RK Swamy
- RK Swamy is coming out with a 100% book building; initial public offering (IPO) of 1,51,38,270 shares of Rs 5 each in a price band Rs 270-288 per equity share.
- Not more than 75% of the issue will be allocated to Qualified Institutional Buyers (QIBs), including 5% to the mutual funds. Further, not less than 15% of the issue will be available for the non-institutional bidders and the remaining 10% for the retail investors.
- The issue will open for subscription on March 04, 2024 and will close on March 06, 2024.
- The shares will be listed on BSE as well as NSE.
- The face value of the share is Rs 5 and is priced 54.00 times of its face value on the lower side and 57.60 times on the higher side.
- Book running lead managers to the issue are SBI Capital Markets, IIFL Securities and Motilal Oswal Investment Advisors.
- Compliance Officer for the issue is Aparna Bhat.
Profile of the company
RK Swamy was founded by the late R K Swamy in 1973, and is led by its Promoters, Srinivasan K Swamy (Sundar Swamy) and Narasimhan Krishnaswamy (Shekar Swamy), who have extensive experience of over 45 years and 37 years respectively in the advertisement and marketing services industry. Its Promoters have held leadership positions in various industry forums such as the International Advertising Association, Advertising Agencies Association of India and the Asian Federation of Advertising Associations. Its Integrated Marketing Communications business uses the ‘R K Swamy’ as well as the ‘Hansa’ brands. Its Customer Data Analytics and MarTech and Full-Service Market Research disciplines are offered under the ‘Hansa’ brand.
It is one of the leading integrated marketing service groups in India, offering a single-window solution for creative, media, data analytics and market research services. The company offers a comprehensive range of services in the following interrelated and complementary business segments: (i) Integrated Marketing Communications, (ii) Customer Data Analytics and Marketing Technology (Customer Data Analytics and MarTech); and (iii) Full Service Market Research (including customer experience measurement) and Syndicated Studies (Full-Service Market Research). It has a track record of over five decades, and has been serving leading companies such as Aditya Birla Sun Life AMC, Cera Sanitaryware, Dr. Reddy’s Laboratories, E.I.D. Parry (India), Havells India, Hawkins Cookers, Himalaya Wellness Company, Hindustan Petroleum Corporation, ICICI Prudential Life Insurance Company, IFB Industries, Mahindra and Mahindra, Oil and Natural Gas Corporation, Royal Enfield (a unit of Eicher Motors), Shriram Finance, Tata Play, Ultratech Cement, and Union Bank of India.
The company is a data driven integrated marketing services provider and all segments of its business use digital initiatives extensively. During Fiscal 2023 and the six months ended September 30, 2023, it released over 818 and 438 creative campaigns, respectively on behalf of its clients across various media outlets, handled over 97.69 and 140.05 terabytes (cumulatively for Fiscal 2023 and the six months ended September 30, 2023) of data and have conducted over 2.37 million and 1.44 million consumer interviews across quantitative, qualitative and telephonic surveys. The company aims to provide the highest levels of professional service to meet the continuous needs of its clients and aims to continue growing its capabilities with an unyielding focus on the needs of its clients. Its solutions and offerings are serviced by over 2,533 employees spread across 12 offices and 12 field locations across twelve cities, across its three business segments.
Proceed is being used for:
- Funding working capital requirements of the company.
- Funding capital expenditure to be incurred by the Company for setting up a digital video content production studio (DVCP Studio).
- Funding investment in IT infrastructure development of the company, and its Material Subsidiaries, Hansa Research and Hansa Customer Equity.
- Funding setting up of new customer experience centres (CEC) and computer aided telephonic interview centres (CATI) of the company.
- General corporate purposes.
