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
|
#
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* 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
|
|
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Figures in Rs crore
|
|
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Source: Capitaline Corporate Database
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