LAHORE: InfoTech Group, one of the oldest technology companies in Pakistan, plans to raise Rs2 billion through an initial public offering (IPO) on the Pakistan Stock Exchange (PSX), planned for the third quarter of 2022 to recalibrate the business towards a product-oriented model instead of the present focus on services.
Before the listing on the PSX, some restructuring is also on the cards with InfoTech Group spinning off a company to launch financial technology (FinTech) operations that include launching an Automated Clearing House (ACH) to digitise cheque clearing, and ePayment gateway under a Payment Service Operator (PSO)/Payment Service Provider (PSP) license from the State Bank of Pakistan (SBP).
InfoTech also says that the new company will raise investment on its own and will not be a part of the listing on the PSX.
Established in 1995, InfoTech provides technology products and services across banking, public sector, capital markets, oil and gas, retail, telecommunication and utilities. The company’s operations at present include systems integration under which it works with technology partners like IBM, Microsoft, and Oracle to develop technological solutions for clients, for which its focus primarily is on serving the banking and financial services (BFSI) sector.
The other focus of the company is public sector automation under which it digitises government processes. In an interview, the company said that they had recently won a digital transformation project with the Government of Somalia to digitise the African country’s customs system, due to go live in the first quarter of 2022.
InfoTech is also involved in consulting work and provides its indigenously developed technology platforms to various sectors.
Why does InfoTech want to go public?
“We are planning to launch our IPO in the third quarter of the calendar year 2022, after our books close for the ongoing year June 2022,” Haris Naseer, director of operations at InfoTech told Profit in an interview.
InfoTech’s plan to go public comes as Covid-19 brings more opportunities for technology companies in Pakistan, along with the hazard that software houses are increasingly losing on the cost arbitrage as an increasing number of low-cost engineers in Pakistan now choose to work with startups or freelance.
As more people choose to freelance which pays well, the base salaries have gone up at software companies that now have to pay more for engineering talent, thereby increasing costs which could make Pakistan’s software houses uncompetitive soon in the future.
“The HR talent pool is already restricted in Pakistan and the increase in costs has had a cumulative effect that when tech companies are hiring new people, they have to match what they are or can potentially earn through freelancing. So we are also very quickly losing the cost arbitrage that Pakistan had that we had low-cost resources,” Haris said.
Haris told Profit that under a service-based business model for a technology company, it, therefore, gets difficult to scale as such costs increase. Whereas fewer resources will be required to scale a product-based business.
“Hypothetically speaking, if InfoTech delivers services worth $5 million and has to scale it to $10 million, the resources would also have to be doubled. But if a technology product has to be scaled from $5 million to $10 million, only 5-10% of additional resources would be required to reach that scale because the growth is incremental,” the director said.
Consequently, for InfoTech, the Rs2 billion target raise would also be deployed towards enhancing the product side of the business, followed by further expanding international presence on the back of a majorly product-based business model and consulting. “We have already been working in Africa and the Middle East since 2008, but we really want to pump in money and have a good sales machinery to be working on increasing our product range for the international market,” he said.
Automated Clearing House and ePayment gateway
Before InfoTech goes for the listing on the Pakistan Stock Exchange, it plans to raise funds to launch ACH and payment services under a PSO/PSP license from the SBP. InfoTech received in-principle approval for the PSO/PSP license in August 2016 but has not been able to launch operations yet.
Haris said that the delay had been caused because of their prime focus on setting up the ACH service first, which lacked regulations for instance on the electronic cheque clearing side and truncation. He further said that delay was caused because InfoTech was moving into this business using its own cash, hence the progress in this regard had been contingent upon the company’s internal cash conditions.
To expedite matters, InfoTech is now raising new funds from foreign investors and once the funds have been raised, Haris says that a spin-out company would be created outside of InfoTech which will be looking after the FinTech operations and will not be a part of listing on the PSX.
“Right now, the process of clearing is very cumbersome since it is all manual,” Haris says. “A customer gives a cheque which goes to the bank branch, followed by going to an ACH service provider which clears it and then it goes to the receiver’s account. The process takes a few days when ideally it should be happening in moments,” he adds.
Haris says that the clearing process under their FinTech operations is going to be real-time, making it more seamless and efficient.
“We are in talks with a couple of investors to invest in our payments initiative and then take it forward,” Haris says. “It is an extremely cash-intensive business especially in terms of customer acquisition and marketing needs around payments,” he adds.
Haris says that the company is technologically ready for the launch with integrations in place with 1Link to send and receive money, but wants to wait till funds have been raised which will give the company a marketing runway of a few months.
“The timeline of the launch is dependent on when we can raise funding. Tentatively, the funds would be raised sometime in the first or the second quarter of next year. As soon as we are able to raise the funding, we just need to put in place the relevant GTM (go-to-market) teams and probably a 3-4 month horizon for launch after that,” Haris says.
