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Buy Matrimony.com Ltd For Target Rs. 1070

Improving revenue and margin performance…

Matrimony.com Ltd’s (Matrimony) revenues increased 3.6% QoQ (up 7.4% YoY) to | 96.7 crore mainly led by 3.8% QoQ (up 9.6% YoY) growth in matchmaking services (led by 31% YoY growth in paid subscribers). EBITDA margins increased 121 bps QoQ (up 694 bps YoY) at 18.9% mainly led by 317 bps QoQ increase in gross margins and operating leverage partially offset by 255 bps QoQ increase in advertising expenses. PAT increased 7.4% QoQ (up 96.5% YoY) to | 11.0 crore. Billing increased 3.6% QoQ (9.0% YoY) to | 100.1 crore mainly led by 3.8% QoQ (11.6% YoY) growth in matchmaking services.

Healthy billing, paid subscriber growth to drive growth

The company expects healthy double digit revenue growth in Q4FY21E mainly led by improving billing growth, improvement in match making services and improvement in personalised services (~10% of revenues). In addition, revival in retail segment (~10% of revenues), double digit billing growth in Q4FY21E and introduction of new products (like doctors’ matrimony) is expected to drive revenues in coming quarters. This coupled with improved subscriber growth (led by differentiated pricing, focus on Tier II & Tier III cities and improving conversion), increasing market share in north (expects to gain healthy market in next two years) and inorganic opportunity (due to healthy cash) is expected to drive revenues in long term. We expect revenues to increase at a CAGR of ~10% over FY20-23E.

Stable advertising, operating leverage to drive growth

The company expects advertising expenses to stabilise at Q3 levels. We believe this will be a key margin driver (it has been key margin dragger in the past). Also, improving revenue growth and operating leverage benefit is expected to further drive margins in coming years. Hence, we expect margins to increase 450 bps to 19.1% in FY21 and another 414 bps to 23.3% in FY21E-23E. Accordingly, we revise our EPS estimates upwards.

Valuation & Outlook

Improving billing growth, improvement in match making services, growth in personalised services & retail, healthy subscriber growth, inorganic growth and increasing market share in north prompt us to believe the company will be able maintain healthy double digit revenue growth in coming years. In addition, expectation of stable advertising expenses and operating leverage benefit prompt us to revise our EPS estimates upwards. This coupled with leadership in an underpenetrated online match making industry and strong cash flow generation prompt us to maintain BUY on the stock with a revised target price of | 1,070 (30x PE on FY23E EPS) (earlier target price of | 800).

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