The rising Octopus

After a historic debut on the Pakistan Stock Exchange (PSX) and a partnership with Microsoft which is expected to bring a multi-million dollar revenue for the company, Octopus Digital Limited (ODL) has made another headway in its business of digitalising industries. This time, it is an acquisition. 

On October 6, the Board of Directors of Avanceon Limited approved the acquisition of EmpiricAI (Pvt) Limited, a wholly-owned subsidiary of Dawood Hercules Corporation Limited (DHCL), under a share swap agreement. Under the arrangement, the publicly-listed Dawood Hercules Corporation will get a certain percentage of shares in Octopus Digital Limited, currently owned 80% by Avanceon which is also listed on the PSX, and 20% by public shareholders.   

Following the transaction, DHCL will get a seat on the board of Octopus that, according to Avanceon, will help the company in capital stewardship and governance of the asset. Bakhtiar Wain, the CEO of Avanceon, confirms that after the transaction, Avanceon would still be the majority shareholder of Octopus Digital. 

The synergies created by the acquisition will help Octopus Digital stregthen its capabilities of digitalising industries and what’s certain with that is Octopus Digital is on the rise. The company made its debut on the Pakistan Stock Exchange in September 2021 and quickly became one of the the biggest and a heavily subscribed IPO. Through the IPO, the company was able to raise over Rs30 billion against an ask of Rs1.2 billion, making the IPO oversubscribed 27 times.

The company’s share price at the time of the listing was Rs43 and went upwards to reach Rs110 in January this year, in three months. It currently hovers at around Rs72. 

On the financial performance side, Octopus Digital has been abe to grow substantially. The company posted a revenue of Rs277 million in 2020 and a profit after tax of Rs219.7 million. For the year 2021, ODL posted a revenue of Rs625.1 million, a growth of 125%, and a profit after tax of Rs345.9 million, a growth of 57% over last year. 

For the first quarter of 2022, the latest for which financials are available, ODL posted revenue of Rs159.32 million and a profit after tax of Rs104.82 million. The revenue for the same quarter of 2021 was Rs51.6 million, and profit after tax of Rs9.6 million. 

For the half year ending on June 30, 2022, Octopus posted a revenue of Rs349.35 million and a profit after tax of Rs240.29 million. In 2021, the revenue of the company was Rs145.29 million and profit after tax was Rs66.3 million. According to ODL’s financial report for 2021, the company claims to have a healthy pipeline for 2022, which means further growth in revenue and profits can be expected. 

So what does Octopus Digital really do? First, some context about the parent company of ODL, Avanceon Limited. 

Founded in 1984, Avanceon is the only listed company in Pakistan that offers industrial automation, electrical design, sterilization, project management, and consulting services, enjoying a near monopoly in this segment. It is the only listed company on the PSX to hold plenty of international affiliations and memberships. 

Its niche of automating industries involves a significant software component for that automation, provided by Avanceon. In 2017, Avanceon setup a business called Avanceon Limited to provide value added solutions to its clients it did automation for, by collecting data from that automation and transforming it into actionable information for its customers. This would involve providing its clients in various industries with automated reporting and dashboards. It would also include asset management, cyber security and some other value added services. 

The arrangement would help Avanceon increase the productivity, maintainability, reliability, profitability and availability of the client’s assets and processes. By enabling technology, Avanceon would provide these value added services via a complete system of life cycle support. 

In 2019, this business was rebranded as Octopus Digital and was listed publicly in September 2021. Its share trading started on October 5 last year. Today as well, Octopus provides those value added services of actionable insights and business intelligence to industrial customers as an independent entity. It also provides digital infrastructure like dashboards, all of which it has been able to turn into a lucrative business. Octopus provides these services through its expertise in data collection, artificial intelligence and machine learning technologies. Its offerings are available to clients on a multi-year subscription basis. The parent company, Avanceon, is itself also a major customer of Octopus’ technology. 

EmpiricAI, the company that has been acquired by Octopus Digital under the share swap agreement, also has the expertise in data analytics and artificial intelligence to solve complex industrial problems through software products. 

For instance, most industries use boilers in their manufacturing processes. These boilers consume a lot of energy to function and need to be monitored to ensure that they do not break down. There is also a lot of data that is being produced on for instance how much energy these boilers are consuming. If that data could be analysed correctly, the boiler’s energy consumption can be made efficient and its maintenance can be done on time. 

EmpiricAI develops those tools that can decipher data collected in industrial processes to help in decision making and efficiently manage industrial processes. EmpiricAI’s strength also is that since it is owned and run by an industrial conglomerate that itself manufactures some products, it understands such processes and what impacts these processes better than anyone else. 

“The digital capability coupled with the knowledge of various processes in the industries, which variables are important and how to decipher and manage them and do an analysis on them, that is the strength of EmpiricAI,” Shamoon Chaudhry, the CEO of Dawood Hercules Corporation told Profit. 

EmpiricAI was incorporated as a wholly-owned subsidiary of DHCL with a Rs100 million investment. According to publicly available information on EmpiricAI, the company aimed to provide globally competitive services in data science, cyber security and software engineering for the full cloud computing stack. The historical financial performance of EmpiricAI is not publicly available. 

Through the acquisition, Octopus Digital will be leveraging the expertise of EmpiricAI to create products for Octopus Digital customers. “For Octopus, the acquisition provides an outstanding opportunity to complete its product range,” says Wain. 

“ODL product, Omniconnect solves a major problem of manufacturing industry as it allows them to store and contextualize OT real time data in non-proprietary big data solutions on the cloud. EmpiricAI product bridges the gap of providing prescriptive and predictive analytic solutions utilising Omniconnect. The eco-system of this manufacturing optimization solution would not just create value for Avanceon’s customer but for any system integrator in the world.”

Digital synergies aside, the partnership is of valuable importance for Octopus because of the company that owns EmpiricAI. Dawood Hercules is the parent company of Engro Corporation which is one of the biggest industrial conglomerates in Pakistan which will give Octopus the opportunity to build use cases pertaining to the digital transformation of big industries. (It would also be of significance to Avanceon because Engro once owned 70% of Avanceon.) 

While there are only approvals that have been given yet at board level of both the companies (Avanceon and Dawood Hercules), the completion of the acquisition transaction will be subject to the procurement of all applicable regulatory and further corporate approvals, as they may be required. 

“We expect to complete all regulatory approvals within 3 months,” says Bakhtiar Wain. “However that doesn’t stop us from kicking off the exciting business plan which is the basis of this initiative. A working group is already crystallizing a detailed project plan of integrating the technology and intellectual property of both teams.”