RK Swamy IPO opens today: Should you subscribe to the issue?

RK Swamy's Rs 423.56 crore-initial public offering (IPO) opens for subscription on Monday, March 4 and can be subscribed till Wednesday, March 6. The company will be offering its shares in the price band of Rs 27-288 apiece. Interested investors can bid for the issue in the lot size of 50 equity shares and its multiples thereafter.

RK Swamy has been engaged in the business of integrated marketing communications, customer data analysis, full-service market research and syndicated studies for more than five decades. Incorporated in 1973, RK Swamy is a data-driven, integrated marketing services provider that leverages digital initiatives.

The primary offering includes a fresh share sale of Rs 173 crore and an offer-for-sale (OFS) of up to 87,00,000 equity shares by its promoters Srinivasan K Swamy and Narasimhan Krishnawamy, along with investors such as Evanston Pioneer Fund LP and Prem Marketing Ventures LLP.

Ahead of its IPO, RK Swamy mobilized Rs 187.22 crore from 18 anchor investors as the company allocated 65,00,937 equity shares at Rs 288 apiece. The list included  Societe Generale, Citigroup Global Markets, Copthall Mauritius Investment, Goldman Sachs, BNP Paribas Financial Markets, Pinebridge Global Funds, Bajaj Allianz Life Insurance among others.

The company intends to utilize the net proceeds from the issue towards funding working capital requirements; capital expenditure for setting up a digital video content production studio; investment in IT infrastructure development; new customer experience centres; and general corporate purposes.

RK Swamy published more than 818 creative campaigns on behalf of its clients across various media in the financial year 2022-23. It also processed 97.69 terabytes of data and conducted over 2.37 million consumer interviews in the form of quantitative, qualitative and telephone surveys.

Its clientele include Aditya Birla Sun Life AMC, Cera Sanitaryware, Dr Reddy's Labs, EID Parry (India), Fujitsu General, Havells, Hawkins Cookers, Himalaya Wellness, Hindustan Petroleum, ICICI Prudential Life Insurance, IFB Industries, Mahindra & Mahindra, ONGC, Royal Enfield, Shriram Finance, Tata Play, Ultratech Cement and Union Bank of India.

RK Swamy reported a net profit of Rs 7.93 crore and a revenue of Rs 142.55 crore for the period ended on September 30, 2023. The company clocked a net profit at Rs 31.26 crore and sales of Rs 299.91 crore for the financial year ended March 31, 2023.

RK Swamy has reserved shares worth Rs 7.50 crore for eligible employees of the company, who will get a discount of Rs 27 per share during the bidding process. The company will offer 75 per cent of the net offer for the qualified institutional investors (QIBs), while non-institutional investors (NIIs) will get 15 per cent of shares. Retail investors will get 10 per cent of the net offer.

SBI Capital Markets, IIFL Securities and Motilal Oswal Investment Advisors are the book running lead managers of the RK Swamy IPO, while Kfin Technologies is the registrar for the issue. Shares of the company are set to list at Dalal Street on March 12, Tuesday, 2024 on both BSE and NSE. Here's what a host of brokerage say about the IPO RK Swamy:

Arihant Capital Markets
Rating: Avoid
The marketing services market in India has been steadily expanding, fueled by increased corporate spending and a thriving economy. There are significant opportunities for growth across their business segments, which include integrated marketing communication, customer data analytics and MarTech and full-service market research, said Arihant Capital Markets.

"RK Swamy is well-positioned to capitalize on MarTech trends. We anticipate sustained growth for the company and strong market performance in the coming years by capitalizing on the growing importance of market intelligence and technological advancements. The issue is valued at an EV/Ebitda of 22.9 times based on FY23 Ebitda of Rs 62.91 crore," it added with an 'avoid' rating.

Anand Rathi Research
Rating: Subscribe for long-term
The organization stands as a prominent integrated marketing service group in India, providing a comprehensive solution encompassing creative, media, data analytics, and market research services under one roof. Over the past five decades, they have achieved organic growth by adeptly responding to market trends and evolving client needs, said Anand Rathi Research.

The company boasts a 15-year track record in the data analytics and marketing technology sector. They demonstrate a proven capability to generate digital content at scale. At the upper price band, the company is valued at a P/E ratio of 46.5 of its FY23 earnings with a market cap of Rs 1,453.4 crore post issue of equity shares, added with a 'subscribe for long-term' rating.

BP Equities
Rating: Subscribe
RK Swamy's IPO is priced at P/E ratio of 41 times, based on FY23 earnings, is reasonable considering the industry average P/E of 69 times. The inherent nature of the digital marketing analytics business is such that it entails higher initial risk followed by a phased replication model upon successful rollout, said BP Equities.

"While the IPO presents an opportunity for substantial returns, investors must be prepared for potential cyclical returns and a longer investment horizon. Based on the above positives, we give the issue a 'subscribe' rating," it said.

Canara Bank Securities
Rating: Subscribe
RK Swamy offers a comprehensive suite of services, including creative, media, data analytics, and market research. It is a diversified integrated marketing communications services group in India, providing a single window solution for three areas - integrated marketing Communications, customer data analytics and marketing technology and full-service market research, said Canara Bank Securities.

"The company is raising funds for setting up a studio with post production facilities, an auto marketing platform and a data repository platform. The annualized P/E for FY24 stands at 80 times which appears expensive while H2FY2024 contributes 60-65 per cent of company’s earnings. We recommend to subscribe for listing gains," it added.

Reliance Securities
Rating: Subscribe
RK Swamy long standing customer relationships with government companies and agencies to create awareness about its policies, promote various new initiatives, health and educations schemes, state wise marketing services are the key positives. Its strong management helps to tap domestic and global customers in various segments of industries, said Reliance Securities.

"Private companies spend around 3 per cent of their revenues for product endorsement which will drive sustained growth for the coming years. We believe with improvement in margins, newer cities and innovative campaigns in digital medium improving the overall customer experience helps to build brands leveraging the success for clients," it added with a subscribe for long-term. 

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