RK Swamy Limited is the first integrated marketing communications company to go public in India. RK Swamy, a homegrown company swimming in a sea filled with big fish from global advertising holding companies, is standing firm in a highly complex and competitive market. RK Swamy is one of the five largest holding companies.He did not take the usual route of selling the company to one and went his IPO route to maintain independence and foster growth after separation from BBDO. Selected.
Storyboard18 reached out to Narasimhan Krishnaswamy (also known as Shekhar Swamy), Group Chief Executive Officer and Whole-time Director, and Rajeev Nehwal, Group Chief Financial Officer, to find out more about the objectives behind the IPO, what they encountered during this process About the challenges, how we arrived at the price point, the changes we hope to bring to the advertising industry through this IPO, and much more.
RK Swamy has been in the advertising business since 1973, for over 50 years now. What was the reason for an IPO at this point?
Narasimhan Krishnaswami: This is the evolution of an organization over a period of time. We moved from the world of marketing communications and expanded into the world of full-service market research and customer data analysis. In the journey of a company, promoters must consider the future development of the organization.
We are a professional services company, and everything we've ever done has been, in American parlance, “out-of-pocket''.
We are currently working on a number of initiatives. You can take them one by one and gradually implement them little by little. In the history of any company, there is a period when the desire to “promote many initiatives at the same time'' creeps in.
And if you want to do that, you should. Because we're also looking strategically at getting these initiatives off the ground faster.
The second consideration is: Who are you competing with? This is a strategic issue. We compete with a number of international organizations that have come to India over the last 20-30 years and established their presence by almost acquiring many companies in the country.
We compete with organizations that are publicly traded companies in their respective regions. Japanese companies like Dentsu are listed in Tokyo. Publicis is listed in Paris and WPP is listed in London. American companies are listed in New York. So they can come in with that size of capital and then compete at a different financial level.
We have competed as much as possible with our own resources, but we believe we need to compete more with multinational companies. This is another reason why we need to go public.
The third reason is that your public profile is itself a marketing effort. People don't realize that. Public profiling is financial on one level, but marketing on another. So we believe this will be very helpful in the overall market and the work that we're doing.
Last but not least, there is one more strategic consideration. All of our customers are large companies and organizations. Most are in the listed spaces, except for a few. The reality is that large companies prefer to collaborate with other large companies. This is a fact of life. From that point of view, the list is very useful to us. So there are many reasons to do so.
The only thing I can say is that this is not the case at this stage. It could have been done five years ago. Our planning began before COVID-19. However, there was a delay due to the coronavirus pandemic. Therefore, everything had to be readjusted.
What obstacles did you face when embarking on your IPO?
Krishnaswami: I wouldn't call them obstacles, but enablers of the steps we had to take. We were running three different organizations: RK Swamy, Hansa Research Group and Hansa Customer Equity. Each operated in its own way. All of these were held under a holding company structure, a family-run holding company. When we wanted to do an IPO, it became very clear that the structure was inappropriate for his IPO.
Therefore, it was necessary to consolidate the business under the name and ownership of RK Swamy. I would say that the integration process is essentially an enabling process. All of this takes time when you have to rebuild your organization from a corporate law and compliance perspective.
Rajeev Nehwal: Many M&A and corporate restructuring activities take time. But I'm glad we achieved this at the right time.
Krishnaswami: The corporate restructuring was purposefully undertaken to provide a unified structure and market presence for investors. It took time, but that's part of the journey.
Could you also highlight the pre-IPO marketing and post-IPO marketing aspects designed to cater to the required target audience and attract potential investors?
Krishnaswami: For us, the DRHP (Draft Red Herring Prospectus) was not just a legal document, although it was a legal document. That's everything regulators want. But equally, it's a marketing document. The perspective we bring to his DRHP is: “Whatever you want to communicate appropriately to investors, understand it in the DRHP. It's not just a collection of information to satisfy regulators.''
Of course, you have to satisfy the regulators. But beyond that, treat it as a marketing document as well. I think that was a very important consideration for us. This is also the source document for everything below.
