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Matrimony’s revenue trend in Q4FY23 improved sequentially after two consecutive quarters of decline. Also, billings in matchmaking increased 8.6% QoQ and 76.9% YoY in Q4FY23 vs 1.6% QoQ and 2.1% YoY in Q3FY23. Paid subscriptions were up ~12% YoY. We believe this indicates improving sentiment and augurs well for revenue growth in FY24E. Management commentary also reflected improving outlook. Management guided for >10% revenue growth and 300bps YoY EBITDA margin improvement in FY24. Given the improving outlook and subdued present valuation, we think the stock is likely to re-rate. We upgrade Matrimony to BUY with a revised (increased) target price to Rs700 (from Rs575).

* Q4FY23 performance. Matrimony’s Q4FY23 performance was aided by increased billings in Q3FY23, in line with management expectations. Revenue for matchmaking services segment (~98% of overall revenues) grew 3.6% QoQ (+2.3% YoY). Marriage services revenue (~2% of overall revenues) grew 10.8% QoQ, 99.4% YoY. Billings for matchmaking services increased 8.6% QoQ, 3.9% YoY to Rs1,176mn and that for marriage services was up 5.9% QoQ, 76.9% YoY to Rs33mn. EBITDA margin was 14.6%, up 330bps QoQ and down 230bps YoY. Ex-marketing expense, EBITDA margin for matchmaking services was 62% (vs 60% in Q3FY23). PAT in Q4FY23 was Rs114mn. Paid subscription (260k) was up 9.9% QoQ, 11.8% YoY. Average transaction value (ATV) was down 1% QoQ and 6.9% YoY.

* Management commentary. Based on the billings in Q4FY23, management expects revenue growth in matchmaking business in Q1FY24 is likely to be better than in Q4FY23. It indicated matchmaking EBITDA margins are likely to expand as marketing expenses remain flattish, but revenue is increasing. Management expects ~300bps expansion in Q1FY24 margins. It guided for double-digit growth in FY24 and strong expansion in profitability aided by subscription growth. ATV is expected to remain flattish. Marketing expenses should be stable at Q4FY23 levels.

* Valuation. We believe Matrimony is well placed to capture penetration-led growth in matchmaking classifieds space in the medium term. Its foray into marriage services is also a step in the right direction, in our view. Strong billings in the current quarter indicates double-digit growth in FY24/25E. We increase our EPS estimates by ~6%/1% for FY24E/FY25E, respectively. We upgrade the stock to BUY from Hold earlier with a revised target price of Rs700 (Rs575 earlier) valuing the company at ~19x FY25E P/E multiple (~17x FY24E P/E multiple earlier). Key risks: i) Weakerthan-expected conversion of active profiles into paid subscriptions, ii) slower than expected scale-up in marriage services and iii) lower-than-expected recovery in matchmaking business.

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