IPO Centre     29-Feb-24
New Issue Monitor
R K Swamy
Offers integrated marketing services
Aims to expand its presence in additional geographies
Related Tables

Founded in 1973, R K Swamy is an integrated marketing service group, offering a single-window solution for creative, media, data analytics and market research services. The company is ranked eighth in terms of estimated operating revenue among the integrated marketing communications services groups in India.

The company offers comprehensive range of services in the following interrelated and complementary business segments: (1) Integrated Marketing Communications; (2) Customer Data Analytics and Marketing Technology; and (3) Full-Service Market Research (including customer experience measurement) and Syndicated Studies.

The Integrated Marketing Communications business segment includes: (a) creative and digital content; (b) media; (c) events and activation planning, buying, and executing; and (d) others including public relations and social media management.

The Customer Data Analytics and MarTech business segment includes: (a) customer data analytics; (b) delivery and management of customer experience; (c) online reputation management; (d) campaign management, campaign tracking; (e) customer relationship management tools; (f) customer insights, dashboards; (g) sentiment analysis; and (h) loyalty program management.

The Full-Service Market Research business segment includes: (a) customer/ audience segmentation; (b) consumer surveys; (c) customer experience measurement; (d) brand equity and customer satisfaction indices; and (e) consumer intelligence.

In H1 FY2024, the Integrated Marketing Communications segment contributed 44% to total revenue, Customer Data Analytics and MarTech 30.63%, and Full-Service Market Research 25.37%.

Clients are primarily engaged in the following industries: (i) Banking, Financial Services and Insurance (BFSI); (ii) Automotive; and (iii) Fast-moving consumer goods, consumer durables, retail, and e-commerce, accounting for 25.08 %, 18.07 % and 16.63 %, respectively, of its revenue from operations in the six months ended September 30, 2023.

The company has been serving leading companies such as Aditya Birla Sun Life, Cera Sanitaryware, Dr. Reddy’s Laboratories E.I.D.- Parry (India), Fujitsu General (India), Gemini Edibles and Fats India, Havells India, Hawkins Cookers, Himalaya Wellness Company, and Hindustan Petroleum Corporation.

During Fiscal 2023 and the six months ended September 30, 2023, the company released over 818 and 438 creative campaigns, respectively, on behalf of its clients across various media outlets. Further, the company handled over 97.69 and 140.05 terabytes of data and has conducted over 2.37 million and 1.44 million consumer interviews across quantitative, qualitative and telephonic surveys cumulatively for Fiscal 2023 and the six months ended September 30, 2023.

The company’s offerings are serviced by over 2,533 employees, spread across 12 offices and three business segments. The company intends to expand its presence in domestic and international markets.

The company derives a significant portion of its revenue from subsidiaries. Its subsidiaries Hansa Customer Equity provide Customer Data Analytics and MarTech and Hansa Research (subsidiary) provide Full-Service Market Research services. In H1 FY2024, Hansa Customer Equity contributed 30.63% to total sales, and Hansa Research Group 25.37%.

The Integrated Marketing Communications business uses the ‘R K Swamy’ as well as the ‘Hansa’ brands. Customer Data Analytics, MarTech and Full-Service Market Research disciplines are offered under the ‘Hansa’ brand.

Offer and its objects

The IPO comprises fresh issue of equity shares worth up to Rs 173 crore and offer for sale of 87,00,000 equity shares aggregating up to Rs 250.56 crore by Srinivasan K Swamy, Narasimhan Krishnaswamy, Evanston Pioneer Fund LP and Prem Marketing Ventures LLP.

The price band for the IPO is Rs 270 to Rs 288 per equity share of face value Rs 5 each.

The objectives of the fresh issue includes Rs 54 crore for funding working capital requirement, Rs 10,9 crore for funding capital expenditure for setting up a DVCP Studio, Rs 33.34 crore for funding investment in IT infrastructure development, Rs 21.73 crore for setting up of new CEC and CATI, and remaining amount for general corporate purpose.

The promoters of the company are Srinivasan K Swamy and Narasimhan Krishnaswamy. The promoters and promoter group hold an aggregate of 36,915,820 equity shares aggregating to 83.03% of the pre-offer issued and paid-up equity share capital. Their post IPO shareholding is expected to be around 66.07%.

The issue, through the book-building process, will open on 4 March 2024 and will close on 6 March 2024.

Strengths

The company has a scalable, asset-light business with a stable financial profile. Its revenue grew at a CAGR of 29.92% from Rs 173.55 crore in FY2021 to Rs 292.61 crore in FY2023.

The company should benefit from increasing recognition and adoption of MarTech solutions by Indian businesses, driven by pursuit to gain deeper insights into consumer behaviour, optimise marketing strategies and improve overall performance.

The company has long-standing relationships with a large and diversified client base and has catered to several large clients over the last five decades. The company provided services to over 475 and 380 clients during Fiscal 2023 and the six months ended September 30, 2023, respectively. The average number of years of relationships with its top 10 clients is approximately 13 years. Moreover, 93.72% of its revenue for H1 FY2024 was from repeat clients.

The company has a track record of 15 years in the Data Analytics and Marketing Technology segment, with an ability to produce digital content at scale. The company catered to over 4,000 client organisations over the years and served over 380 clients in the six months ended September 30, 2023.

