Morning Call about Avance on Limited – Arif Habib Limited

Karachi, January 03, 2014 (PPI-OT): Book Building Successful, Opportunity for General Public Now

According to Arif Habib Limited,

After successful book building, Avance on is now available for general public
After a fully subscribed successful book building process on 26th and 27th Nov’13 where the company offered 18.9mn shares which was set at its floor price of 14.0/share, Avance on Ltd (AVN) will be offering an additional 6.3mn shares through an Initial Public Offering (IPO) to general public scheduled on 7th and 8th Jan’13. Below is a brief over view of company’s operations, nature of business, clientele and future outlook.

About the company
The company is a leading provider of automation, control systems integration, proprietary energy management solutions and support services. It is among the select group of ‘certified members’ of Control System Integrators Association (‘CSIA’) and is also listed on the Control Engineering Magazine’s System Integrator Hall of Fame.

Currently, AVN has offices in Dubai, UAE (covering Middle East) by their 100% owned subsidiary Avance on Free Zone Establishment UAE (AFZE), Lahore, Pakistan (covering South East Asia) and Pennsylvania, United States of America (covering North America) by their other 100% subsidiary, Engro Innovative Inc. USA (EI). AVN at present operates in three broad categories, which are: 1) automation controls, 2) energy efficient systems, and 3) aftermarket services. As per current shareholding, the Wain Family owns ~100% of the existing 75.5mn shares of Avanceon Limited. The company also currently doesn’t have any long debt with only a minor PKR 55.2mn short loan (unsecured) from a director on its books.

Global Clientele
AVN has been into the automation business for last 24 years and has, over the years, evolved from being an automation company to a 360-degree solution provider for automation, energy management and service and maintenance needs of their customers. The company has explored various frontiers and geographies establishing strong footprint in South Asia, Middle East and USA.

Servicing clients over a span of two decades, AVN has completed several projects for major blue-chip companies enabling it to earn strong credentials, move up the learning curve and develop a diverse client base essential for a sustainable business model.

Pakistan operations
In Pakistan, AVN is the market leader of automation and process controls, energy management systems and specialized solutions. International companies that used to operate in Pakistan have taken an exit due to the prevailing political / law and order situation and no other local company has the expertise to deliver such complex solutions. AVN has taken over several contracts, which were allocated to international contractors earlier due to their inability to meet on ground service requirements.

This window of opportunity has enabled AVN to establish long term relationship with blue-chip companies. AVN has implemented various solutions in different companies, including big names like Fauji Fertilizer Company (FFC), Nestle Pakistan (NESTLE), Engro Fertilizer (EFERT) and Engro Foods (EFOODS), Pakistan Petroleum Limited (PPL), Akzo Nobel Pakistan (AKZO), Kott Addu Power Company (KAPCO) and PandG Pakistan, to name a few.

Middle East operations
In the Middle East, AVN has gained dominance through its unique international execution model. The company is able to compete with several major competitors through its aggressive pricing and, therefore, has managed to come in the league of major automation and control provider in the Middle East. Saudi Aramco, Dubai Metro and Kuwait Petroleum are few big names to whom AVN has successfully provided and implemented various automation solutions.

Outlook going forward
Automation and process control companies on a global level have expanded their horizon from core automation to training and implementation of safety systems. Going forward, AVN intends to capitalize on its inherent strengths to further penetrate the Middle East market by setting up offices in Qatar and Kingdom of Saudi Arabia (KSA). AVN’s growth strategy is horizontal; they are committed to horizontal expansion and will enter new markets with the existing service offerings. Management is of the view that there is a lot of unmet demand for automation, energy efficiency systems and aftermarket services in South Asia and Middle East and providing significant growth potential to the company.

Financial Highlights - PKR mn                CY09     CY10     CY11     CY12   1HCY13
Net Sales                                   1,615     1,828   1,268     2,122     955
Gross Profit                                  625       533     348       866     351
GP Margins                                    39%       29%     27%       41%     37%
Other Operating Income                         25        27      87       240      17
Operating Profit/(Loss)                       151      (72)     (68)      836     245
Finance Cost                                (116)     (126)    (130)     (44)    (17)
Profit/(Loss) after tax                        24     (195)    (200)      763     210
EPS/(LPS) Adjusted Post IPO                  0.24    (1.94)   (1.98)     7.58    2.09