Matrimony.com Primay Offer: Taking the first step

Though the offer is pricey, it may be a good match for investors with a high-risk appetite

Popular matchmaking website bharatmatrimony.com’s parent company, matrimony.com is launching its initial public offer. The offer consists of a fresh issue of shares, aggregating up to ₹130 crore and an offer for sale of up to 3.7 million shares (about ₹371 crore at the upper end of the price band). The offer for sale will see some of the company’s PE investors exit. The promoter and his family will also be selling some shares. The company intends to use the proceeds from fresh issue of shares for promotional activities, purchase of land for construction of offices, and repayment of overdraft facilities.

The asking price of the issue is on the high side; a valuation of 50.7 times its earnings for 2016-17 at the upper-end of the price band of ₹983-985. With a 10 per cent discount for retail investors, the valuation comes to 45.7 times.

Info Edge which operates naukri.com, 99 acres and jeevansathi trades at about 58 times its trailing 12 months earnings.

While Info Edge’s annual revenue is about ₹802 crore compared with ₹292 crore for matrimony.com, its matrimonial business, jeevansathi, generated ₹70 crore revenue in 2016-17 and made loss at the operating level. Matrimony.com, on the other hand, is profitable. In 2016-17, Matrimony.com managed about 20 per cent plus margins at the operating level and 15 per cent at the net profit level. The profit for 2016-17 stood at ₹43.7 crore. But the company’s earnings entered the black only in 2016-17; between 2012-13 and 2015-16, the operating profit margin was only about 6-8 per cent. Thanks to higher revenues and operating leverage kicking in, margins grew significantly in 2016-17.

Matrimony.com is a leader in the online matchmaking market and is a popular consumer brand. This is a key positive in the internet-based business that can help drive sales and, in turn, profits. Hence, for the company’s margins and earnings to sustain, growth in revenues will be critical.

Investors with a high risk appetite can invest in the offer.

Revenue model

Founded in 1997, Matrimony.com has been offering online matchmaking services since 2001. The company has 15 regional language portals and over 300 community matrimonial sites. Being one of the first in the online matrimony business, the company has an early-mover advantage. In terms of market share in online matrimony, bharatmatrimony.com claims to lead the pack, followed by shaadi.com and jeevansathi. As of June 30, 2017, bharatmatrimony.com had 30.8 lakh active profiles (those that have logged in at least once during the prior 180-day period). This is up from 25.5 lakh active profiles in 2015-16.

The company’s business comprises two segments — matchmaking services and marriage services — which generate revenue for it.

While registration on the company’s website or mobile app is free, key information including contacts of the prospective matches is available only for a fee. If a customer wants assistance in the form of a relationship manager, there is a price for that too. Membership subscription fee is pre-paid and packages are available for a term of three months to one year. In 2016-17, the number of paid subscriptions stood at 702,000, up from 678,000 subscriptions in the previous year, a growth of 3.5 per cent. The average transactional value, which is the total revenue earned divided by the total number of paid subscriptions, was ₹4,065 in 2016-17 versus ₹3,827 for 2015-16, implying an increase in pricing (6 per cent).

Revenue from marriage services come from MatrimonyDirectory.com, a listing website for marriage-related directory services, MatrimonyPhotography.com that provides wedding photography and videography services and MatrimonyBazaar.com that offer services, including stage decorations. The company has also recently launched MatrimonyMandaps.com, a wedding venue discovery platform.

In 2016-17, Matrimony.com made a total revenue of ₹292 crore, of which 96 per cent (₹280.8 crore) was from matchmaking services and the balance from marriage services. Over the last four years, the company’s overall revenues have grown at a compounded annual rate of 11 per cent. While the growth in the market may continue, given the preference for arranged marriages in the country, the company’s growth depends on how it manages to keep competition at bay and, at the same time, monetises its customer base.

Financials

While the matchmaking services business is profit-making, the marriage services business is loss-making at the operating level. The segment’s loss, however, has declined in the last two years, as the company has shut down businesses that were non-lucrative.

In 2016-17, revenues grew 14.7 per cent. Operating profit margin was 20.2 per cent, up sharply from 2.8 per cent in 2015-16, thanks to the operating leverage, says the company. Employee expenses as a percentage of sales were down to 40 per cent from 49 per cent. Similarly, advertisement and marketing expenses declined to 18 per cent of sales from 21 per cent. All other expenses, including rent, travel and communication, also dropped, in terms of percentage of sales.

In 2015-16, the low 2.8 per cent margin was due to significantly higher employee and other expenses and a lacklustre 5 per cent sales growth.

For matrimony.com, just as for its peer Info Edge, most of the expenses are fixed in nature, and sales volume is key to profits.

Settlement of litigation

Between 2012-13 and 2015-16, the company incurred legal costs of about ₹57.355 crore (total) in connection with defending itself and its promoter against the claims from Rajan Desai of Real Soft Inc (plaintiffs in the US) who claimed an equity stake in the company. This pushed the company into loss between 2013-14 and 2015-16. In December 2015, however, the two parties entered into a compromise and Matrimony.com’s wholly-owned US subsidiary, Consim USA, agreed to pay $8 million in 22 monthly instalments.

In 2015-16, Matrimony.com charged the cost of settlement ($8 million, about ₹53.09 crore) to the P&L. The payment of the settlement amount by Consim USA has been supported by an irrevocable corporate guarantee by Matrimony.com. As of July 31, 2017, Consim USA has paid the US Plaintiffs $63,33,344 and the outstanding settlement amount was $16,66,656, says the offer document. The last payment is expected to be made in December 2017. Investors should note that in 2016-17, despite the company’s turnaround, its net worth was negative due to accumulated losses.

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