Matrimony.com buyback: Should you say Yes or No?

The record date for the shareholder eligibility to participate in Matrimony.com buyback is July 4. That makes June 30 (T+2 settlement) the last date to buy the stock to participate in the buyback.

Buyback details

The company is buying back 6,52,173 shares, representing 2.85 per cent of outstanding shares, via tender offer route. The buyback price of ₹1,150 is at a 44 per cent premium to the closing price of ₹797 on June 29.

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The promoters of the company who own a little over 50 per cent of shares, have expressed their intention to not to participate in the buyback.

This implies the buyback acceptance ratio jumps up to 5.7 per cent (2.85*2) at a bare minimum. Further as per SEBI rules, 15 per cent of the number of securities which the company proposes to buyback shall be reserved for small shareholders– those owning less than ₹2 lakh worth of shares as on the record date.

As of March 31, small shareholders held 5.56 per cent of outstanding shares. With 15 per cent of buyback reserved for them, the acceptance ratio for small shareholders will be around eight per cent ((2.85*15/100)/5.56).  

This assumes two things–all small shareholders tender, and their ownership proportion has remained the same since March 31. 

However on a practical basis it is very unlikely that all shareholders tender (which will improve acceptance ratio),  and it is likely that the ownership proportion of small shareholders has increased as arbitrage players would have entered the fray (which will reduce the acceptance ratio) on buyback announcement.

Factoring for both, it is probable that acceptance ratio will still be higher than 8 per cent, though it cannot be known for certain.

Arbitrage game is not for everyone

On a hypothetical case, for a shareholder buying ₹1 lakh worth of shares just in time to be an owner on the record date (buying on or before June 30) and thereby owning 125 shares (assuming price of ₹797), the profits on tendering based on acceptance ratio of 10, 20 and 30 per cent will be around 4.4 per cent ((125*10/100)*(1150-797))/ 1 lakh), 8.8 per cent and 13.2 per cent respectively.

This will in similar proportion move up or down depending on the actual acceptance ratio.

It needs to be noted that this analysis on potential profits will work only if you are able to sell the rest of your shares (those not accepted in the tender offer) at your cost price. Given inherent market volatility, this is a risk that can play out and needs to be factored adequately.

Thus it can be observed that there is a lot of speculation on numerous variables involved in this exercise. Without much clarity on actual acceptance ratio, this arbitrage game is not for everyone.

What should shareholders do ?

As far as investors who are already holding shares are concerned, given the premium in the buyback price, investors can tender the shares.

Matrimony.com trades at one-year forward PE of 24 times vs two-year average of 31 times.

It is a leading provider of online matchmaking services in the country. While there may be more steam left in terms of growth opportunities, given the premium valuation the buyback is offering (at ₹1,150 the buyback values the company at 35 times one year forward PE) investors can tender the shares now.

The buyback price is around the all-time high price of the share of ₹1,152.90 touched in August 2021. The company hit the bourses in 2017 at a trailing PE of around 50 times at a price of ₹985.

At the buyback price, its trailing PE will be around the same 50 times. Thus viewing it in multiple angles, the buyback price appears a good price to tender.

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