Matrimony.com IPO Review: Match made in heaven?

Matrimony.com Private Ltd, the company behind matrimony portals BharatMatrimony.com, EliteMatrimony.com, CommunityMatrimony.com etc, is coming with its IPO on 11 September with an aim to mobilize as much as INR501.07 crore. While this amount is not too big for thje company which has attracted private equity investment (more on this later), investors are rightly wary of the lofty valuations IPO aspirants are seeking. This includes security firm SIS India which quickly went below the IPO price after listing. However, it is important to note that retail investors and employees stand to get a discount of INR87 per share. This Matrimony.com IPO review aims to understand if the public offer, priced in the range of INR983 – 985 per share, is worth your investment.

Before we deep dive in the analysis, here are some essential details about the Matrimony.com IPO.

Matrimony.com IPO Review: Fresh + OFS

Like most other IPOs this year, Matrimony.com’s public offer will be a mix of fresh shares and sales by existing shareholders through an Offer For Sale (OFS). By issuing new shares, the company plans to raise INR130 crore. These funds will be used towards:

• Advertising and business promotion activities – INR20 crore
• Purchase of land for construction of office premises in Chennai – 6 crore
• Repayment of overdraft facilities – 3 crore

However, a bigger amount will be mobilized through OFS. The company, started and headed by Murugavel Janakiraman, counts JP Morgan, Mayfield, and Bessemer among its prominent investors. Out of the 3,767,254 shares under OFS, the biggest chunk will be offered by Bessemer India Capital which holds 1,461,006 shares in the company and will make a full exit. Another big name is JP Morgan Asset Management which holds 23.75% stake in the company through CMDB II. CMDB, which purchased the shares from Canaan Partners, will cut its shareholding by nearly one-third. Mayfield will sell 155,760 shares while Murugavel Janakiraman and Indrani Janakiraman will sell 384,447 and 82,834 shares, respectively.

We like the fact that JP Morgan and Mayfield are going to be around after the IPO. It is noteworthy that JP Morgan’s average cost is nearly INR932 per share so the IPO price is not a strong incentive to exit.

Matrimony.com IPO Review: Weddings and more

Matrimony.com is a leader in match making services. The company provides online matchmaking and marriage services through Internet and mobile platforms in India and internationally. As of 30 June 2017, the company had a huge database comprising of 3.08 million active profiles while its paid subscriptions stood at 702,000 at the end of FY2017. Its flagship brand, BharatMatrimony, has 15 language based domains under its umbrella. As mentioned above, the company operates a network of brands such as BharatMatrimony.com, EliteMatrimony.com, CommunityMatrimony.com under its micro-market strategy.

As of 30 June, it had 140 retail centers distributed across India where potential or existing customers can walk in and seek the assistance of retail executives to register on its websites and/or make payment for the matchmaking product or service of their choice. In addition, it had service delivery centers in 10 cities.

Matrimony.com IPO Review: Revenues growing, profits lag

Matrimony.com has been following an aggressive approach for monetizing its huge database and online presence and to expand into related products and services.  It has recently launched MatrimonyMandaps.com, a wedding venue discovery platform, to help customers find the right venue for their wedding. Similar examples include MatrimonyDirectory.com, MatrimonyPhotography.com, and MatrimonyBazaar.com which help customers in availing wedding-related services such as wedding apparel, venue, stage decorations, photography, make-up, catering and honeymoon packages from various vendors.

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As a result, its revenues have been increasing at a solid pace in recent years. From INR188.7 crore in FY2013, top line increased to INR292.3 crore in FY2017. However, expenses have also been growing more or less in line with revenues as scaling services requires the company to set up new retail centers. Accordingly, profits have been uneven and it is not surprising that the company posted loss in three of the last five years. This is also the reason for just 10% allocation available for retail investors. To be sure, the company’s earnings are dictated by exceptional items which amounted to INR18.9 crore, INR14.2 crore and INR73.8 crore in FY2014, FY2015 and FY2016, respectively. This is mainly on account of legal and settlement cost related to US litigation. As the litigation is now settled, the company is looking forward to better profitability in the coming years. In absence of this expense, the company posted better figure in FY2017.

Matrimony.com IPO Review: Worth your money?

The Matrimony.com IPO Review so far paints the picture of a company that has a first mover advantage in a fragmented and unorganized market which is gradually moving towards organized players. Despite the competition from the likes of Jeevansathi and Shaadi.com, online matchmaking industry accounts for just 6% of the marriages in India. This means there is headroom for everyone to grow. However, online matchmaking has its own challenges and the figures of 3.08 million active profiles but only 702,000 paid subscriptions underlines this very well. This translates into an Average Transactional Value (ATV) of just INR4,065. Unlike other online services like jobs, a customer of matchmaking portal is unlikely to return pretty soon.

Online matchmaking isn’t purely online and Matrimony.com’s 140 retail centers are a proof of this shortcoming. This also means that matchmaking business model isn’t exactly scalable the way it is for several other online services. So while the opportunity of the vast untapped market exists for sure, it will not be easy to capitalize on the same. Meanwhile, legal expenses are considered one-off but there is no surety these will not occur in future.

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Now coming to valuations, the price band of INR983 – 985 per share is effective reduced to INR885 – 887 per share. This values the business in the price to earnings (P/E) ratio of 43.48 at the upper end. Without the discount, the ratio increases to 48.28. Both of these are high figures in our view. The company has listed Just Dial and Info Edge as its peers in online world but as we mentioned above, matchmaking is a complex process and is heavily dependent on human intervention. As such, there are clearly differences in benchmarks. We are also discounting the better performance of the first quarter as it will not be prudent to annualize the same.

Overall, Matrimony.com IPO review reveals that the price band pretty much factors in all the positives and leaves limited scope for further appreciation, despite the retail discount. It is clear the aggressive pricing has made it an affair for investors with high risk appetite. Check out our IPO grey market and discussion pages to get the latest trends about this IPO.