Sundar Swamy envisions R K Swamy IPO as potential blueprint for Indian agencies' eyeing IPOs

Integrated marketing service group R K Swamy Limited is set to open its Initial Public Offering (IPO) on Monday, March 4, 2024. With this move, R K Swamy Limited will become the first integrated marketing services group in India to embark on an IPO.

The overall offer, encompassing a fresh issue of equity shares and a sale of shares by existing shareholders, is valued at Rs 423 crore in the upper band. The IPO aims to secure funds for the development of the company's new growth avenues and facilitate an exit for certain shareholders.

Specifically, the IPO for the 50-year-old company encompasses a fresh issue of equity shares valued at Rs 173 crore. Additionally, there is an offer for sale of up to 87,00,000 Equity Shares from key stakeholders, including Srinivasan K Swamy (Sundar Swamy), Narasimhan Krishnaswamy (Shekar Swamy), Evanston Pioneer Fund L.P, and Prem Marketing Ventures LLP.

As outlined in the company's press note, the anticipated net proceeds from the fresh issue of equity shares are earmarked for strategic allocations. The proposed utilisation involves investment in key areas, including the establishment of a digital video content production studio, the expansion of market research and data teams, and funding essential capital expenditure.

R K Swamy's legacy

R K Swamy is one of the very few Indian companies from the advertising and marketing sectors to IPO on national exchanges. It was set up in Chennai (erstwhile Madras) in 1973 by R K Swamy. In 1990 BBDO made a strategic investment in the company. BBDO disinvested from the company in 2022. Over the last five decades the company has grown in both size and in the range of services it offers. The company now offers creative, media, data analytics and market research services. 

R K Swamy recorded a revenue of about Rs 300 crore in FY23. Over 50% of the company’s revenue comes from digital content. It services more than 400 clients every year and the top 50% of its clients contribute 70% of its topline. It claims that its top 50% of clients have been associated with the company for over a decade and the top 10% of clients have a longer relationship — 19 years on average — with the company.

Why did the company choose to IPO in 2024?

Answering the question, Shekar Swamy, group CEO and whole time director, R K Swamy Limited, said, “India as a market has been seeing dramatic developments in this space over the last two decades. It is a bewildering marketplace therefore the disciplines that are required to be competitive are many and they need to be fused together in an interesting way.

If you add up the place the market is at, the competitive landscape, and the competencies we have built at R K Swamy for our clients - there seems to be a good fusion of variables to launch an IPO now. We have been directionally focussed on an IPO for a few years now.” 

Sundar Swamy, chairman and managing director, R K Swamy Limited, hopes that “this will open the eyes of other large Indian agencies — there aren’t many of them — to view the IPO as a route to arm themselves with better capital so that that they can take on multinationals with deep pockets.” He says that some agencies are already evaluating it and envisions R K Swamy's IPO as a potential exemplar for others in the industry.

The price band has been fixed at Rs 270 to Rs 288 per equity share, with a face value of Rs 5 each. As per the press briefing, interested parties can submit bids for a minimum of 50 equity shares, and subsequently, in multiples of 50 equity shares.

The critical dates in the IPO timeline include the Anchor Investor Bidding Date scheduled for Friday, March 1, 2024. The Bid/Offer is set to commence on Monday, March 4, 2024, allowing for subscription, and will conclude on Wednesday, March 6, 2024.

Allocation of funds

The press note outlines the specific allocation of funds raised through the IPO:

Working capital

Rs. 54 crore to address the working capital requirements of the company.

Digital video content production studio

Rs. 10.9 crore earmarked for capital expenditure associated with the establishment of a digital video content production studio.

IT infrastructure development

Rs. 33.3 crore designated for investment in the IT infrastructure development of the company and its material subsidiaries, namely Hansa Research Group Private Limited and Hansa Customer Equity Private Limited.

Customer experience centres and telephonic interview centres

Rs. 21.7 crore to fund the setup of new customer experience centres and computer-aided telephonic interview centres, reflecting the company's commitment to enhancing customer engagement and research capabilities.

