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27 September 2017

New Issue Details

Matrimony.com Click here for Rating Reckoner
Lavish pricing
(08 Sep 2017)
CM RATING 43/100
Incorporated in 2001 and promoted by Murugavel Janakiraman, Matrimony.com (Matrimony) is the leading provider of Online Matchmaking Services in India in terms of the average number of website pages viewed by unique visitors in June 2017. Matrimony is one of the first companies to provide online matchmaking services in India. Matrimony delivers matchmaking services to users in India and Indian abroad through its websites, mobile sites and mobile apps complemented by its on-the-ground network in India. As of March 31, 2017, it had a large database of profiles comprising 3.03 million active profiles, which creates a network effect that attracts more users to register or subscribe through its websites, mobile sites and mobile apps.

Company's brand, BharatMatrimony.com and other matchmaking brands such as CommunityMatrimony.com and EliteMatrimony.com are well- established in India. BharatMatrimony mobile app has been recognized as the best app in the social category at the Global Mobile App Summit and Awards held in July 2016 and July 2017. In addition, Matrimony has recently introduced mobile apps for BharatMatrimony regional sites and certain community sites which have led to an increase in profile registrations.

Matrimony has devoted resources in developing and maintaining its sales infrastructure and also has instituted information security policies and established corporate governance policies and practices.

Company's business currently comprises two segments: (i) matchmaking services and (ii) marriage services and related sale of products. In fiscal 2017, matchmaking services and marriage services accounted for all of its revenue and there was no revenue from the related sale of products.

According to the Key Business Metrics Report, in FY 2015, FY 2016 and FY 2017 Matrimony had 6, 47, 000, 6, 78, 000, 7, 02, 000 paid subscriptions, respectively.

According to the KPMG Report, there were approximately 107 million unmarried individuals in India within the marriageable age bracket in 2016, being 18 to 35 years for females and 21 to 35 years for males. It is estimated that approximately 60.5 million marriages will take place in India from 2017 to 2021. In addition, it is estimated that as of July 1, 2016, there were approximately 462 million Internet users (being individuals, of any age, who can access the Internet at home, via any device type (PC or mobile) and connection) in India, with an Internet penetration of 34.80% which is expected to reach to over 730 million internet users thus leading to an internet penetration of around 54% of India's population by 2020.

To focus on and grow its matrimony matchmaking business to cater to the Indians abroad, for which subscription revenues were received in foreign currency (the NRI business), the company has granted a non- exclusive, non-sub-licensable and non-assignable business license, of certain brand names and domain names owned by the Company to its wholly-owned subsidiary, Consim USA, to operate the NRI Business in all territories outside India with effect from December 15, 2015 until December 14, 2019.

As of June 30, 2017, Matrimony 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, as of June 30, 2017, they had service delivery centers in 10 cities where service teams provide services such as reaching out to its members to educate them of the features and facilities available on the websites, mobile sites and mobile apps to assist them in making better use of the online matchmaking services and choosing the most appropriate service and subscription package based on their requirements, assisting with doorstep collection and assisting customers in making payments.

The Offer and the Objects

The offer comprises fresh issue of Rs 130 crore, which at lower price band of Rs 983 per share, works out to 13.22 lakh shares and at higher price band of Rs 985, the offer works out to 13.20 lakh shares. The offer also comprises offer for sale of 37.67 lakh shares, which at lower price band of Rs 983 per share, works out to Rs 370.32 crore and at higher price band of Rs 985, the issue size works out to Rs 371.07 crore. The minimum bid lot is 15 equity shares and in multiples of 15 equity shares. The issue is made through the book-building process and will open on 11th Sep and will close on 13th Sep, with anchor investor bidding date of 8 September 2017.

A discount of Rs 98 is offered to investors in retail category

The offer for sale of 37.67 lakh shares is made by selling shareholders, which comprises of sale of up to 14.61 lakh equity shares by Bessemer India Capial Holdings II, sale of up to 1.55 lakh equity share by Mayfield XII, Mauritius, sale of up to 16.83 lakh equity shares by CMDB II and sale of up to 3.8 lakh shares and 0.83 lakh shares by promoters and group comprising Murugavel Janakiraman and Indrani Janakiraman, respectively.

The objects of the issue is to spend around Rs 20 crore on advertisement and brand promotional activities, Rs 42.58 crore on purchase of land for construction of office premises in Chennai, Rs 43.3 crore on repayment of overdraft facilities and rest for general corporate purposes, apart from the benefits of listing the equity shares on the BSE and the NSE and to enhance its visibility and brand image and provide liquidity to its existing shareholders.

