Bharat Matrimony IPO – should you tie this knot?

Bharat Matrimony is coming up with an issue of approximately Rs 500 crore with Rs 130 crore as fresh issue and the remaining offer for sale from private equity investors. The issue remains open for subscription from September 11 to 13 in the price band of Rs 983 – Rs 985 per share. The fresh issue will go into stepping up business promotion, construction of office premises and repayment of loans.

The company

Bharat Matrimony, promoted by Murugavel Janakiraman, has two business segments - online matchmaking services and marriage services. The former contributes to bulk of the revenue.

The company’s fully owned subsidiary Consim USA, operates the NRI Business in all territories outside India.

The demographic advantage -India is one of world‘s most populous countries. It is estimated in 2016 there were approximately 373 million individuals in India within the marriageable age bracket of whom 107 million were unmarried. Of this, close to 59 percent were actively looking for a partner and close to 6 percent were active users of online matrimony sites. Bharat Matrimony captures nearly 50 percent of the online market. In addition, cultural factors also play a role with 88.4 percent of marriages in India reported to be arranged marriages.

The leadership advantage – The industry is largely disorganised with the preponderance of traditional brick and mortar companies. Increasing mobility is leading to a shift from local media to matrimonial portals. In the online matchmaking industry, Bharat Matrimony is the leader with a clear edge over competitors namely Shaadi.com and Jeevansathi.com.

Diversified offering -The company has a bouquet of offerings and follows a micro-market strategy whereby it offers 15 regional language portals and over 300 community matrimonial sites tailored to meet the requirements of customers based on their linguistic, religious, caste and community preferences, as well as personalized matchmaking services through EliteMatrimony and Assisted Service package.

Brand recall – Bharat Matrimony has a strong brand recall, huge data base (comprising 3.03 million active profiles), and capability in analytics alongside a good reach.

So does it really deserve a premium pricing? The issue price factors in heady growth, going forward.

Past financials suggest the company had reported losses in the past and had negative networth on account of settlement of litigation. While it had reported profits in FY17, the operating performance is still inferior to companies who enjoy similar premium in the market. Bharat Matrimony is primarily a one-product company as the other business like marriage service is still small and yet to break-even.

The industry being highly competitive the company could face pricing pressure.

Penetration of internet has definitely increased awareness about matchmaking websites, but converting free members to paid, and retain existing paid members on matrimonial websites is not easy.  Members who have registered can send Express Interest messages to other members with whom they wish to initiate contact and may also search the names of other registered members on other online or social media platforms to contact these members without paying subscription fees for services.

While the penetration of internet and mobile are primary drivers of growth for any online business including matrimony portal, the growth in business of Bharat matrimony has not kept pace with growth in internet or mobile penetration.

So far, arranged marriage has been a dominant cultural trend in India. However, like many other old practice, this too might change over time on account of globalisation of the Indian society.

Finally, privacy and data protection legislation and regulations and public perception concerning security and privacy on the Internet may affect a business like Bharat Matrimony that deals with personal information.

While we expect the company to maintain a steady growth trajectory it is unlikely to be as exciting as the growth in mobile penetration, an oft repeated argument for any new-age business. While most unlisted companies in this space enjoy substantial premium, sustaining such a premium is contingent on growth with profitability. Investors, therefore, should not have high expectations from this marriage.