Employee incentive

The IPO offering includes a reserved allocation of equity shares aggregating up to Rs 7.5 crore specifically designated for subscription by eligible employees. Through consultation with the Book Running Lead Managers the company has offered a discount of Rs 27 per equity share on the offer price exclusively for eligible employees participating in the employee reservation portion.

SBI Capital Markets Limited, IIFL Securities Limited and Motilal Oswal Investment Advisors Limited are the Book Running Lead Managers to the offer.

IPO details: 

Regulatory framework and allocation structure

• The offer is being made in terms of Rule 19(2)(b) of the Securities Contracts (Regulation) Rules, 1957, as amended (the “SCRR”), read with Regulation 31 of the SEBI ICDR Regulations.

• The offer is being made through the Book Building Process in accordance with Regulation 6(2) of the SEBI ICDR Regulations.

• As per the SEBI ICDR Regulations, not less than 75% of the Net Offer shall be available for allocation on a proportionate basis to Qualified Institutional Buyers (“QIBs”) (the “QIB Portion”),

• The Company and Selling Shareholders, in consultation with the BRLMs, may allocate up to 60% of the QIB Portion to Anchor Investors.

• Basis of such allocation to Anchor Investors is discretionary, in accordance with the SEBI ICDR Regulations, and is subject to consultation with the BRLMs.

• The Anchor Investor Portion further designates one-third for reservation for domestic Mutual Funds, contingent upon valid Bids from domestic Mutual Funds at or above the price set for Anchor Investors (“Anchor Investor Allocation Price”).

Under-subscription contingencies

• In the event of under-subscription or non-allocation in the Anchor Investor Portion, the balance Equity Shares shall be added to the QIB Portion (other than the Anchor Investor Portion) (the “Net QIB Portion”).

• Within the Net QIB Portion, 5% will be allocated proportionately exclusively to Mutual Funds.

• The remainder of the Net QIB Portion shall be available for allocation on a proportionate basis to all QIBs (other than Anchor Investors), including Mutual Funds, subject to valid Bids being received at or above the Offer Price. 

Targeted allocations

• Up to [•] Equity Shares aggregating up to Rs 75 million will be available for allocation to Eligible Employees, subject to valid Bids being received at or above the Offer Price.

• Further, not more than 15% of the Net Offer shall be available for allocation to Non-Institutional Investors (“Non-Institutional Category”).

• Within the Non-Institutional Category, one-third of the allocation is earmarked for Bidders with an application size surpassing Rs 0.20 million.

• Up to Rs 1.00 million and two-thirds of the Non-Institutional Category shall be available for allocation to Bidders with an application size of more than Rs 1.00 million.

• In the event of under-subscription in either of the two sub-categories of the Non-Institutional Category, an allocation may be made to Bidders in the other sub-category of the Non-Institutional Category, as per the SEBI ICDR Regulations, provided valid Bids are received at or above the Offer Price.

However, if the aggregate demand from Mutual Funds is less than 5% of the Net QIB Portion, the balance Equity Shares available for allocation in the Mutual Fund Portion will be added to the remaining Net QIB Portion for proportionate allocation to QIBs.

Further, not more than 10% of the Net Offer shall be available for allocation to Retail Individual Investors (“Retail Category”), in accordance with the SEBI ICDR Regulations, subject to valid Bids being received from them at or above the Offer Price. 

Procedural guidelines

All Bidders (except Anchor Investors) shall mandatorily participate in this offer only through the Application Supported by Blocked Amount (“ASBA”) process and shall provide details of their respective bank account (including UPI ID (defined hereinafter) in case of UPI Bidders (defined hereinafter) in which the Bid Amount will be blocked by the Self Certified Syndicate Banks (“SCSBs”) or pursuant to the UPI Mechanism, as the case may be.

Anchor Investors are not permitted to participate in the Anchor Investor Portion through the ASBA process. Further, Equity Shares will be allocated on a proportionate basis to Eligible Employees applying under the Employee Reservation Portion, subject to valid Bids received from them at or above the Offer Price.