Need to step up competition with multinationals: RK Swamy’s Narasimhan Krishnaswamy on Indian ad firms going public
The firm’s top brass spelt out the reasons for going public, deliberated on the evolving landscape, the challenges faced in the past and those that lie ahead.
RK Swamy Limited is the first Indian integrated marketing communications company to go public in the country. A homegrown firm swimming in a sea filled with big fish from the global ad holding companies, RK Swamy has stood firm in a highly complex and competitive market. Instead of going the usual way, that is selling the firm to one of the Big Five holding companies, RK Swamy remains independent even after its split from BBDO, and has taken the IPO route to fuel its growth.
Storyboard18 got in touch with Narasimhan Krishnaswamy aka Shekar Swamy, group chief executive officer and whole-time director, and Rajeev Newar, group chief financial officer, who spoke about the objectives behind the IPO, the challenges they came across during this process, how the price band was arrived at, the changes they wish to bring in the advertising landscape through this IPO and a lot more.
Edited excerpts:
RK Swamy has been in the advertising business since 1973, which is more than five decades now. What were the reasons for an IPO at this point?
Narasimhan Krishnaswamy: This is an evolution of the organisation over a period of time. We have moved from the marketing communication world, have expanded to the full-service market research world, and to the customer data analytics field. In the journey of a company, the promoters have to consider the future development of an organisation.
We are a professional services company, and whatever we have done so far, to put it in an American phrase, it's all been done “on our own dime”.
Now we have a slew of initiatives. One can take them up sequentially and progressively do it bit by bit. This is the time when in the history of all companies, the feeling creeps in, “Let's take up many initiatives at the same time’.
And if we want to do that, then we do need to, because we are also strategically considering those initiatives to be put on a faster track.
The second consideration is, “Who are we competing with?” This is a strategic issue. We compete with a large number of international organisations that have come to India over the last two or three decades, and have pretty much acquired many companies in the country and have established their presence.
We compete with organisations that are publicly listed companies from their respective geographies. If there is a Japanese company like Dentsu, it's listed in Tokyo. Publicis is listed in Paris and WPP is listed in London. American companies are listed in New York. So, they come in with that scale of capital and are able to then compete at a different financial level.
We have been competing to the extent we can with our own resources, and I think we need to step up the competition with the multinational companies. That's another reason we need to be publicly listed.
The third reason is that a public profile by itself is a marketing initiative. People don't realise that. Public profiling is financial at one level, but it's also marketing at another level. So, we believe, it will help us a lot in the overall marketplace and initiatives that we're doing.
Last but not least, here is another strategic consideration. Our clients are all large corporations and institutions. Barring a few, most of them you will find are in the listed space. It is a reality that large companies like to work with other large companies. This is a fact of life. And even from that standpoint, a listing will help us enormously. So, there are many reasons to do it.
The only thing I can say is, it's not about at this stage. It could have been done five years ago. Our plans were getting started pre-Covid. But COVID-19 delayed us. Hence, we had to recalibrate everything.
When you set out for the IPO, what were the roadblocks you experienced?
Krishnaswamy: I would not call them roadblocks but enabling steps we had to take. We were running three different organisations: RK Swamy, Hansa Research Group and Hansa Customer Equity. Each of them was operating in its own way. All of them were held under a holding company structure, which was a family-owned holding company. When we wanted to do the IPO, it became very apparent that the structure was inappropriate for an IPO journey.
Hence, we had to consolidate the businesses under the RK Swamy name and ownership. The consolidation process is what I would essentially say is an enabling process. The moment you have to reorganise yourself from a company law and compliance point of view, all these things take time.
Rajeev Newar: A lot of M&A activities and corporate restructuring activities are time-consuming. But we are happy that we have been able to achieve this in good time.
Krishnaswamy: The corporate restructuring was deliberately done so that we could offer a unified structure and presence in the market, which could make sense to the investors. That has taken time, but it is a part of the journey.
Could you also highlight the pre-IPO marketing and post-IPO marketing aspects that have been designed to cater to the required target audience and attract potential investors?
Krishnaswamy: For us, the DRHP (draft red herring prospectus), though it is a legal document, was not just a legal document. It is whatever the regulator is asking for. But equally, it is a marketing document. I think the perspective we brought to the DRHP was, “Whatever we wish to communicate appropriately to the investor, it's to figure out in the DRHP. It is not just some assembly of information to satisfy the regulator.”
