RK Swamy IPO: RK Swamy IPO has lots going for a good bet

ET Intelligence Group: Integrated marketing services provider RK Swamy plans to raise up to ₹423.5 crore through an initial public offering (IPO). This includes a fresh issue of ₹173 crore and an offer for sale (OFS) of ₹250.5 crore. Promoters Srinivasan K Swamy and Narasimhan Krishnaswamy and investors such as Evanston Pioneer Fund LP and Prem Marketing Ventures LLP will tender their shares in the OFS.

Out of the total proceeds from the issue, the company plans to utilise ₹87 crore for working capital needs and ₹33 crore to develop IT infrastructure. In addition, the company plans to invest ₹21.7 crore to set up customer experience centres, and ₹10.9 crore for computer-aided telephonic interview centres and digital video content production studios.

Well-established brands, long-established presence in integrated marketing services, encouraging financials, consistent dividend-paying record, list of clients which offer stable businesses, increasing need for content, studies and research among companies and institutions to communicate effectively, improving digital infrastructure and reasonable valuations are a few of its strengths

Business: Based in Chennai, RK Swamy was founded in 1973 as a publicity and advertising agency. It has since evolved into an integrated marketing services provider. RK Swamy’s business is spread across three segments – integrated marketing communications, customer data analytics and marketing technology (through its brand ‘Hansa’) and full-service market research (through ‘Hansa Research’). The company provides a range of services including surveys, research publications, content creation across platforms (digital, print and others), studies of consumer or customer behaviour for effective marketing strategies and brand communication, and market research across sectors. The company has several big clients which provide stable business given their well-established brands. They include Dr Reddy’s Labs, EID Parry, Fujitsu, Mahindra & Mahindra, HPCL, UltraTech Cement, Aditya Birla Sun Life AMC, ICICI Prudential Life Insurance, Shriram Finance, and Union Bank of India.

Financials: RK Swamy’s total income has risen to ₹299 crore in FY23 from ₹183.2 crore in FY21. Net profit grew to ₹31.2 crore from ₹3 crore during the period. As of FY23-end, the company had a debt-to-equity ratio of 1.63. The company derives 35-40% of its total revenues in the first half of a fiscal year and 55-60% in the second half. Post-issue, the promoters’ holding will fall to 70.76% from 83.03%.

Valuation: Based on its FY23 financials, the company commands a price-to-earnings multiple of 46.5. This is reasonable when compared to the industry’s average PE multiple of 69.