We initiate coverage on Matrimony.com with a Buy rating and DCF-based target price of Rs 1,030, implying an upside of 36% from the current market price. The key underpinnings of our positive thesis are: (i) market leadership (~60% market share) in an underpenetrated market segment with only ~6% of marriageable age population in India searching for matches online and only 2.5% of people married in a given year paying for online matchmaking services, (ii) potential for continued margin expansion in the matchmaking segment, (iii) pursuit of significantly larger marriage services market in a capital efficient manner, (iv) negative working capital, low capital intensity and strong cash generating characteristics of the business, and (v) reasonable valuation of 21x FY20 EV/FCF.
Network effects and under-penetration to ensure reasonably strong growth over the medium term: An average subscriber remains as a paid subscriber on matrimony.com for a period of nearly 8 months with LTV (Life Time Value) of paid subscriber being just Rs 10,000. However, matrimony.com’s superior market share enables strong network effects and positive word of mouth. The underpenetrated nature of the market should ensure continued growth in active profiles and conversions, not just for matrimony.com, but for peers as well. However, community and region-specific scale and market share should enable matrimony.com to extend its lead vs peers.
