R K Swamy is coming up with its IPO issue of Rs. 423.56 Cr which will open on 4th March 2024. The issue will close on 6th March and be listed on the exchange on 12th March 2024. This article will analyze the strengths and weaknesses of the R K Swamy Limited IPO Review 2024. Keep reading to find out!

R K Swamy IPO Review

About the R K Swamy Company

R K Swamy is one of the leading marketing services providers, offering single-window solutions for creative, media, data analytics, and market research services. The Company is the 8th largest integrated marketing communications group in India by operating revenue.

The Group has over 5 decades of experience in the industry serving leading brands like Aditya Birla Sun Life AMC, Himalaya Wellness Co., Cera Sanitaryware Ltd, Dr. Reddy’s Labs, Hawkins Cookers, Royal Enfield, and a lot more. The comprehensive range of services provided by the Company can be divided into these segments:

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  1. Integrated Marketing Communications: These include customer data analytics, delivery & management of customer experience, online reputation management, campaign & loyalty management
  2. Full Service Market research: These include customer/audience segmentation, consumer surveys, brand equity and customer satisfaction, and consumer intelligence. 

A subsidiary of the Company Hansa Research focuses on brand equity, customer satisfaction, and market research. It conducted the Indian Readership survey for 10 years from 2003 – 2012, covering over 20 Lakh in-person interviews.

The Company was founded by Late R K Swamy in 1973 in Chennai, Tamil Nadu. Today, it is run by promoters Srinivasan and Narasimhan Swamy, who have 4 to 5 decades of experience in the advertising and marketing services industry. 

About the Industry

The marketing services market in India grew at a CAGR of 5.6% from FY19-23 reaching Rs. 1.93 Lakh Cr. The industry is expected to grow at a CAGR of 12.5% – 14.5% till FY28. This increase was supported by growth in marketing spending of Indian corporates, a rise in the revenue of companies, and an increase in the gross domestic output in the economy. 

Advertisements contribute significantly to the overall marketing services industry. As the corporate revenue of 748 listed entities grew at a CAGR of 8.9% between the Fiscals 2019 and 2023, the corporate spending on marketing activities also increased.

In FY23, the overall market size of Integrated Marketing Communications in India was Rs. 93,100 Cr and expanded at a CAGR of 4.6% from Rs. 77,671 billion in FY19. This was higher than the 4.4% growth in the global integrated marketing communications industry during the same period, indicating faster recovery from COVID-19 levels. 

The industry is expected to grow at a CAGR of 13 – 15% to reach Rs.1.7 – 1.8 Lakh Cr by FY28 on account of broader economic recovery and due to the shift towards digital advertising and spending, as internet subscribers rise.

In FY23, television held the largest share of advertising revenue at 38%, followed by digital advertising at 33%. Digital advertising is projected to become the most preferred medium of advertising by FY28, capturing more than 50% of advertising spending, followed by television at 22-27%. 

This is on account of changing consumer behaviors and increasing affordability of digital infrastructure. In FY23, FMCG was the foremost contributor to the Integrated Marketing Communications sector accounting for approximately 30% market share, followed by e-commerce and consumer goods. 

R K Swamy IPO Review – Financials

R K Swamy reported revenues of Rs. 293 Cr in FY23, which increased by 25% from Rs. 234 Cr in FY22. The revenue growth in the past three years has been consistently at 30% CAGR since FY21.

Integrated Marketing & Communications has been RK’s biggest segment contributing to 49% of its revenue. The segment has been performing well scaling revenue at the rate of 43% CAGR.

Customer Data Analytics and marketing Technology is the 2nd largest segment of the Company contributing to 27% of revenue and the segment grew by 18% since FY22. The full-service market segment is the 3rd largest segment contributing to 24% of revenue.

Operating Expenses are the biggest expense for the company costing 32% of Gross revenue. These costs have increased significantly from just 25% of revenue in FY21. Employee benefit expenses however have reduced from 46% of revenue in FY21 to 37% of revenue in FY23.

Net Profits of the Company have increased 62% in a year, from Rs. 19.3 Cr in FY22 to Rs. 31.3 Cr in FY23. The Company’s EBITDA Margins and PAT Margins were around 21% and 10% respectively.

R K Swamy – Key Players 

As of FY23’s financials, R K Swamy will be the 3rd largest Advertising Company listed on Indian exchanges. The largest Company, that is Affle (India) is nearly 5x the size of R K Swamy Ltd. Although smaller in size, RK maintains strong Net Profit Margins allowing it to report the highest return on Equity amongst its peers. 

R K Swamy Ltd, with a basic EPS of Rs. 7.03 at the higher end of the price band of Rs. 288 will be valued at a Price-to-Earnings ratio of 41x. Although the ratio might look quite expensive, it is still a lot more affordable compared to its listed peers.

