Investment Shastra

Matrimony IPO; Not yet reached an inflection point

Issue Date: Sep 11, 2017 – Sep 13, 2017

 Face Value: INR 5 per equity share

 Issue Type: Book Built Issue IPO

 Issue Size: Offer for Sale of 3,767,254 shares

 Issue Size: INR 130 Cr.

 Price Band: INR Rs 983 to Rs 985 per equity share

(10% discount on the issue price to the retail individual investors)

 Market Lot: 15 Shares

 Minimum Order Quantity: 15 Shares

 Listing at: BSE, NSE

About the Company

Founded in 2001, is a leading provider of online matchmaking services in India, in terms of average number of unique website page views in June’17. It provides matchmaking services to users in India and Indians located across globe through its websites, mobile sites and mobile apps, besides 140 retail outlets located across India. Its specialized brands, and are well established in India.

Along with online matchmaking services, it also provides marriage services in India. This includes catering, decoration, venue management, gifting and photo shoots.

 MoneyWorks4me Opinion

We believe matrimony business work because of network effect just like or PayPal or Whatsapp. How network effect works is, initial cost of acquisition of customer is high by heavy advertising/incentivization –freebies/cashback to register, etc. Once that it maintained, more people will come without additional cost. This will not happen until the scale of revenues covers more than the cost of acquisition (advertising/incentive). After that, incremental revenues flow directly to profits.

As more and more people are available on, more will join it for better success ratio. Key is to keep increasing number of users to attract more users. Matrimony has still not achieved the scale to comfortably cover its advertisement costs. The company has not yet reached the inflection point from where the profit will experience exponential growth. The reason for this could be dual.

  1. There is not repeat business from the same person. Hence cost of acquiring customer will always remain high as it has to attract new people everytime.
  2. The industry is very fragmented due to regional brokers and caste based matrimony online sites. This has led to fragmentation of existing potential unmarried individuals.

No wonder the growth rate is not very consistent or exponential for last 3-4 years (Available data). We believe that the company is trying to inch up the revenues by diversifying into marriage related services. This will provide an additional stream of revenues by cross selling the services to existing subscribers. This could lead to some stability to operating profits. However, this revenues stream forms mere 6% of the total revenues. We are yet to see scaling up and execution in this business.

We were amazed to see the valuation at which the issue is being offered. At offer price of Rs. 983-985/share, the valuation is 7.5X sales. According to our estimates, the valuations already capture the upside even 2 years forward net margins come in 28-35% along with revenue growth of 15% CAGR. Current net margin stands at 17%.

In our opinion, valuation implies very ambitious growth rate and profit margins. It’s a very tall task to accomplish and may not materialize. The stock has large downside. Even if the execution is good, there is no significant upside based on fundamental valuation. Hence we recommend AVOID.

Being a long term investor, we are of opinion that we don’t not to buy average companies by paying a very high price. This would dampen our long term returns and may also result in principal losses. Again, since we do not speculate, we need to understand  promoters’ execution abilities and how he treats his minority shareholders. We will not jump into the bandwagon just by it’s numbers/story telling. We need to observe qualitative parameters before buying a share of business for long term.

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