Matrimony.com Ltd - Billings recover, revenues next - ICICI Securities

Matrimony.com Ltd's Q2FY21 result was broadly in-line with our estimates. Billings grew 18.5% QoQ, signalling return of some normalcy to the business. New subscriber addition was also healthy at 210k (growth of 25% YoY) led by both improved engagement and differential pricing. However, average transaction value (ATV) declined 9.6% YoY change in subscriber mix and discounting. While the current scenario remains challenging, we expect conversions to improve gradually led by investments in ad spends and platform. Pre-marketing EBITDA margin in matchmaking segment continued to be healthy at 60%. As the increase in better-targeted ad spends translate into conversions, margins should recover to historical levels (>25%) by FY23. Subscriber growth in paid subscriptions will be a key catalyst for rerating. Considering a ~10% return in past 3 months and a weak near term outlook, we downgrade the stock to ADD.

- Strong performance across board. Overall revenue grew 7.5% QoQ. EBITDA margins were flat (QoQ) at 17.7%. Pre-marketing EBITDA margin was robust at ~54%. Advertising expenses increased to ~36.4% of revenues. Billings in matchmaking segment increased ~18% QoQ. Momentum in billings continued to be strong in October with double-digit growth with even in West and North geography. ATV declined during the quarter led by differential pricing to customers and slowdown in elite matrimony segment.

- Investment in sales/tech helped in subscriber addition. Besides differential pricing & ad-spend strategy, company's investments in sales (re-orientation of sales) and technology (improvement in platform/ newer offerings) helped in adding 210,000 new subscribers (highest since Q1FY17).

- Margins have potential to improve by 520bps over FY20-23E going forward. Ad spends now account for ~36% of revenues given the competitive intensity. Investments in sales, technology and higher ad spend should translate into conversions going forward leading to margin expansion.

- Downgrade to ADD: Cash on balance sheet is Rs2.5bn reflecting ~17% of the market cap with OCF/NI being >100% over FY17-20 and in H1FY21 as well. Post a difficult Q1 on billings, Matrimony was able to display modest growth in the same (~10% YoY). Consistency of the same including new subscriber addition remains a key value driver in near term. We expect pressure in ATV to continue in near term with conversions to be gradual from FY22/23E. Becoming a top two player in North and West markets will require heavy ad spends in near term, in our view. Considering a ~10% return in past 3 months and a weak near term outlook, we downgrade the stock to ADD.

Source : Equity Bulls

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