Matrimony.com, came out with a public issue at a price of Rs 985. It was no doubt an expensive IPO with high p/e levels justified on the basis of solid anticipated growth. However, the stock in two days after listing has shed 17%. Is it time to buy the stock?
Huge Collapse in share price
On a single day on Friday, the stock lost Rs 100 and closed at Rs 822. In the IPO the stock was offered to retail investors at a staggering 46 times, price to earnings multiple. An IPO can easily be subscribed even at those levels, if the markets are buoyant and there is an industry fancy. Both worked in favour of Matrimony.com.
On the very first day of listing BNP Paribas Arbitrage cut its stake in the company, selling 1,34,102 equity shares of the company at Rs 957.47 per share through a block deal.
Valuations maybe attractive at the current levels
Investors who subscribed to the offer at Rs 985 are probably are a sad lot, given that the share price has slumped from Rs 985 to Rs 806. At these levels the stock is reasonably valued and we tell you why. To begin with it in the next couple of years, the company plans to expand rapidly. This year the company is looking at a growth of 18 per cent. The wedding services business is expected to grow by 100 per cent, according to the management.
Both the matchmaking and the wedding business are thus expected to boost profits of the company going forward.
Rental savings to boost net profits
In the next couple of the years the company would utilize the proceeds from the IPO to construct an office of its own.
In the meantime, the company would repay overdrafts and earn interest money on the IPO proceeds as all the money is likely to be deployed gradually for building an office. This too is likely to boost margins for the company.
Largest young population in the world and digital penetration
The company is also likely to gain from demographic dividends, as India has a very large young population, with many individuals looking at Matrimony.com to tie the knot. Apart from this, mobile and internet penetration is fast improving, which should further drive demand for the company's services. In terms of demand, there is unlikely to be any slowdown as such.
The shares of Matrimony, after the slump are now available at 38 times, the FY 2017 EPS. If the company keeps growing rapidly in the years to come, the P/E can be justified. However, the only threat that could emerge is dating apps. The share price of Matrimony.com is currently trading at Rs 822. If you get the stock around Rs 790, it may not be a bad bet.
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