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Guiding for flat marketing expenses in FY24; margins likely to see revival

About the stock: Matrimony.com (Matrimony) is one of the leading providers of online matchmaking services. The company also provides post marriage services.

* Apart from a common website, the company operates ~300 community matrimony sites and 15 regional matrimony sites

* Net debt free and only profitable player among its peers

Q4FY23 Results: Matrimony reported revenue recovery in Q4FY23.

* Matchmaking services revenue grew 2.3% YoY; paid subscribers grew 11.8% YoY while ATV declined 6.9% YoY

* Matchmaking EBITDA margins declined 160 bps YoY while they were up 330 bps QoQ

* Marketing expenses were up 0.8% QoQ, 7.8% YoY

What should investors do? Matrimony’s share price has dipped over the past five years (from ~| 833 in May 2018 to ~| 580 levels in May 2023).

* We change our rating on the stock from REDUCE to HOLD

Target Price and Valuation: We value Matrimony at | 640 i.e. 19x P/E FY25E EPS

Key triggers for future price performance:

* Market leadership in an underpenetrated online matchmaking segment

* Transition to online from offline, healthy subscriber addition, increased penetration in north, introduction of new products and inorganic opportunity key revenue drivers (10.5% CAGR over FY23-25E)

* Higher conversion rate (paid vs. total profiles

Alternate Stock Idea: Apart from Matrimony, in our IT coverage we also like Affle.

* Key beneficiary of advertising shift to digital medium and healthy growth in converted users

* BUY with a target price of | 1,255

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