R K Swamy - Key Players 
Source: RHP of the Company

Strengths of the Company 

  1. Integrated Services provider with 5 decades of experience: The Company can offer single window solutions for creative, media, and data analytics as well as market research services based on customer requirements.
  2. Track record in Data Analytics & Marketing Technology: The Company houses its own data analytics business which employs AI-driven insights, media Planning tools, and Customer Relationship Management tools. The Analysts India magazine ranked the Company on the “Top 50 Companies for Data Scientists for Work”.
  3. Ability to produce digital content at scale: The Company has the expertise & the experience required to produce content for big-name brands. It has produced digital content across 18 languages and produced over 2828 videos for distribution across client-owned and paid digital platforms.
  4. Diversified customer base with long-standing relationships: Over the years, the Company has served over 4000 client organizations. These clients have been diversified across multiple industry verticals which include BFSI, automotive, FMCG, Consumer durable, central government NGOs, and many others.
  5. Experienced Professional Management: The promoters of the Company have more than 4 to 5 decades of experience in the marketing industry. They serve on the board of prestigious advertising associations. The rest of the senior management team also has over 3 decades of experience across various industries. 

Weaknesses of Company

  1. Client concentration Risk: The Company served over 380 clients in the last 6 months of FY24. Despite having a large client base, the top 10 clients of the Company contribute to 42% of its revenue. Losing a single client could severely impact its earnings.
  2. Competition Risk: The Company has to consistently evolve its technological capabilities to efficiently and effectively understand the market for its customers. If it does not upgrade its technology or does not provide adequate data, it could affect customer satisfaction and eventually cost the respective business.
  3. High Working Capital Requirements: The company reserves spaces for its clients with media houses and other digital platforms. In March 2021, the Indian Newspaper Society passed a resolution that mandates marketing Companies to make payments within 60 days.
  4. Services subject to availability: Some of the routine services offered by the Company may be to publish its customers’ ads on print media, electronic media, and outdoors. All these services are subject to space availability, and spaces with high demand can severely increase costs.
  5. Seasonal Nature of Revenues: The advertising industry is quite seasonal with 60-65% of annual revenue being generated from the third & fourth quarters of the year.

R K Swamy Limited IPO Review – GMP

As of the date of writing this article, the Grey Market Premium for the shares was R K Swamy Ltd has not yet been published. We will be updating the article with the respective expected as soon as its GMP gets updated.

R K Swamy IPO Review – Key IPO Information

ParticularsDetails
IPO SizeRs. 423.56 Cr
Fresh IssueRs. 173 Cr
Offer for Sale (OFS) Rs. 250.56 Cr
Opening date4 March 2024
Closing date6 March 2024
Face ValueRs. 5
Price BandRs. 270 - 288
Lot Size50 Shares
Minimum Lot Size1 Lot (50 Shares)
Maximum Lot Size13 Lots (650 Shares)
Min. InvestmentRs. 14,400
Listing Date12 March 2024

Promoters: Srinivasan K Swamy (Sundar Swamy) and Narasimhan Krishnaswamy (Shekar Swamy)

Book Running Lead Manager: SBI Capital Ltd, IIFL Securities Ltd, and Motilal Oswal Investment Advisors

Registrar to the Offer: KFin Technologies

The Objective of the Issue

  1. Rs. 54 Cr will be utilized for funding the working capital requirement of the Company
  2. Rs. 11 Cr will be used as Capital Expenditure towards setting up a DVCP studio
  3. Rs. 33.34 Cr will be invested in IT Infrastructure development of subsidiaries Hansa Research and Hansa Customer Equity
  4. Rs. 21.73 Cr will be invested in setting up new CEC and CATI of the Company
  5. The remaining amount will be utilized for general corporate purposes.

Conclusion

In conclusion, RK Swamy is a leading marketing firm with over 5 decades of experience. It has great expertise across industry verticals serving many famous brands. The fact that these brands are famous could be partially credited to RK Swamy Ltd!The upcoming IPO is a good opportunity to invest in India’s marketing services company. 

The marketing services industry is expected to see robust growth in the coming years, especially in digital advertising. This presents a good growth avenue for RK Swamy given its strengths in data analytics and digital content production.

However, risks such as client concentration, competition, working capital requirements, and seasonality in revenues are factors investors should consider. The IPO valuation also seems expensive at the PE of 40x.

Overall, the R K Swamy IPO Review seems best suited for investors who have a high-risk appetite and are positive about the long-term prospects of the marketing services industry. So what are your views on the upcoming IPO? Let us know in the comments below.

Written by Nasir Hussain

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