Industry overview
Marketing services refers to a range of activities and strategies that are designed to promote a brand, product, or the business. These may encompass various creative techniques to attract, engage and retain customers, ultimately driving sales and business growth. These services may be provided by in-house marketing teams or outsourced to specialised marketing and advertising agencies. Marketing services include a combination of traditional and digital marketing methods, depending on goals and target audience for the business. Traditional marketing methods include channels such as television, radio, print media, etc. which provide access to a broad audience whereas digital marketing tools include SEO (Search Engine Optimization), email marketing and social media advertising that leverages the power of internet and digital connectivity to reach more specific demographics. Apart from creative communication and advertisement, businesses use various tools under marketing services to attract and retain customers.
Marketing communication comprises spends on advertising, media, brand activation, digital, content and strategy. It encompasses both in-house and outsourced spending. The value chain and structure of the industry comprises interactions between stakeholders of the client (a manufacturing/service company, or the government), the advertising/media agency, and the media channels/production houses/celebrity managers. The Indian digital Integrated marketing communication has demonstrated remarkable growth over the years. The industry’s value rose from Rs 117 billion in fiscal 2019 to Rs 286 billion by fiscal 2023, at 25% CAGR. This substantial growth indicates the growing investments made by businesses in digital advertising. Further, as the technology continues to advance and more businesses embrace digital strategies, the industry is expected to witness further growth and innovation, which, in turn, presents vast opportunities for advertisers and marketers to leverage digital platforms and channels to connect with their audiences and achieve their marketing objectives. As a result, industry is expected to reach a value of Rs 850-900 billion by end-fiscal 2028.
Meanwhile, analytics is defined as a systematic computational analysis of data or statistics, used for the discovery, interpretation, and communication of meaningful patterns in data, for effective decision-making. Analytics is broadly divided into products and services. The Indian Customer data analytics & MarTech industry grew consistently from fiscal 2019 to fiscal 2023, demonstrating a stable upward trajectory. The industry’s size increased from Rs 73 billion in fiscal 2019 to Rs 115 billion by FY23, at a CAGR of 12%. This trend indicates increasing recognition and adoption of Customer data analytics & MarTech solutions by Indian businesses, driven by their pursuit to gain deeper insights into consumer behaviour and optimise marketing strategies. Moreover, market research services typically include market research, customised/ ad hoc market research, and customer and market analytics. This section covers syndicated market research and customised/ ad hoc market research, as Customer data analytics & MarTech has already been covered in the previous section. The major types of players that offer these services include full-service market research agencies, captives and consulting companies, customised research providers, panel providers, and report publishers.
Pros and strengths
Integrated marketing services provider serving clients for 50 years: The company is one of the leading integrated marketing service groups in India, offering a single-window solution for creative, media, data analytics and market research services and has grown its businesses organically based on its response to market trends and client requirements progressively over the last five decades. The company has been focused on supporting the marketing activities of large corporates, state-owned enterprises, leading institutions and marketers, emerging Indian entrepreneurs and businesses. It is a scalable, asset-light business with a stable financial profile with a track record of profitability and healthy cash flows. It has built and nurtured its relationships with media partners over five decades. It has been able to leverage this relationship consistently for the benefit of its clients, in terms of turnaround time, better pricing, value additions such as better placement, improved sponsorship benefits, and enhanced media engagement.
Well diversified customer base with long standing relationships: The company’s business model was built and continues to evolve around its clients and their specific marketing and advertising requirements and are the central focus of how it structures its service offerings and allocate its resources. It has catered to over 4,000 client organisations over the years and has served over 380 clients in the six months ended September 30, 2023. It has a well-diversified client base covering leading brands across multiple industry verticals. It is focused on the BFSI, automotive, FMCG/consumer durables/retail/ecommerce sectors and possesses deep domain expertise across various kinds of client organisation structures, which include private sector business groups, other private companies, multinational companies, public sector enterprises, central government ministries and NGOs. Several of its clients are repeat clients and engage with across its business segments.
