Matrimony.com IPO - A risky affair
IPO Rating – 41 (Risky)*
About the Issue
The forth coming IPO of Matrimony.com consists of fresh issue worth Rs 130 crore and offer for sale of Rs 364 crore, aggregating to Rs 494 crore. The face value is Rs 5 per share. The minimum lot size for subscription is 15 shares with price band ranging from Rs 983 to Rs 985. Thus, on higher price band, the minimum investment will amount to Rs 14,775. However, the company has offered 10% discount on the issue price for retail investors. The issue will remain open from September 11-13, 2017. The company will get listed on both BSE and NSE.
Purpose of the IPO
The company will not receive any proceeds from the offer for sale, but it intends to use the net proceeds for –
- Advertising and business promotion activities
- Purchase of land for construction of office premises in Chennai
- Repayment of overdraft facilities
- General corporate purposes
Company Background
The company operates through two segments, namely – 1) matchmaking services and 2) marriage services and related sale of products. It is the leading provider of online matchmaking services in India in terms of the average number of website pages viewed by unique visitors. Being one of the first companies in providing online matchmaking services in India, Matrimony.com has an early mover advantage among consumers seeking online matchmaking services. It offers a range of targeted and customized products and services that are tailored to meet the requirements of customers based on their linguistic, religious, caste and community preferences.
As of June 30, 2017, the company had a large database of profiles comprising 3.08 million active profiles (being profiles that have been published or logged in at least once during the prior 180-day period), which creates a network effect that attracts more users to register or subscribe through the websites, mobile sites and mobile apps and results in higher customer engagement, which in turn drives monetisation of its user base. For FY15, FY16 and FY17, the company had 647,000, 678,000, 702,000 paid subscriptions.
The company has launched marriage services such as MatrimonyDirectory.com, a listing website for marriage-related directory services, including listings for wedding venues, wedding planners, wedding cards and caterers, MatrimonyPhotography.com in Tamil Nadu, Kerala, Andhra Pradesh and Telangana to provide wedding photography and videography services and MatrimonyBazaar.com in Chennai, Coimbatore, Madurai and Trichy to help customers avail wedding-related services such as wedding apparel, venue, stage decorations, photography, make-up, catering and honeymoon packages from various vendors to meet customers’ wedding needs. It has also recently launched MatrimonyMandaps.com, a wedding venue discovery platform, to help customers find the right venue for their wedding in Chennai, Coimbatore, Madurai and Trichy in Tamil Nadu, Hyderabad and Secundrabad in Telangana, Bangalore in Karnataka and Kochi in Kerala.
Industry Outlook
There were approximately 107 million unmarried individuals in India within the marriageable age bracket in 2016, being 18 to 35 years for females and 21 to 35 years for males. It is estimated that approximately 60.5 million marriages will take place in India from 2017 to 2021. In addition, it is estimated that as of July 1, 2016, there were approximately 462 million internet users (being individuals of any age who can access the internet at home, via any device type (PC or mobile) and connection) in India, with an internet penetration of 34.80%. The number of internet users in India is expected to reach over 730 million users by fiscal 2020, which would increase the penetration level to approximately 54% of the Indian population.
According to the United Nations Children’s Fund, Human Rights Council and ABC News, as of 2016, approximately 88.40% of marriages in India are arranged. Such arranged marriages are largely facilitated by families, friends, community elders, priests or matchmaking agencies. However, increasing mobility of individuals in Indian society, increasing freedom of choice over key life decisions and the reach, choice, privacy, speed of communication and interaction provided by the online medium provide an opportunity for online matchmaking service providers. The online matchmaking industry is still at a nascent stage and accounts for approximately 6% of marriages in India.
Financial Performance
As we can see, the company has not shown steady and consistent growth. In past five years, in only two years, the company’s revenue has grown in double digits. Its EBITDA has also not been consistent. Due to exceptional items of legal and settlement costs regarding a law suit in the US, the company has incurred net losses till FY16. FY17 is the only year in which it has generated profits of Rs 43.7 crore. It has negative net worth. Despite being in the business for more than 15 years, the company does not seem to have been stabilized yet.
Valuation
There is no listed company which provides online matchmaking services, but we can compare with companies providing internet-based services in India like Just Dial and Info Edge. Info Edge operates with naukri.com, jeevensathi.com, 99acres.com, firstnaukri.com etc.
On the upper price band of Rs 985, the company’s P/E works out to 82.7x with FY17’s EPS of Rs 11.90, while the P/E of Just Dial is 30.21x. Info Edge incurred losses in FY17 and hence its P/E is not available. EV/EBITDA for FY17 of Matrimony.com, Just Dial and Infoedge was 36x, 11x and 30x respectively. We see the company has stretched valuations as compared to its peers.
Our View
As mentioned, in India still 88.4% marriages are arranged. Internet penetration is growing at a faster rate and the youth of this generation has become liberal in taking decisions regarding marriages. Hence, we expect in the upcoming years demand for such online matrimonial services portal would increase. Although company has a good scope to grow, it has stiff competition from unlisted players in the market. Also, company’s inconsistent financial performance and high valuations, makes this investment risky. We would rate this IPO as risky and thereby recommend investors to avoid this investment.
*40 or lower – Avoid Investment, 41 to 45 – Risky, 46 to 50 – Invest with limited exposure, 51 to 55 – Investment recommended, 56 & above – Excellent Investment