The offer (price band: Rs 983 – 985) consists of an offer for sale (OFS) and fresh issue. OFS is from private equity (Rs 325 crore) and promoters (Rs 46 crore). The fresh issue of Rs 130 crore, will be used for repayment of debt (around Rs43 crore), purchase of land for office (around Rs 43 crore) and advertising (Rs 20 crore).
So, should you subscribe? Here's what leading brokerages suggest:
Although there could be fancy on the street for such a kind of consumer focused internet services company, but owing to weak financials (net losses in the past and erosion of net worth) we are not comfortable recommending the IPO. At the higher price band of Rs985, the offer is valued at 46.2x P/E on FY17 basis (post dilution). Although consumer internet services companies trade at premium valuation on account of their fancy on the street but in comparison to peers matrimony valuation looks stretched on account of weaker financials.
Even if money raised at such valuations was flowing into the company, it would have ultimately belonged to shareholders. However, in this case it may be noted that 74% of the money raised is going to the selling shareholder (PE investor & Promoters) and not into the company. We recommend avoiding the IPO.
IPO proceeds are expected to be gainfully utilised leading to higher revenues from increased brand awareness and lower rentals and interest expenses. Focused expansion of its marriage services business through cross selling and assisted services could also help the company move up the value chain.
The stock is available at ~51x FY17 P/E with a 10% discount to retail investors. It may be noted that the nature of the Matrimony.com business is not comparable to that of Just Dial and Info Edge. We recommend Subscribing for listing gains.
Over FY13- FY17, the company sales have grown at a CAGR of 11.6% however, Ebitda has grown at a CAGR of 38.6%. EBITDA in FY17 was higher on account of restructuring steps taken by the company, improving the overall CAGR for the period mentioned above. Ebitda margins in FY17 improved drastically by 1758 bps to 20.2% from 2.6% in FY16.
In Q1FY18, Ebitda margins came in at 23.3%, which indicates margins are going to be sustainable going ahead. There was a litigation filed against the company for which the company had to pay $8,000,000 in full settlement. As per the management, this litigation has been factored in the P&L. Adjusting to this from FY13- FY17 PAT has grown at a CAGR of 40.8%.
On the valuation front, at the given upper price band of issue of Rs 985, Matrimony.com is offered at PE of 38x, EV /EBITDA of 27.6x and EV/Sales of 6.4x for Q1FY18E annualized EPS, EBITDA and sales respectively which looks attractive considering its leadership position and as compared to its peer. We recommend subscribing to the issue.