Established internal infrastructure for efficient delivery of services: The company offers its clients with an established infrastructure to support all their marketing and advertising needs. Its marketing and client services network in India spans across 12 Indian cities, 12 offices and 12 field locations in India, as of September 30, 2023. It has also recently set up foreign subsidiaries in Dubai and Bangladesh to serve clients in Middle East, North Africa and South Asia and has started to offer Full-Service Market Research services. In India, it has a ‘national data-collection field infrastructure’, spread over 17 cities, which as of September 30, 2023 comprised 1,350 individuals (of which 47 individuals are field executives, 1 is on third party payroll and 1,302 are engaged as freelancers). Its team based in India will provide support infrastructure to its foreign office locations. Its in-house analysis teams are trained in data tabulation, classification and scrutiny, and have been equipped with the latest technology such as, Sawtooth Choice-Based Conjoint (CBC), Isotab, SurveyToGo, Isoquick, Latent Gold, and Qualtrics. It has established CATI and customer experience centres with over 1,700 seats across 10 locations as of September 30, 2023, equipped with the state of art equipment.
Well established brands across segments: The RK Swamy brand was established by its founder, R K Swamy in 1973. Through the efforts, reputation, guidance and experience of its promoters, it has established the brands, “RK Swamy†and “Hansaâ€, in the field of marketing services in India. The long-standing experience of its Promoters has contributed significantly to its market position. Its Promoters have held leadership positions on various industry forums. Further, the company’s key employees have been associated with it for an average of over 13.50 years. Its engagement with its clients is conducted on a principal-to-principal basis with dedicated senior relationship managers leading the engagement. The knowledge and experience of its Senior Management, and their continued engagement with clients, provides it with a significant competitive advantage as it grows its businesses. Furthermore, the industry expertise of its Senior Management allows the long-term strategic direction of its business to be updated with the latest trends.
Risks and concerns
Maximum revenue comes from few customers: The company served over 380 clients in the six months ended September 30, 2023, over 475 clients in Fiscal 2023, over 455 clients in Fiscal 2022 and over 410 clients in Fiscal 2021. Further, it is dependent on its relationships with key clients, and the average number of years of relationships with its top 10 clients is around 19 years, and for its top 50 clients is approximately 11 years as of March 31, 2023. Its ability to retain, renew or expand its key client relationships may decrease or vary as a result of a number of factors, including its clients’ satisfaction or dissatisfaction with its services, reliability of its digital solutions and its pricing, and external conditions, many of which are beyond its control including changes in the client business strategy, technology, preferences or management of its client, shifts in market or economic conditions, or the emergence of more competitive offerings from its competitors. Any such event could lead to a reduction in the client’s advertising outlay allocated to it, a modification in the scope of work, or even the termination of its relationship with these clients.
Revenues are highly dependent on certain key industries: A substantial portion of its clients is concentrated in a few specific industry verticals: i) Banking, Financial Services and Insurance (BFSI), (ii) Automotive, and (iii) Fast-moving consumer goods/consumer durables/retail/e-commerce. The company’s dependence on these sectors exposes it to the economic and business risks that these sectors may face, including economic slowdowns, market volatility, regulatory changes, technological disruption, and changing consumer preferences. In periods of economic downturn, these sectors may experience reduced advertising expenditure, which in turn could lead to a decrease in the demand for its services. The company also faces competition from other agencies, which may offer services at lower costs, offer more diverse services, or advanced technologies, potentially leading its clients in these sectors to shift their outsourcing requirements. Its ability to diversify its customer base could also be limited by its expertise, industry reputation, and the established relationships it has within these sectors. As a result, if there is a decrease in demand for its services from these sectors or its failure to diversify sufficiently into other sectors, for any reason, its financial condition and results of operations could be materially adversely affected.