The company is led by experienced promoters and management. Its promoters, Srinivasan K Swamy and Narasimhan Krishnaswamy, have extensive experience of over 45 years and 37 years respectively in the advertisement and marketing services industry.

The company can leverage its interrelated and complementary business segments to provide support to clients, in one or multiple aspects of the media and marketing value chain.

The company has established an internal infrastructure for efficient delivery of services. Its client services network in India spans across 12 Indian cities, 12 offices and 12 field locations in India, as of September 30, 2023. Additionally, the company intends to expand its presence in across geographies.

Weaknesses

The company’s clients may undertake their advertising projects, market research and data analysis functions in-house by setting up dedicated departments to service their marketing needs. This may adversely affect the company’s revenue.

Creative advertising, data analytics, and market research sectors are intensely competitive and rapidly evolving. If the company is unable to adapt to competitive pricing models, its business may be adversely affected.

The company derives a significant portion of its revenue from a few clients. The company served over 380 clients in H1 FY2024, out of which the top 10 clients contributed 49.65% to total revenue. Failure to retain or reduction in marketing budgets of key clients could adversely affect business.

Digital marketing and integrated marketing communications form a substantial part of its offerings. Revenue from digital operations for the six-months ended September 30, 2023, and FY23, FY22 and FY21 contributed 80.22%, 78.13%, 75.30% and 69.81%, respectively, to total revenue. Any changes in trend or decrease in digital advertising and integrated marketing communications spend by its clients could adversely affect business.

Some of its group companies and Narasimhan Krishnaswamy (promoter) are engaged in business activities, which are nearly same as those undertaken by the company and its subsidiaries. This may result in conflicts of interest.

Clients’ feedback requires the company to make multiple iterations of client project or increase scope of projects without explicit commercial understanding. These increase production costs and may adversely affect its business.

The company needs to continuously upgrade its technology and digital infrastructure as outdated technology may affect service quality and client satisfaction. Implementing new technologies may also strain finances.

Valuation

In FY2023, consolidated sales were up by 24.83% to Rs 292.61 crore as compared to FY2022. The OPM increased by 455 bps to 19%, which led to a 64.2% increase in operating profit to Rs 55.61 crore. Other income decreased 30.86% to Rs 7.30 crore, while interest cost fell 3.81% to Rs 5.61 crore and depreciation increased 5.95% to Rs 14.72 crore. PBT increased 72.39% to Rs 42.58 crore. Tax expenses were Rs 11.32 crore as compared to tax expense of Rs 5.45 crore in FY2022. Net profit increased 63.03% to Rs 31.26 crore.

The FY2023 EPS on post-issue equity works out to Rs 6.19. At the upper price band of Rs 288, P/E works out to 46.49.

As of 29 February 2024, its listed peers such as Affle (India) trades at TTM P/E of 57, Latent View Analytics at TTM P/E of 71 and Vertoz Advertising at TTM P/E of 76. For FY2023, R K Swamy OPM and ROE stood at 19% and 22.20%, respectively, as compared to 20.14% and 16.69% for Affle (India), 26.92% and 11.91% for Latent View Analytics, and 20.59% and 10.77% for Vertoz Advertising respectively.

R K Swamy: Issue highlights

For Fresh Issue Offer size (in no of shares )

- On lower price band

64,07,407

- On upper price band

60,06,944

Offer size (in Rs crore)

173

For Offer for Sale Offer size (in Rs crore)

- On lower price band

234.90

- On upper price band

250.56

Offer size (in no of shares )

87,00,000

Price band (Rs)

270-288

Minimum Bid Lot (in no. of shares )

50

Post issue capital (Rs crore)

- On lower price band

25.43

- On upper price band

25.23

Post-issue promoter & Group shareholding (%)

66.07

Issue open date

04-03-2024

Issue closed date

06-03-2024

Listing

BSE, NSE

Rating

44/100

R K Swamy: Restated Consolidated Financials

2103 (12)

2203 (12)

2303 (12)

2309 (6)

Sales

173.55

234.41

292.61

141.10

OPM (%)

11.04%

14.45%

19.00%

13.83%

OP

19.15

33.86

55.61

19.52

Other inc.

9.67

10.56

7.30

1.45

PBIDT

28.83

44.42

62.91

20.97

Interest

9.11

5.83

5.61

2.67

PBDT

19.72

38.59

57.30

18.30

Dep.

15.04

13.89

14.72

7.43

PBT

4.68

24.70

42.58

10.87

Share of Profit/(Loss) from Associates/JV

-

-

-

-

PBT before EO

4.68

24.70

42.58

10.87

Exceptional items

-

-

-

-

PBT after EO

4.68

24.70

42.58

10.87

Taxation

1.60

5.45

11.32

2.93

PAT

3.08

19.26

31.26

7.93

Minority Interest

0.15

0.08

-

-

Net Profit

2.93

19.17

31.26

7.93

EPS (Rs)*

0.58

3.80

6.19

#

* EPS is annualized on post issue equity capital of Rs 25.23 crore of face value of Rs 5 each

# EPS is not annualised due to seasonality of business

EO: Extraordinary items. EPS is calculated after excluding EO and relevant tax

Figures in Rs crore

Source: Capitaline Corporate Database

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