Strengths

Matrimony has an early mover advantage among consumers seeking online matchmaking services. The large database of profiles creates a consequential network effect that attracts more users to register or subscribe through its websites, mobile sites or mobile apps and also results in higher customer engagement on its websites, mobile sites and mobile apps, which in turn enables the company to maintain a leading position in the online matchmaking market in India.

Matrimony had a high degree of brand recall and trust in India, as evidenced by the average number of its website pages viewed by unique visitors in June 2017 in the comScore Report.

The online matchmaking industry is still at a nascent stage in India and accounts for approximately 6% of marriages in India, providing a significant opportunity to grow in this space.

On the one hand, increasing nuclear families and mobility of individuals across cities, towns and countries make traditional match making process difficult, and on the other hand improving education, urbanisation, galloping internet access and speed and the reach, choice, privacy, speed of communication and interaction of online match making services augur well for the fast growth of online match making players like Matrimony.

As on CY 2016, around 88.4% of marriages in India are arranged. The younger generation in India is increasingly seeking to play a larger role in the decision-making process. Matrimony providers aim to bridge this gap and provide an online platform for arranged marriages whereby prospective brides and grooms and their families can both participate in the process of finding marriage partners.

Matrimony is expanding into the growing marriage services market to complement and leverage off its online matchmaking services. It is entering in to marriage services such as finding wedding venues, wedding planners, video services, photography services, wedding cards, wedding apparel, stage decorations, honeymoon packages and caterers which will enable the company to scale up the business further.

According to the KPMG Report, it is expected that Indian weddings will become more elaborate and extravagant due to factors such as rising disposable incomes, the gradual shift towards convenience and the aspiration for personalized weddings, leading to an increase in wedding spend from customers. The diversification beyond online matchmaking to marriage services, through the launch of marriage services initiatives, provides an opportunity for the company to tap into this emerging segment.

Matrimony differentiates itself from other players in India by following a micro-market strategy whereby it offers a range of targeted and customized products and services that are tailored to meet the requirements of customers based on their linguistic, religious, caste and community preferences as well as personalized matchmaking services through EliteMatrimony and Assisted Service package.

Weaknesses

Privacy and data protection legislation and regulations and public perception concerning security and privacy on the internet may affect the reputation and brand and thus future business.

Advertisement and business promotion expenses constitute around 21.93%, 21.09%, 17.83%, 17.80% and 16.58% of its total consolidated revenues in FY 2015, FY 2016 and FY 2017 and the three months ended June 30, 2016 and 2017, respectively. Going forward, company would require continuing to spend on brand building and promotion activities which will form a substantial portion of costs.

Company's net worth as on June 17 at consolidated level is negative Rs 16.16 crore. On face value of Rs. 5 per share, consolidated book value per share is negative Rs 7.2.

Around Rs 111 crore (in total) has been shown as an EO item in FY 2015, FY 2016 and in FY 2017 and has gone towards legal fees in connection with US litigations and one time settlement costs due to a law suit on alleged breach of terms of a term sheet in US. As of July 31, 2017 the company has paid around US $ 63.33 lakh in accordance with the terms of the settlement agreement and the outstanding settlement amount stands at US $ 16.67 lakh which is expected to be paid by December 2017.

OPM fell from 10.6% in FY 2013 to 4.3% in FY 2016 but suddenly jumped to 21.5% in FY 2017.

The objects of deployment of funds from the IPO are not convincing. Why the company intends to buy land for corporate office for Rs 42.58 crore when in FY 17 and FY 16 it had incurred only Rs 1.75 crore and Rs 1.82 crore respectively for rent and amenities is not clear. As of 30th June 17, consolidated balance sheet carried cash and bank balance of Rs. 65.23 crore, which is more than sufficient to repay the temporary financing facility of Rs 43 crore of bank overdraft.

Valuation

For FY 2017, net sales were up 15% to Rs 292.82 crore. The OPM stood at 21.5% as compared to 4.3% of FY 2016, which resulted in a 480% increase in OP to Rs 62.87 crore. Other income stood at Rs 11 lakh. With a 48% increase in interest cost to Rs 4.43 crore and 6% increase in depreciation to Rs 10.38 crore, PBT stood at Rs 48.17 crore as compared to loss at PBT level of Rs 1.29 crore. There was an EO loss of Rs 4.37 crore as compared to EO loss of Rs 73.77 crore for FY 2016 after which PAT after MI for FY 2017 stood at Rs 43.79 crore as compared to loss of Rs 75.07 crore for FY 2016.