Newar: We are in the business of communication. His 50% of our revenue comes from the communications and content business. For us, investors are stakeholders. Therefore, we will continue to communicate with them as necessary. We will continue to engage with them from time to time.
The price band has been set between Rs 270 and Rs 288 per share. Could you explain how you came to this decision?
Newar: The entire process was consultative. It has to be led by bankers. We paid attention to the way we priced. There is not a single integrated marketing services company publicly traded in this country. We will be the first in the country to do this.
Having said that, there are also certain players who are on the list at the segment level. Our company operates in three segments: Some of our segments have players who may be listed.
For example, in the analytics space, listed players are companies such as LatentView, which is what is listed in DRHP. We are mindful of how they trade in the market. The bank considered a variety of factors and came up with what it thought was appropriate.
What changes do you think RK Swamy will bring in the advertising industry through this IPO and how competitive do you think this scenario will be?
Krishnaswami: The scenario will be as competitive as ever. I hope the competition doesn't get any more intense! We compete with everyone and they compete with us. So what shall we do? We believe that the IPO will be an opportunity for us to bring new initiatives to the market that have not existed before.
In the case of the RK Swamy Center for Indian Market Research, which is a think tank, in the past, we would have waited until we had accumulated money to drain it or do something like that.
Now, we think we can take a little more bold steps to bring new insights and new research to market on a scale this market has never seen before. That's a big enabler for us. We plan to provide brand and marketing consulting. It becomes another string to the bow. The basic necessary infrastructure scale-up is right on the anvil. So in all these ways, I think the company utilizes its resources in a focused and appropriate way.
By nature, we are a frugal company. Therefore, we don't want to waste any of it. And I don't believe that will happen. Scaling happens at an intentional rate. I think you'll see that these methods allow the company to do some really good and exciting work. And they may not only be relevant to our client audience, but may even exceed it.
Newar: If you look at some of the initiatives we've undertaken, it's clearly reflected in our financial performance. Over the past few years, we have been growing at a steady pace and we believe we are outpacing the market.
We have also increasingly focused on the digital side of our business. Because we believe that the digital side is an area that is growing at a faster pace.
For example, if you look at traditional businesses that have been growing by single digits in the digital space, they have been growing at a CAGR (compound annual growth rate) of almost 25% over the past few years.
It is expected to grow at a CAGR of 25% over the next five years as well. That's the area we want to swim in. If you look at our performance over the past few years, most of our growth has happened because we adopted this strategy.
For example, one of the key initiatives we are launching is a digital video studio that will allow us to produce higher quality videos for our clients. The main objective of the IPO is also to further strengthen our capabilities in that direction.
And like Shekhar said, our clients are very mature. The second area is the application of money in analytical and research areas. In both of these areas, we have experienced considerable growth over the past few years. And we outperformed the areas where the market grew.
Marketing infrastructure is now required for both analytics and research. Now, with the growth we've had over the past few years, we're reaching a point where we can almost reach our full capacity. Therefore, the obvious choice is to expand or increase or strengthen capacity.
The third use of money is that while people are very important in this business, technology is just as important. So the third spend is clearly on technology. This is because, as mentioned above, digital and technology are closely related.
And the fourth is basically working capital. This is because working capital is the actual capital when it comes to growing your business. So the proceeds of the primary issue will be used that way.
RK Swamy has long-standing relationships with some of his clients. How difficult or easy is it to maintain such relationships in the digital age?
Krishnaswami: Maintaining relationships is always difficult. It has nothing to do with digital. The only way we can maintain a relationship is by not focusing on what we do for them. And they must benefit from our activities. That will never change. Every project is a new project and we need to be a part of it.
Reliability, consistency, quality and being on the cutting edge of professional excellence is something we must always strive for. This is true in both the digital and non-digital worlds.
We had heard that agency-client relationships in the digital space are short-lived compared to traditional spaces. What can I say about that?
Krishnaswami: We do digital work for all our clients. There is no longer a distinction between digital and non-digital. Clients look at marketing and ask, “How can it help my business?” This combines multiple disciplines and applies them to future related solutions. That is the demand and that is what we are supplying.