Of course, you have to satisfy the regulator. But beyond that, treat it as a marketing document as well. I think that was a very important consideration for us, which we went through. It is also the source document for everything that follows.
Newar: We are in the business of communication. Fifty percent of our revenue comes from the business of communication and content. For us, investors are stakeholders. So we continue to communicate to them as appropriate. We will continue engaging with them from time to time.
The price band was set between Rs 270 and Rs 288 a share. Could you explain how this decision was arrived at?
Newar: The whole process was consultative. It has to be led by the bankers. We were mindful of how we are pricing. There is not a single integrated marketing services company in the country that has got itself listed. We are going to be the first to do so in the country.
Having said that, there are certain players who are listed players at a segmental level. We operate in three segments. There are players in some of our segments who could be listed.
For example, in the analytics space, the listed players would be companies like LatentView etc, which is what we have listed out in the DRHP. We are mindful of how they have been trading in the market. The banks have taken into consideration various factors and have come up with what we believe is appropriate.
What do you think are the changes RK Swamy can bring to the advertising landscape through this IPO and how competitive do you think the scenario will turn out to be?
Krishnaswamy: The scenario will be as competitive as it is. I hope it doesn't turn out to be more competitive! We compete with everybody and they compete with us. So, what are we going to do? I think the IPO is an enabler for us to bring to the market new initiatives that the market has not seen so far.
In the case of the think tank RK Swamy Centre for the Study of Indian Markets, in an earlier period, we would have waited to accumulate resources to run off or do something like that.
Now, I think we can take some little bolder steps to bring to the market new insights, and new studies at a scale this market has not seen so far. That's a huge enabler for us. Brand and marketing consulting are to be formed. That will be another string to the bow. Scaling up of our fundamentally required infrastructure is on the anvil. So I think in all these ways, the company will utilise the resources in a focused and relevant way.
By nature, we are a frugal company. So we will not want to waste any of it. And I don't believe we will. The scaling will happen at a deliberate speed. I think those are the ways in which we'll see that the company can really put out some good, exciting initiatives. And not only will they be relevant to our client audience, it may even go beyond that.
Newar: If you look at some of the initiatives that we have undertaken, it clearly reflects in the way in which we have performed financially. In the last couple of years, we have grown at a certain pace where we believe we have outpaced the market.
We also have been increasingly focused on the digital side of the business because we believe that's a space that's been growing at a faster pace.
For example, if you look at the traditional business, which has been growing in single digit, in the digital space, it has been growing at a CAGR (compound annual growth rate) of almost 25 percent in the past few years.
Over the next five years also, it is expected to grow at a CAGR of 25 percent. That's the space that we want to swim in. Even if you look at our performance over the last couple of years, a large part of our growth has happened because we have embraced this strategy.
For example, one of the key initiatives that we are setting up is a digital video studio where we can produce more qualitative videos for our clients. The primary aim of the IPO is also to further augment our capabilities in that direction.
And as Shekhar mentioned, our clients are quite mature. The second space is the application of money in the analytics space and the research space. In both these spaces, we have grown reasonably well over the last couple of years. And we've outpaced the space in which the market has grown.
Now, both analytics and research require marketing infrastructure. Now, because of the growth that we have seen in the last couple of years, we are reaching a stage where we could almost max out our capacity. So the obvious choice would be to grow or increase or enhance the capacity.
The third application of money is that in this business, while talent is extremely important, technology is equally important. So the third spend is clearly towards technology because, as we said, digital and technology go hand in hand.
And the fourth is basically working capital. Because as you grow your business, working capital is really your capital, right? So that's how the primary issue proceeds will be used.
RK Swamy has had longstanding relationships with some clients. In the age of digital, how difficult or easy is it to maintain such relationships?
Krishnaswamy: Maintaining relationships is always a difficult exercise. It has nothing to do with digital. The only way we are qualified to maintain our relationship is by not dropping the focus on what we do for them. And they have to benefit from what we do. That will never change. Every project is a fresh project and we have to be there.
Reliability, consistency, quality and being at the leading edge of professional excellence is what we need to be doing always. It doesn't change in the digital world or non-digital world.
I had heard that the relationship between an agency and a client in the digital space is short-lived relative to the traditional space. What do you have to say about it?
Krishnaswamy: We do digital work for all our clients. There is no longer a distinction between digital and non-digital. Clients will look at marketing and ask, “How is it going to help my business?” It is multiple disciplines fused together to apply to forward relevant solutions. That is the demand and that's what we are supplying.
