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Review By Dilip Davda on February 28, 2024

•    RKSL is a leading integrated marketing service providing group in India. 
•    It ranked 8th in terms of estimated operating revenue in the segment. 
•    The company posted growth in its top and bottom lines for the reported periods. 
•    Based on FY24 annualized earnings, the issue appears overpriced, but according to the management, the major revenue comes in the second half and dilutes P/E to a great extent.
•    On FY23 earnings base, the issue is fully priced, but on market cap to turnover ratio, it appears lucratively priced.
•    Investors may park funds for the medium to long term rewards.

ABOUT COMPANY:
R K Swamy Ltd. (RKSL) 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. (Source: CRISIL Report).  It is ranked 8th in terms of estimated operating revenue among the integrated marketing communications services groups operating in India (Source: CRISIL Report). It 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"). (Source: CRISIL Report).

It has a track record of over five decades, and have been serving leading companies such as Aditya Birla Sun Life AMC Limited, Cera Sanitaryware Limited, Dr. Reddy's Laboratories Limited, E.I.D.-- Parry (India) Limited, Fujitsu General (India) Private Limited, Gemini Edibles and Fats India Limited, Havells India Limited, Hawkins Cookers Limited, Himalaya Wellness Company, Hindustan Petroleum Corporation Limited, ICICI Prudential Life Insurance Company Limited, IFB Industries Limited, Mahindra and Mahindra Limited, Oil and Natural Gas Corporation Limited, Royal Enfield (a unit of Eicher Motors), Shriram Finance Limited, Tata Play Limited, Ultratech Cement Limited, and Union Bank of India.

RKSL 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 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 has conducted over 2.37 million and 1.44 million consumer interviews across quantitative, qualitative and telephonic surveys. It aims to provide the highest levels of professional service to meet the continuous needs of its clients and aim to continue growing 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. Driven by clients' continuous demand for more effective and efficient marketing services, the company strives to pursue a contrarian strategy by providing a wide range of advertising and marketing services under a unified management.

The Integrated Marketing Communications business segment includes: (a) creative and digital content; (b) media (including digital); (c) events and activation planning, buying and executing; and (d) others including public relations, social media management, pharmaceutical communication.

The Customer Data Analytics and MarTech business segment includes: (a) customer data analytics; (b) delivery and management of customer experience; (c) online reputation management; (d) campaign management, campaign tracking; (e) customer relationship management tools; (f) customer insights, dashboards; (g) sentiment analysis; and (h) loyalty program management.

One of its subsidiaries, Hansa Customer Equity was set up to address this need and has now been recognised among the top 10 groups within the Customer Data Analytics and MarTech services segment providing integrated marketing solutions and is a key player in the industry.

The Full-Service Market Research business segment includes: (a) customer/ audience segmentation; (b) consumer surveys; (c) customer experience measurement; (d) brand equity and customer satisfaction indices and (e) consumer intelligence.

RKSL's 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.

As of September 30, 2023, it employed 1,645 full-time employees and 2,533 people overall in all its activities including Full-Time Employees (FTE), third-party field executives, Customer Experience and CATI service providers. The Company has employed 889 third party Customer Experience Centre and CATI employees on contractual basis during the six months ended September 30, 2023.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden combo book building route IPO of fresh equity shares issue worth Rs. 173 cr. (6006950 shares at the upper cap) and an Offer for Sale (OFS) of 8700000 equity shares (worth Rs. 250.56 cr. at the upper cap). Thus the overall IPO size is of 14706950 shares of Rs. 5 each worth Rs. 423.56 cr. (at the upper cap). The company has announced a price band of Rs. 270 - Rs. 288 per share. The issue opens for subscription on March 04, 2024, and will close on March 06, 2024. The minimum application to be made is for 50 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. The issue constitutes 29.14% of the post-IPO paid-up capital of the company. From the net proceeds of the fresh equity issue, the company will utilize Rs. 54.00 cr. for working capital, Rs. 10.99 cr. for setting up a DVCP studio, Rs. 33.34 cr. for investment in IT Infra and its material subsidiary Hansa Research, Rs. 21.74 cr. for setting up of new CEC and CATI, and the rest for general corporate purposes.  

The company has reserved shares worth Rs. 7.5 cr. for its eligible employees and offering them a discount of Rs. 27 per share, and from the rest, it has allocated not less than 75% for QIBs, not more than 15% for HNIs and not more than 10% for Retail investors. 

The three Book Running Lead Managers to the issue are SBI Capital Markets Ltd., IIFL Securities Ltd., and Motilal Oswal Investment Advisors Ltd. while KFin Technologies Ltd. is the registrar of the issue. 

Having issued/converted entire equity shares at par value so far. It has also issued bonus shares in the ratio of 1 for 1 in April 1982, 1 for 1 in March 1987, and 4 for 1 in July 2023. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. NIL per share. 

Post-IPO, company's current paid-up equity capital of Rs. 22.23 cr. will stand enhanced to Rs. 25.23 cr. Based on the upper cap of the IPO price band, the company is looking for a market cap of Rs. 1453.37 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has (on a consolidated basis) posted a total income/net profit of Rs. 183.22 cr. / Rs. 3.08 cr. (FY21), Rs. 244.97 cr. / Rs. 19.26 cr. (FY22), and Rs. 299.91 cr. / Rs. 31.26 cr. (FY23). For H1 of FY24 it earned a net profit of Rs. 7.93 cr. on a total income of Rs. 142.55 cr. 

For the last three fiscals, the company has reported an average Eps of Rs. 5.07, and an average RoNW of 17.36%. The issue is priced at a P/BV of 8.73 based on its NAV of Rs. 32.99 as of September 30, 2023, and at a P/BV of 4.73 based on its post-IPO NAV of Rs. 60.93 per share (at the upper cap).

If we annualize FY24 earnings and attribute it to post-IPO fully diluted paid-up equity capital of the company, then the asking price is at a P/E of 91.72. Thus prima-facie the issue appears overpriced. But according to the management, as per historical trends, first half is bringing 35 to 40% of their annualized revenue and the major revenue comes in the second half (around 60-65%(. Based on FY23 earnings, the issue is at a P/E of 46.53, making it a fully priced bet. Based on its market capitalization to total income ratio the issue is at 4.85 times, indicating lucratively priced. 

For the reported periods, the company has posted PAT margins of 1.68% (FY21), 7.86% (FY22), 10.42% (FY23), 5.56% (H1-FY24), and RoCE margins of 8.58%, 20.08%, 28.95%, 6.29% respectively for the referred periods. 

DIVIDEND POLICY:
The company has paid a dividend of 11.50% (FY21), 40% (FY22), 50% (FY23), and 40% (H1-FY24). The company has already adopted a dividend policy in July 2023, based on its financial performance and future prospects. 

COMPARISON WITH LISTED PEERS:
As per the offer document, the company has shown Affle (India), Latent View, and Vertoz Advertising as their listed peers. They are trading at a P/E of 56.9, 70.6, and 80.4 (as of February 28, 2024). However, they are not comparable on an apple-to-apple basis. 

MERCHANT BANKER'S TRACK RECORD:
The three BRMLs associated with the offer has handled 64 public issues in the past three fiscals, out of which 21 issues have closed below the offer price on the listing date. 

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