The underpinning positives of Matrimony.com are: 1) market leadership (~60% market share) in an underpenetrated online matchmaking segment that accounts for ~24% of the overall matchmaking industry (online + offline), 2) substantial market share in south, east and west India leads to strong pricing power, 3) consistently maintained profitability compared to its rivals, which are making losses, 4) scope for further margin expansion led by cost rationalisation & revenue growth, 5) negative working capital, low capital intensity and strong cash generating characteristics of the business. In addition, the company being a market leader, will be a key beneficiary of the shift of consumers from offline to online led by rising adoption of smartphones, increase in internet penetration and social distancing.
Multiple levers to drive double digit revenue growth
Historically revenues have grown at a CAGR of 6% in FY17-20 mainly led by 6% CAGR in pricing. However, the company's paid subscribers have remained flat mainly due to high pricing and focus on metro cities. Nevertheless, over the years, increase in online penetration has led to subscriber growth across tiers. Hence, the company is now focusing on Tier II and Tier III cities to drive subscriber growth. In addition, it is now focusing on increasing market share in the north (that we believe is equally distributed among competitors) and increasing conversion of active (that has grown at 11.0% CAGR in the past four years) to paid subscribers by providing differentiated pricing. This is expected to result in double digit growth in paid subscribers and, in turn, drive double digit revenue growth.
Cost rationalisation, higher revenue trajectory bode well for margins
Margins recently witnessed improved traction (up 108 bps YoY, 420 bps QoQ to 18.8%) led by employee cost rationalisation and curtailment of loss in marriage services. With improving revenue growth, Matrimony has further potential to improve margins. In addition, if consolidation takes place in the online matrimony space, we believe it could lead to rationalisation of advertising expenses. This would potentially lead to further margin expansion.
Valuation & Outlook
We like the company due to its leadership in an underpenetrated online match making industry, substantial market share in south, east and west region leads to strong pricing power and consistent profitability. In addition, the company's focus on driving double digit revenue growth and potential in margin expansion bode well for it. Accordingly, we assign a BUY rating to the stock, valuing the company at Rs. 670/share i.e. 3.5x FY20 sales.
For details, click on the link below: https://www.icicidirect.com/mailimages/IDirectinstinct_Matrimony_Sep20.pdf
Shares of Matrimony.com Ltd was last trading in BSE at Rs.573.4 as compared to the previous close of Rs. 550. The total number of shares traded during the day was 2287 in over 325 trades.
The stock hit an intraday high of Rs. 584.9 and intraday low of 552.05. The net turnover during the day was Rs. 1308280.