Matrimony.com Ltd - Robust billing and paid profile acquisition to drive growth - ICICI Securities

Strong growth in active profiles and billings in Q3 at 31% and 9% YoY respectively were the key indicators signaling company being back on growth track as mentioned in our note earlier. Advertising intensity should peak in Q4FY21/Q1FY22 at an absolute level of Rs40-45Cr in the near term, which should manifest in operating leverage coming back into the model as revenue growth resumes at a healthy clip. In our opinion, investor focus should be on absolute revenue growth rather than its dispersion between volume and pricing since the company is trying to sign-up customers by offering them differential (customised) pricing. This deflates average transaction value (ATV, declined 15.6% YoY) but aids in paid subscriber addition (up 31% YoY). Company has made recent hires in leadership by inducting a CMO (with focus on expanding in North and West markets) and a CHRO. Considering the improving outlook and subscriber addition, we upgrade the stock to BUY.

- Strong performance across the board. Overall revenues grew 3.7% QoQ with EBITDA margin improving 120bps sequentially to 18.9%. Pre-marketing EBITDA margin was robust at ~58%, a 12-quarter high. Billings in matchmaking segment increased ~12% QoQ. Momentum in billings continued to be strong in Q3 with double-digit growth in West and North geographies as well. ATV declined during the quarter due to differential pricing to customers and slowdown in the 'elite matrimony' segment.

- Margins have potential to improve by ~450bps over FY21E-FY23E. Adspend now accounts for ~40% of revenues given the competitive intensity. Investments in sales, technology and higher adspend should translate into conversions going forward leading to margin expansion. Further, management indicated adspend has stabilised and reached a threshold for the near term.

- Upgrade to BUY: Cash on balance sheet is Rs2.5bn reflecting ~10% of the market cap with OCF/NI being >100% over FY17-FY20 and in H1FY21 as well. Post a difficult H1 on billings, Matrimony.com's growth in billing and subscriber-base rebounded in Q3. Consistency of the same including new subscriber addition remains a key value driver. We expect pressure in ATV to continue in the near term with conversions to pick pace from FY22E/FY23E. With improving conversions, benefits of investments aiding revenue growth, operating leverage aiding margin conversion and peak adspend of Rs1.5bn in FY22, we upgrade Matrimony.com to BUY with an estimated EPS growth of 35% over FY22E-23E. Key risks to our thesis include: 1) high mortality in subscribers, 2) adspend rising as a result of increased competitive intensity, and 3) adverse market consolidation.

Shares of Matrimony.com Ltd was last trading in BSE at Rs.850.1 as compared to the previous close of Rs. 859.3. The total number of shares traded during the day was 2912 in over 476 trades.

The stock hit an intraday high of Rs. 897.55 and intraday low of 850. The net turnover during the day was Rs. 2554949.

Source : Equity Bulls

Keywords