derived from Qatar followed by Pakistan, approximately 63% of the business is generated through project revenue, the remaining 29% through equipment/hardware sales, and 8% through aftermarket sale services. The revenue collection from different projects is split into multiple projects and geographics which augments diversification. Avanceon has a low leveraged capital structure which provides comfort to financial risk. A Conservative borrowing approach is expected to sustain and future projects will be funded through internally generated cash flows and joint ventures. The Company has a considerable amount of intercompany trade receivables with aging over 3 years and causing deterioration in the working capital cycle. According to the management representation, inter-company receivables will gradually convert into equity.
The ratings are dependent on the relative positioning of the company in the automation industry while sustaining the topline profitability and low leveraged capital structure. Volatility in trade receivables remains a key area 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) at 61.3% and Mr. Amir Wain at 10.8%. Avanceon has two wholly-owned subsidiaries: Avanceon Free Zone Establishment, UAE (AFZE) and Avanceon Saudi for Energy Co. Avanceon has a 49% owned subsidiary in Qatar (Avanceon Automation and Control W.L.L). Avanceon also has an 80% ownership stake in Octopus Digital Limited. Avanceon has seven BOD which includes three independent, two executive (CEO and president of the company), and two non-executive directors. Mr. Mohammad Shahid Mir is being appointed as a director in place of Mr. Naveed Ali Baig (he has resigned) with effect from 14 December 2020 to complete the remaining term till 28 May 2023.
Mr. Bakhtiar Hameed Wain is the CEO and founder of the company with over 30 years of experience in leading global companies such as Exxon Chemicals, Fauji Fertilizer, ICI Ltd, and Avanceon.