R K Swamy Ltd IPO | News | Overview | Verdict

IPO listed on 12 Mar'24

R K Swamy Ltd

Minimum Investment

₹ 14,400 / 50 shares

Grey market premium

₹ 90 (31% premium)

Issue price

₹ 288

Listing price

₹ 250

% since launch

Listing on

Mar 12, 2024

Our Verdict:

R K Swamy Ltd boasts a scalable, asset-light business model, demonstrating consistent growth in revenue and profits over the last three years, alongside impressive return metrics.
From a valuation standpoint too, the IPO appears to offer fair value, sporting a Price-to-Earnings (P/E) ratio of 41x based on FY23 earnings. This valuation is lower than that of its closest listed competitors, leaving some room for re-rating. Additionally, the positive grey market premium (GMP) also predicts a favourable debut on the stock exchanges.
The firm benefits from durable relationships with key clients, with over 85% of business coming from repeat customers. This client loyalty is a significant advantage for R K Swamy.
Given these factors and the fundamental strengths highlighted below, investors may consider subscribing to the IPO from a long-term perspective.

About the company

Founded in

16 Feb'73

Managing director

Srinivasan K Swamy

R K Swamy Ltd stands as a comprehensive integrated marketing services firm, specializing in a wide array of services including creative content creation, data analytics, and market research with a primary focus on digital marketing. It operates through three main divisions: R K Swamy Limited, Hansa Customer Equity, and Hansa Research Group.
Positioned as the eighth-largest by estimated operating revenue among integrated marketing communications service providers in India, R K Swamy serves a varied range of industry sectors. Notably, approximately 70% of its revenue is generated from the BFSI, FMCG/retail, and automotive sectors. Among its prominent clients are ICICI Lombard, Cera Sanitaryware, Dr Reddy’s Lab, EID Parry, Havells, M&M, and ONGC.

STRENGTHS

Exceptional Financial Growth: R K Swamy has demonstrated remarkable growth in its financial performance, with a Compound Annual Growth Rate (CAGR) of 30% in revenue from operations from FY21 to FY23. This growth period also featured a notable 48% increase in EBITDA and a substantial 219% rise in net profit.
Strong Return Metrics: R K Swamy has seen a substantial improvement in its Return on Net Worth, escalating from 3.13% in FY21 to 22.20% in FY23. Similarly, its Return on Capital Employed rose from 8.58% in FY21 to 28.95% in FY23.
Deep-rooted Customer Relationships: Over the first six months ending September 30, 2023, R K Swamy served more than 380 clients, with over 475 clients served in FY23. It boasts long-term relationships with its clients, averaging approximately 19 years with its top 10 clients and about 11 years with its top 50 clients as of March 31, 2023.
Investor-Friendly Company: R K Swany has maintained a strong dividend payout history, distributing dividends at rates of 11.50% in FY21, 40% in FY22, 50% in FY23, and 40% in the first half of FY24.

RISK FACTORS

Underperformance in H1 FY24: The EBITDA for the first six months ending September 2023 was only Rs 20.97 crore, a significant drop from the Rs 62.90 crore reported for the entire fiscal year 2023. Net Profit for the same period was Rs 7.93 crore, compared to Rs 31.26 crore in FY23. However, the management notes that historically, the first half of the year contributes 35-40% of the annual revenue, with the majority (60-65%) generated in the second half.
Customer Dependency: A significant portion of R K Swamy’s income is generated from a small group of clients. Specifically, during the six-month period ending on September 30, 2023, and the full fiscal year of 2023, its top ten clients accounted for 49.65% and 41.89% of its revenue, respectively. Any loss or reduction in business from these key clients could severely affect the company's operational effectiveness, overall performance, and financial health.
Heavy Reliance on Subsidiaries: A significant portion of R K Swamy’s total revenue is derived from its two Subsidiaries. For instance, in H1 FY24, the firm derived 30.63% of its revenue from Hansa Customer Equity and another 25.37% from Hansa Research Group.
Operating Cash Flow Challenges: R K Swamy recorded negative cash flows from operations in the six months ending September 30, 2023, and has seen negative cash flows from both investing and financing activities over the past three fiscal years. Continuing negative cash flows could negatively affect its operational capabilities.

Financials

All Values are in Cr.

Issue details

Issue type

Mainstream

Issue size

₹ 423.56 crore

Fresh Issue

₹ 173 crore

OFS

₹ 250.56 crore

Price range

₹ 270 - 288

Lot size

50 shares

Issue Objective

The net proceeds from the issue are intended to be utilised towards:

Funding the working capital requirement of the company;
Establishing a digital video content production studio;
Development of IT infrastructure for both the company and its two subsidiaries, Hansa Research and Hansa Customer Equity;
Setting up new customer experience centres and computer-aided telephonic interview centres; and
General corporate purposes.

Dates

Bidding open

4 Mar'24

Bidding close

6 Mar'24

Allotment date

7 Mar'24

Refund date

11 Mar'24

Listing

12 Mar'24

IPO Reservations

Qualified institutional buyers

>75%

Non-institutional investors

<15%

Retail individual investors

<10%

Read the Offer Document

This document has been issued by Liquide Solutions Private Limited for information purposes only. It does not have regard to specific investment objectives, financial situation and the particular needs of any specific person who may receive this document. Investors should seek personal and independent advice regarding the appropriateness of investing in any of the funds, securities, other investment or investment strategies that may have been discussed or referred herein and should understand that the views regarding future prospects may or may not be realized. In no event shall Liquide Life Private Limited and / or its affiliates or any of their directors, trustees, officers and employees be liable for any direct, indirect, special, incidental or consequential damages arising out of the use of information / opinion herein.

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