RK Swamy IPO opens today: Should you subscribe to the ₹423-crore issue?

Reliance Securities: Subscribe for long term

RK Swamy's longstanding 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, analysts at Reliance Securities said in its IPO note.

The company's strong management helps to tap domestic and global customers in various segments of industries as private companies spend around 3% 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. Hence, we recommend to 'Subscribe' the issue for long term," it said.

Anand Rathi: Subscribe for long term

According to brokerage firm Anand Rathi, the organisation 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, it said.

Additionally, 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, establishing themselves as leaders in the field of market research.

"At the upper price band company is valued at P/E (price-earnings) ratio of 46.5 of its FY23 earnings with a market cap of ₹1,453 crore post issue of equity shares and return on net worth of 22.2%," the analysts said, adding, "We believe that valuations of the company is fairly priced and recommend a 'Subscribe-Long Term' rating to the IPO.

BP Wealth: Subscribe

From a valuation perspective, the brokerage said that RK Swamy's 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. 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, analysts at BP Wealth have assigned a 'Subscribe' rating to the IPO.

The company has fixed a price band of ₹270-288 per share for its ₹423-crore IPO. Investors can make bids for 50 shares in one lot and multiples thereafter.

At the upper band price, the total issue size will be at ₹423 crore and the total market capitalisation of the company is pegged at ₹1,450 crore.

The IPO will be a mix of fresh shares worth ₹173 crore, and an offer-for-sale (OFS) of 87 lakh equity shares by promoters and investors.

Promoters Srinivasan K Swamy, and Narasimhan Krishnaswamy will be selling 17.88 lakh equity shares each in the OFS, while investors Evanston Pioneer Fund LP will be offloading 44.45 lakh equity shares and Prem Marketing Ventures LLP 6.78 lakh equity shares via the OFS.

The promoters own 84.44% shares in RK Swamy, and the rest 15.56% shares are held by the selling public shareholders Evanston Pioneer Fund LP, and Prem Marketing Ventures LLP. Prem Marketing Ventures LLP will be exiting the marketing services provider after the issue.

RK Swamy will spend ₹54 crore of the net fresh issue proceeds for working capital requirements. In fact, the fund size required for working capital has been reduced to ₹54 crore, from ₹87 crore earlier.

Further, ₹10.98 crore will be used for setting up a DVCP studio, ₹33.34 crore for investment in IT infrastructure development, and ₹21.74 crore for setting up of new CEC and CATI of the company.

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

RK Swamy Ltd is the largest Indian majority-owned integrated marketing services provider in India, offering a single-window solution for creative, media, data analytics, and market research services.

During fiscal 2023, one of India's pioneering advertising agencies RK Swamy released over 818 creative campaigns on behalf of clients across various media outlets, handled over 97.69 terabytes of data, and conducted over 2.37 million consumer interviews across quantitative, qualitative, and telephonic surveys.

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

SBI Capital Markets, IIFL Securities and Motilal Oswal Investment Advisory are the merchant bankers to the IPO, while Kfin Technologies is the registrar.

The allotment of shares will be done on March 7 and credit of shares to depository accounts will be on 11th. The stock will be listed on both BSE and NSE on March 12.