For the quarter ended June 2017, net sales was up by 18% to Rs 83.84 crore with OPM at 24.4% resulting in a 57% increase in OP to Rs 20.45 crore. Other income stood at Rs 4 lakh down by 4% and interest costs and depreciation were lower by 39% and 6% respectively to Rs 67 lakh and Rs 2.47 crore. This gives PBT of Rs 17.35 up by 86% YoY. After providing for total tax of Rs 2.73 crore, PAT after MI stood at Rs 14.62 crore up by 53% YoY.

Company's business is seasonal in nature with Q2 being lowest in terms of revenue and Q1 and Q4 being the best. So the June 17 quarter (Q1) earnings cannot be annualised.

At a higher price band of Rs 985, the diluted equity share capital of the company stands at Rs 11.29 crore of face value of Rs 5 each. On this diluted equity, adjusted EPS for FY 2017 works out to Rs 21.3. The scrip is offered at P/E multiple of around 46.2 times FY 2017 earnings.

This is company's second attempt to raise funds through IPO. Previously, when it was looking to raise Rs. 350 crore via fresh issue, SEBI approval was received in Dec 2016 and it was allowed to lapse, citing unfavourable market conditions.

There is no directly comparable listed player and the company will enjoy the benefit of first listed player in the fast growing and high potential matchmaking segment, but how much of this potential is already in the offer price will be visible only after listing.

Matrimony.com : Issue highlights

Offer for sale (in Rs crore)
- On lower price band 370.32
- On upper price band 371.07
Total Issue size for offer for sale ( in no of shares in lakh) 37.67
Fresh Issue ( in no of shares in lakh)
- On lower price band 13.22
- On upper price band 13.20
Total Issue size for fresh issue ( in Rs crore) 130.00
Price band (Rs)* 983-985
Post issue share capital (Rs crore) 11.29
Post-issue Promoter & Group shareholding (%) 50.6%
Issue open date 11-09-2017
Issue closed date 13-09-2017
Listing BSE, NSE
Rating  43/100

*Retail investors will get discount of Rs 98

Matrimony.com: Consolidated Financials

1303(12) 1403(12) 1503(12) 1603(12) 1703(12)
Revenue from operations 188.61 205.44 241.41 254.82 292.82
OPM (%) 10.6% 7.0% 8.1% 4.3% 21.5%
OP 19.99 14.35 19.59 10.85 62.87
Other in. 0.18 1.88 1.43 0.61 0.11
PBDIT 20.17 16.22 21.02 11.46 62.98
Interest 1.40 0.82 1.57 2.99 4.43
PBDT 18.76 15.40 19.45 8.47 58.55
Dep. 6.47 5.64 8.17 9.75 10.38
PBT 12.30 9.77 11.28 -1.29 48.17
EO 1.86 18.90 14.18 73.77 4.37
PBT after EO 10.44 -9.13 -2.89 -75.05 43.80
Tax (including Deferred Tax) 0.00 0.00 0.01 0.00 0.01
PAT 10.44 -9.13 -2.90 -75.05 43.79
MI 0.03 0.02 0.03 0.01 0.00
PAT after MI 10.41 -9.16 -2.93 -75.07 43.79
EPS* 5.4 - - - 21.3
*EPS is on post issue equity capital of Rs 11.29 crore of face value of Rs 5 each
EO: Extraordinary items, EPS is calculated after excluding EO and relevant tax
Figures in crore
Source: Capitaline Database

  Matrimony.com: Consolidated Results

1706(03) 1606(03) Var. (%)
Revenue from operations 83.84 71.32 18%
OPM (%) 24.4% 18.2%
OP 20.45 12.99 57%
Other in. 0.04 0.05 -4%
PBDIT 20.49 13.04 57%
Interest 0.67 1.11 -39%
PBDT 19.82 11.93 66%
Dep. 2.47 2.62 -6%
PBT 17.35 9.31 86%
EO 0.00 -0.24 0%
PBT after EO 17.35 9.54 82%
Tax (including Deferred Tax) 2.73 0.00 0%
PAT 14.62 9.54 53%
MI 0.00 0.00 0%
PAT after MI 14.62 9.54 53%
EPS* # #
*EPS is on post issue equity capital of Rs 11.29 crore of face value of Rs 5 each
# EPS not annualised due to seasonality of business
Figures in crore
Source: Capitaline Database
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