Business seasonal in nature: Due to the seasonal nature of its business, 35-40% of its revenue from operations are recognised in the half year ending in September, however, it records an increase in revenue from operations in its third and fourth quarters (September to March), as most of its clients’ initiate research projects and schedule their advertising spends for this period of the year. This seasonality also results from a number of other factors, including approvals of clients’ marketing budgets around the first quarter of the financial year, thus accelerating advertising spends in the subsequent quarter and consequent timing of projects and billings received from its clients. However, spending very year in the third and fourth quarters may not have a substantial upswing every year due to unexpected events like COVID-19, changing advertising trends or even if clients delay spending to latter quarters of the financial year due to adverse economic conditions. As a result of such fluctuations, its sales and results of operations may vary quarter on quarter, and the sales and results of operations of any given fiscal quarter may not be relied upon as indicators of the sales or results of operations of other fiscal quarters or of its future performance.
Geographical constrain/risk: The company’s operations are predominantly concentrated in India. While this domestic focus has served it well till now, it also exposes it to the economic, political, and regulatory risks specific to India. Any significant change or instability in these factors could adversely affect its financial condition and results of operations. It has recently initiated expansion into foreign markets, including a country in the middle east, i.e United Arab Emirates, and a neighbouring nation, i.e. Bangladesh. This expansion involves inherent challenges and risks including, but not limited to, compliance with new regulatory requirements, recruitment of skilled professionals, understanding the local culture, integration of local personnel and establishing a market presence. It may be required to invest significant resources to navigate these challenges, and there is no assurance that its efforts will result in successful market penetration or generation of significant revenues in these new geographies. Additionally, setting up operations in new markets requires substantial setup costs, including but not limited to infrastructure, licensing, marketing, and personnel costs. The anticipated return on these investments may not materialize or may take longer than it expects, which could strain its financial condition and affect its profitability.
Outlook
R K Swamy is engaged in the business of integrated marketing communications, customer data analysis, full-service market research and syndicated studies. R K Swamy is a data-driven, integrated marketing services provider that leverages digital initiatives extensively across all areas of its business. In FY2023, the company published more than 818 creative campaigns on behalf of its clients across various media. It also processed more than 97.69 terabytes of data and conducted over 2.37 million consumer interviews in the form of quantitative, qualitative and telephone surveys. On the concern side, the company’s business is concentrated around key clients, which account for a significant amount of its revenue. If it fails to retain these clients, or diversify its client base or if its key clients reduce their marketing budgets, its business, revenue growth, results of operations, cash flows and financial condition may be materially and adversely affected. Moreover, the company’s revenues are highly dependent on certain key industries. Any decrease in demand for marketing services in these industry verticals could reduce its revenues and adversely affect its business, financial condition and results of operations.
The company is coming out with an IPO of 1,51,38,270 equity shares of face value of Rs 5 each. The issue has been offered in a price band of Rs 270-288 per equity share. The aggregate size of the offer is around Rs 408.73 crore to Rs 435.98 crore based on lower and upper price band respectively. On performance front, the company’s total income increased by Rs 549.42 million or by 22.43% from Rs 2,449.71 million for the Fiscal 2022 to Rs 2,999.13 million for the Fiscal 2023. This was primarily due to an increase in its revenue from operations. Moreover, the company recorded an increase in profit after tax by 120.03 million or by 62.34% from Rs 192.55 million for the Fiscal 2022 to Rs 312.58 million for the Fiscal 2023.
The company is present in 12 Indian cities, with 12 offices and 12 field locations, and it further intends to expand its presence in additional geographies. The company’s experience in locations like Kochi, Kerala and Hyderabad, Telengana, where it serviced over 10 clients each, showcases the potential of further building a base of clients based in these states. It intends to further this experience by commencing operations in Ahmedabad (Gujarat), Lucknow (Uttar Pradesh) and Jaipur (Rajasthan) to target new and emerging clients from these states. Moreover, the company is focused on leveraging the reach and relevance of digital content to support clients’ marketing initiatives in both the online and offline worlds through (i) short videos product videos and animations for the purpose of marketing and targeted distribution on various digital platforms, (ii) Specialized, engaging, longer-duration productions with the potential to go viral, and (iii) longer-duration informative and engaging videos for communicating concepts and providing explanations of complex programs.
RK SwamyRK Swamy is coming out with a 100% book building; initi..
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